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Moving Average, MAD, Tracking Signal Problems

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2 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Short Questions and Multiple choices 1. Given the following data, compute 3-period moving average forecast for period 6? Period12345 Demand ( )/3 = Monthly sales for the past five months were as follows: April (15), May (20), June (18), July (22), August (20). Determine a September forecast, using a 4-period moving average. A) 16.5 B) C) 19.1 D) 20.0 E) none of the above

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3 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Short Questions and Multiple choices 3. In order to increase the responsiveness of a forecast (i.e., respond quickly to the data changes) made using the moving average technique, the number of periods in the average should be: A) decreased B) increased C) multiplied by a larger alpha D) multiplied by a smaller alpha E)none of the above 4. Given the following data, Compute MAD and TS at the end of period 4. Sum |A-F| = 15 MAD = Sum |A-F| /n =15/4 = 3.75 Sum (A-F) = 9 TS = Sum(A-F)/MAD TS = 9/3.75 = 2.4

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4 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Short Questions and Multiple choices 5. Given forecast errors of 4, 8, and - 3, what is the MAD? A) 4 B) 3 C) 5 D) 6 E) The sum of the forecast errors (SFE) and the mean absolute deviation (MAD) are calculated in each period. The values of SFE and MAD in the last period to be 46 and 21, respectively. Which of the following is the value of tracking signal in the last period? A) 0.6 B) 1.8 C) 2 D) 2.2 E) 2.5

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5 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Short Questions and Multiple choices 7. You must choose between two alternative forecasting models. Both models have been used to prepare forecasts for a six-month period. Compute mean absolute deviation (MAD) for the forecasting model 2. A) 0.33 B) 2.0 C) 5.67 D) 9.51 E) none of the above 8. Which forecasting model would you recommend? What is the MAD for the recommended forecasting model? A) Model 1 with MAD of 4.67 B) Model 2 with MAD of 0.33 C) Model 1 with MAD of 3.39 D) Model 2 with MAD of 2.0 E) none of the above

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6 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Short Questions and Multiple choices 9. I- to select the best forecasting technique II- to estimate the standard deviation of the forecast. III- to see if the forecast is within control limits IV- to see if the forecast does not show any specific pattern. A) the main two applications of MAD are I and II. The main two applications of Tracking Signal are III and IV. B) the main two applications of MAD are I and III. The main two applications of Tracking Signal are II and IV. C) the main two applications of MAD are I and IV. The main two applications of Tracking Signal are II and III. D) the main two applications of MAD are II and III. The main two applications of Tracking Signal are I and IV. E) none of the above

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7 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Short Questions Given the following tracking signal graph A) the forecasting method overestimates the demand B) the forecasting method underestimates the demand C) the demand is very seasonal D) the forecasting method is moving average E) the forecasting method is exponential smoothing

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8 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems 11. The 5-period moving average in month 6 was 150 units. Actual demand in month 7 is 180 units. What is 6 period moving average in month 7? Short Questions and Multiple choices MA 5 6 = (A6+A5+A4+A3+A2)/5 MA 6 7 = (A7+A6+A5+A4+A3+A2)/6 MA 5 6 = (A6+A5+A4+A3+A2)/5 = 150 A6+A5+A4+A3+A2 = 750 A7 = 180 MA 6 7 = (A7+A6+A5+A4+A3+A2)/6 MA 6 7 = ( )/6 = 155

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9 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Short Questions and Multiple choices 12. Actual demand in month 8 is 160 units. The 4-period moving average in month 7 was 110 units. What is 5-period moving average in month 8? A) 100 B) 110 C) 120 D) 140 E) 150 MA 4 7 = (A7+A6+A5+A4)/4 = 110 A7+A6+A5+A4 = 440 A8 = 160 MA 5 8 = (A8+ A7+A6+A5+A4)/5 MA 5 8 = ( )/5 = 120

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10 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Short Questions and Multiple choices 13. Suppose the 5-period moving average in period 20 is equal to 800. Suppose period 16 demand is 850. Also suppose the demand for period 21 is 900. Compute 5-period moving average for period 21. MA 5 20 = (A20+A19+A18+A17+A16)/5 MA 5 21 = (A21+ A20+A19+A18+A17)/5 MA 5 20 = (A20+A19+A18+A17+A16)/5 =800 MA 5 21 = (A21+ A20+A19+A18+A17)/5 =??? = ( +A16)/5 = (+A21)/5 = (+850)/5 = =4000=3150 = (+900)/5 = ( )/5 =810 MA 5 21 = MA (A21- A16)/5 MA 5 21 = 800 +( ) /5=810

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11 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Problem 1- Moving Average, t to t+1 Using the following data you can compute 4-period and 7-period moving averages in period 20. t At ( )/7 = ( )/4 = Now suppose you do not have the actual data. You only the demand for period 21 to be 800, 4-period moving average in period 20 to be , and 7-period moving average in period 20 to be Can you compute 7-period moving average and 4 period moving average in period 21 without using the original data?

