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3/25/2014

BUSINESS
FORECASTING
NAVE METHOD

Puput Tri Komalasari

Quantitative Methodologies
Quantitative methods model historical demand
variation patterns (random, trend, seasonal or cyclical).
Once past history has been explained by a model,
extrapolations can be made about the future.
Some simplistic techniques are:
Averaging/Smoothing Models

Nave
Moving average
Weighted moving average
Exponential smoothing

These techniques are best used when demand is stable


with no trend or seasonal pattern

3/25/2014

FORECASTING TECHNIQUE

In some series, naive model works as well as complex models.


Naive model also used as a benchmark model, more sophisticated
models must perform better than the naive model
Nave is the basis for comparison of all methods.

NAVE METHOD

Assumes demand in next period is the same as


demand in most recent period
e.g., If January sales were 68, then February
sales will be 68
Tomorrow will be like today Simplest possible forecast
Sometimes cost effective and efficient Can be good starting
point
Ignores any historical data previous to today
Horizon: Short range
Strength: Low cost, quick and easy to use, simple and easy to
understand
Weakness: Not very accurate when a longer forecasting
horizon is necessary

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NAVE MODEL I

The simplest model is to assume that the next period


will be identical to the present period.
= 1

or

+1 =

where F = Forecasted value


A = Actual value

Tomorrows weather will be similar to today


weather

UNEMPLOYMENT RATE
Year

Quarter

UR

Year

Quarter

UR

1990
1990
1990
1990
1991
1991
1991
1991
1992
1992
1992
1992
1993
1993
1993
1993
1994
1994
1994
1994

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4

5.3
5.3
5.7
6.1
6.6
6.8
6.9
7.1
7.4
7.6
7.6
7.4
7.1
7.1
6.8
6.6
6.6
6.2
6.0
5.6

1995
1995
1995
1995
1996
1996
1996
1996
1997
1997
1997
1997
1998
1998
1998
1998
1999
1999
1999
1999
2000

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1

5.5
5.7
5.7
5.6
5.5
5.5
5.3
5.3
5.3
5.0
4.9
4.7
4.7
4.4
4.5
4.4
4.3
4.3
4.2
4.1
4.0

3/25/2014

UNEMPLOYMENT RATE

UNEMPLOYMENT RATE
Year

Quarter

UR

1990
1990
1990
1990
1991
1991
1991
1991
1992
1992
1992
1992
1993
1993
1993
1993
1994
1994
1994
1994

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4

5.3
5.3
5.7
6.1
6.6
6.8
6.9
7.1
7.4
7.6
7.6
7.4
7.1
7.1
6.8
6.6
6.6
6.2
6.0
5.6

Forecasted
UR

5.3
5.3
5.7
6.1
6.6
6.8
6.9
7.1
7.4
7.6
7.6
7.4
7.1
7.1
6.8
6.6
6.6
6.2
6.0

Year

Quarter

UR

Forecasted
UR

1995
1995
1995
1995
1996
1996
1996
1996
1997
1997
1997
1997
1998
1998
1998
1998
1999
1999
1999
1999
2000

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1

5.5
5.7
5.7
5.6
5.5
5.5
5.3
5.3
5.3
5.0
4.9
4.7
4.7
4.4
4.5
4.4
4.3
4.3
4.2
4.1
4.0

5.6
5.5
5.7
5.7
5.6
5.5
5.5
5.3
5.3
5.3
5.0
4.9
4.7
4.7
4.4
4.5
4.4
4.3
4.3
4.2
4.1

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HOW GOOD THE FORECASTS?

Actual and forecasted


values seems very close.
But, errors exhibits
systematic pattern.
If the series has trend
behavior, the forecasts
are always underestimate
or overestimate the
values.
Direction of the series
should be added into
forecasting model

NAIVE MODEL II

The naive model i can not handle trends.


The naive I model revized in order to mimic the trend
behaviour of the series.
The second simple model is to assume that the next
periods value will be current value and some
proportion of the last change
Where F = Forecasted value
A = actual value
P = adjustment coefficient 0 < p < 1

3/25/2014

UNEMPLOYMENT RATE
NAVE MODEL II
FORECASTS

Year

Quarter

UR

1990
1990
1990
1990
1991
1991
1991
1991
1992
1992
1992
1992
1993
1993
1993
1993
1994
1994
1994
1994
1995
1995
1995
1995
1996
1996
1996
1996
1997
1997
1997
1997
1998
1998
1998
1998
1999
1999
1999
1999
2000

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1

5.3
5.3
5.7
6.1
6.6
6.8
6.9
7.1
7.4
7.6
7.6
7.4
7.1
7.1
6.8
6.6
6.6
6.2
6.0
5.6
5.5
5.7
5.7
5.6
5.5
5.5
5.3
5.3
5.3
5.0
4.9
4.7
4.7
4.4
4.5
4.4
4.3
4.3
4.2
4.1
4.0

