The manager is open to suggestions for forecasting models and decides to try both an exponential smoothing model with an alpha of 0.9 and exponential smoothing with an alpha of 0.3
He decides to use the actual value for January as the forecast for February just to get the exponential smoothing forecasting party started. Generate forecasts for the year using these technique and then calculate forecast errors using MAD to determine which is the superior method in this scenario.
Answer: The forecasts and their errors are indicated in the table:
Month Actual Alpha=0.3 MAD 0.3 Alpha=0.9 MAD 0.9
January 474
February 485 474 11 474 11
March 501 477 24 484 17
April 588 484 96 499 89
May 579 515 64 579 0
June 673 534 139 579 94
July 594 576 18 664 70
August 679 581 98 601 78
September 608 611 3 671 63
October 699 610 89 614 85
November 719 637 82 691 28
December 732 661 71 716 16
The MAD for the exponential smooth with an alpha of 0.3 is a whopping 64, while the exponential smoothing has a MAD of 50.1, so the higher alpha exponential smoothing would be the preferred approach.
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