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12 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems MA 7 20 = (A14+A15+A16+A17+A18+A19+A20)/7 7-period moving average at periods 20, and 21 Demand for period 21 is 800 Let us first check how do we compute 7-period moving average using all the available data MA 7 20 = ( )/7 = MA 7 21 = (800 )/7 + ( )/7= MA 7 20 = ( )/7 + (658)/7 = MA 7 21 = MA (A21- A14)/7 MA 7 21 = ( ) /7= Therefore, we can compute MA 7 21, in the following simple way MA 7 21 = ( )/7 =

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13 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Problem 1- Moving Average, t to t+1 Given the same data t At But suppose you do not have access to all the data. Suppose you only know that the 4-Period moving average in month 20 is , the actual demand for period 17 is 634, and the demand for period 21 is 800. Can you compute 4-period moving average for period 21 without using other data?

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14 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems 4-period Moving Average at Periods 20 and 21 MA 4 20 = ( )/4 = MA 4 20 = ( )/4 = MA 4 21 = MA (A21- A17)/4 MA 4 21 = ( ) /4= Therefore, we can compute MA 4 21, in the following simple way In general ( the data of period t minus the data of period t-n) / n In Moving Average forecasting always F (t+1) = MA t F 22 = MA 21 MA 4 20 = ( )/4 = MA 4 20 = ( )/4 =

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15 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Problem 2- MAD and TS Actual and forecast data are available from period 1 to period 10. In period 10: MAD = 110 and TS = 2.2, Forecast for period 11 is 1210 (F11=1210), Actual demand in Period 11 is 1100 (A11=1100). Compute MAD in period 11. First Lets look at MAD in Period 10 MAD = Sum |A-F| /n 110 = Sum |A-F| /10 Sum |A-F| = 1100 Sum |A-F| from period 1 to 10 = 1100 In period 11, A-F = = -110 Sum |A-F| from period 1 to 11 = = 1210 MAD in period 11 = Sum |A-F| /11 MAD in period 11 = 1210/11 = 110

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16 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Problem 2- MAD and TS First Lets look at TS in Period 10 TS = Sum(A-F)/MAD 2.2 = Sum(A-F)/110 Sum (A-F) from period 1 to 10 = 242 (A-F) in period 11 = = -110 Sum (A-F) from period 1 to 11 = = 132 TS = Sum(A-F)/MAD Sum(A-F) in Period 11 = 132 MAD in Period 11 = 110 TS in Period 11 = 132/110 = 1.2 Actual and forecast data are available from period 1 to period 10. In period 10: MAD = 110 and TS = 2.2, Forecast for period 11 is 1210 (F11=1210), Actual demand in Period 11 is 1100 (A11=1100). MAD in Period 11 = 110. Compute TS in period 11.

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17 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Problem 3- Tracking Signal, UCL and LCL What are the reasonable values for UCL and LCL in Tracking Signal? At is Actual and Ft is forecast of a random variable such as demand. Forecast error (A random Variable) Et =At-Ft has mean of 0. MAD provides an estimate for the standard deviation of Et. StdDev (Et) = 1.25 MAD. See for example Et Normal (0,1.25MAD) If x = Normal(µ,σ) Sum (x) = Normal(Nµ, N σ) StdDev [Sum(Et)] = N StdDev (Et)

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18 Ardavan Asef-Vaziri Sep-2013MA, MAD, TS Problems Problem 3- Tracking Signal, UCL and LCL Et = Normal (0,1.25MAD) Sum (Et) = Normal (0, N 1.25MAD) 3 ( Et -0)/ N 1.25 MAD n 1.25 ( Et -0)/MAD - 3 N N ( Et -0)/MAD N. Tracking Signal TS= Et/MAD with samples of size N is distributed normally around 0 with UCL = 3.75 N and LCL =-3.75 N

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