Forecasted
UR

Error

5.30
5.94
6.34
6.90
6.92
6.96
7.22
7.58
7.72
7.60
7.28
6.92
7.10
6.62
6.48
6.60
5.96
5.88
5.36
5.44
5.82
5.70
5.54
5.44
5.50
5.18
5.30
5.30
4.82
4.84
4.58
4.70
4.22
4.56
4.34
4.24
4.30
4.14
4.04

0.40
0.16
0.26
-0.10
-0.02
0.14
0.18
0.02
-0.12
-0.20
-0.18
0.18
-0.30
-0.02
0.12
-0.40
0.04
-0.28
0.14
0.26
-0.12
-0.10
-0.04
0.06
-0.20
0.12
0.00
-0.30
0.08
-0.14
0.12
-0.30
0.28
-0.16
-0.04
0.06
-0.10
-0.04
-0.04

HOW GOOD THE FORECASTS?


Actual and forecasted
values seems very close.
But, errors still exhibits
systematic pattern.
There is an interchange
of the signs of the error
terms
Can we solve this
problem and get better
forecasts by changing
the adjustment
coefficient?

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Year

Quarter

UR

1990
1990
1990
1990
1991
1991
1991
1991
1992
1992
1992
1992
1993
1993
1993
1993
1994
1994
1994
1994
1995
1995
1995
1995
1996
1996
1996
1996
1997
1997
1997
1997
1998
1998
1998
1998
1999
1999
1999
1999
2000

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1

5.3
5.3
5.7
6.1
6.6
6.8
6.9
7.1
7.4
7.6
7.6
7.4
7.1
7.1
6.8
6.6
6.6
6.2
6.0
5.6
5.5
5.7
5.7
5.6
5.5
5.5
5.3
5.3
5.3
5.0
4.9
4.7
4.7
4.4
4.5
4.4
4.3
4.3
4.2
4.1
4.0

Forecasted Forecasted Forecasted


UR, P=0.3
UR, P=0.6
UR, P=0.9

5.30
5.82
6.22
6.75
6.86
6.93
7.16
7.49
7.66
7.60
7.34
7.01
7.10
6.71
6.54
6.60
6.08
5.94
5.48
5.47
5.76
5.70
5.57
5.47
5.50
5.24
5.30
5.30
4.91
4.87
4.64
4.70
4.31
4.53
4.37
4.27
4.30
4.17
4.07

5.30
5.94
6.34
6.90
6.92
6.96
7.22
7.58
7.72
7.60
7.28
6.92
7.10
6.62
6.48
6.60
5.96
5.88
5.36
5.44
5.82
5.70
5.54
5.44
5.50
5.18
5.30
5.30
4.82
4.84
4.58
4.70
4.22
4.56
4.34
4.24
4.30
4.14
4.04

5.30
6.06
6.46
7.05
6.98
6.99
7.28
7.67
7.78
7.60
7.22
6.83
7.10
6.53
6.42
6.60
5.84
5.82
5.24
5.41
5.88
5.70
5.51
5.41
5.50
5.12
5.30
5.30
4.73
4.81
4.52
4.70
4.13
4.59
4.31
4.21
4.30
4.11
4.01

Error,
P=0.3

0.40
0.28
0.38
0.05
0.04
0.17
0.24
0.11
(0.06)
(0.20)
(0.24)
0.09
(0.30)
(0.11)
0.06
(0.40)
(0.08)
(0.34)
0.02
0.23
(0.06)
(0.10)
(0.07)
0.03
(0.20)
0.06
(0.30)
(0.01)
(0.17)
0.06
(0.30)
0.19
(0.13)
(0.07)
0.03
(0.10)
(0.07)
(0.07)

Error,
P=0.6

0.40
0.16
0.26
(0.10)
(0.02)
0.14
0.18
0.02
(0.12)
(0.20)
(0.18)
0.18
(0.30)
(0.02)
0.12
(0.40)
0.04
(0.28)
0.14
0.26
(0.12)
(0.10)
(0.04)
0.06
(0.20)
0.12
(0.30)
0.08
(0.14)
0.12
(0.30)
0.28
(0.16)
(0.04)
0.06
(0.10)
(0.04)
(0.04)

Error,
P=0.9

0.40
0.04
0.14
(0.25)
(0.08)
0.11
0.12
(0.07)
(0.18)
(0.20)
(0.12)
0.27
(0.30)
0.07
0.18
(0.40)
0.16
(0.22)
0.26
0.29
(0.18)
(0.10)
(0.01)
0.09
(0.20)
0.18
(0.30)
0.17
(0.11)
0.18
(0.30)
0.37
(0.19)
(0.01)
0.09
(0.10)
(0.01)
(0.01)

ACTUAL &ALTERNATIVE FORECASTS

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FORECAST EVALUATION

It is simple to evaluate the forecasts for any given


period

But, we need some criterias to evaluate overall


period or for given a specific period.

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