Chapter 13  Forecasting

Chapter

13 Forecasting

TRUE/FALSE

1. The repeated observations of demand for a product or service in their order of occurrence form a
pattern known as a time series.
Answer: True
Reference: Demand Patterns
Difficulty: Easy
Keywords: time, series, repeated

2. One of the basic time series patterns is trend.

Answer: True
Reference: Demand Patterns
Difficulty: Easy
Keywords: time, series, pattern, trend

3. One of the basic time series patterns is random.

Answer: True
Reference: Demand Patterns
Difficulty: Easy
Keywords: time, series, pattern, random

4. Random variation is an aspect of demand that increases the accuracy of the forecast.
Answer: False
Reference: Demand Patterns
Difficulty: Easy
Keywords: random, variation, accuracy

5. Aggregation is the act of clustering several similar products or services.

Answer: True
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: aggregation, clustering

6. Aggregating products or services together generally decreases the forecast accuracy.

Answer: False
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: aggregation, forecast, accuracy

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7. A forecast of sales revenue has little value.

Answer: True
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: forecast, sales, revenue

8. A stock-keeping unit is an individual item or product that has an identifying code and is held in
inventory somewhere along the value chain.
Answer: True
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: SKU, stock-keeping, unit

9. Judgment methods of forecasting are quantitative methods that use historical data on independent
variables to predict demand.
Answer: False
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: judgment, method, forecast, data

10. Time-series analysis is a statistical approach that relies heavily on historical demand data to project
the future size of demand.
Answer: True
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: time, series, forecast

11. The causal method of forecasting uses historical data on dependent variables such as promotional
campaigns and economic conditions to predict the demand of independent variables such as sales
volume.
Answer: False
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: causal, method, dependent, independent

12. Time-series analysis is most often used for long-term forecasts.

Answer: False
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: time, series, long-term

13. For time horizons exceeding two years, forecasts are usually developed for individual products.
Answer: False
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: time, horizon, forecast, aggregate

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14. Salesforce estimates are extremely useful for technological forecasting.

Answer: False
Reference: Judgment Methods
Difficulty: Moderate
Keywords: sales, force, technology, forecast

15. Technological forecasting is an application of executive opinion in light of the difficulties in keeping
abreast of the latest advances in technology.
Answer: True
Reference: Judgment Methods
Difficulty: Moderate
Keywords: technological, forecasting, executive, opinion

16. Market research is a systematic approach to determine consumer interest by gaining consensus from a
group of experts while maintaining their anonymity.
Answer: False
Reference: Judgment Methods
Difficulty: Moderate
Keywords: market, research, Delphi

17. Judgment methods of forecasting should never be used with quantitative forecasting methods.
Answer: False
Reference: Judgment Methods
Difficulty: Moderate
Keywords: judgment, quantitative, method

18. The Delphi method is a process of gaining consensus from a group of experts by debate and voting
throughout several rounds of group discussion led by a moderator.
Answer: False
Reference: Judgment Methods
Difficulty: Moderate
Keywords: judgment, Delphi, method

19. Regression equations with a coefficient of determination close to zero are extremely accurate because
they have little forecast error.
Answer: False
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, coefficient, determination

20. The closer the value of the sample correlation coefficient is to -1.00, the worse the predictive ability
of the independent variable for the dependent variable.
Answer: False
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, coefficient, correlation, sample

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21. The larger the slope of the regression line, the more accurate the regression forecast.
Answer: False
Reference: Causal Methods: Linear Regression
Difficulty: Easy
Keywords: regression, coefficient, slope

22. A linear regression model results in the equation Y=15-23X. If the coefficient of determination is a
perfect 1.0, the correlation coefficient must be -1.
Answer: True
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, coefficient, slope, correlation, determination

23. The standard error of the estimate measures how closely the data on the independent variable cluster
around the regression line.
Answer: False
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: standard, error, regression

24. Time-series forecasts require information about only the dependent variable.
Answer: True
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: time-series, method, time, dependent

25. A naïve forecast is a time-series method whereby the forecast for the next period equals the demand
for the current period.
Answer: True
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: naïve, method

26. The advantage of the simple moving-average forecast is that it allows you to emphasize recent
demand over earlier demand.
Answer: False
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: simple, moving, average, forecast

27. A simple moving average of one period will yield identical results to a naïve forecast.
Answer: True
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: simple, moving, average, naïve

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28. The exponential smoothing method is a sophisticated, weighted, moving-average method.

Answer: True
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing, weighted, moving, average

29. An exponential smoothing model with an alpha equal to 1.00 is the same as a naïve forecasting
model.
Answer: True
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing, alpha, naive

30. When a trend is present, exponential smoothing always will be below or above the actual demand.
Answer: True
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing, trend

31. An additive seasonal method is a forecasting approach whereby seasonal forecasts are generated by
adding the results of two or more forecasting techniques together to obtain a final forecast.
Answer: False
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: additive, seasonal, forecasting

32. Forecasts always contain errors.

Answer: True
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: forecast, error

33. Forecast error is simply the difference between the forecast and actual demand.
Answer: True
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: forecast, error, forecast, demand

34. A bias error results from unpredictable factors that cause the forecast to deviate from actual demand.
Answer: False
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: bias, error

35. Some analysts prefer to use a holdout set as the final test of a forecasting procedure.
Answer: True
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: holdout, set, accuracy
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36. Combination forecasting is a method of forecasting that selects the best from a group of forecasts
generated by simple techniques.
Answer: False
Reference: Using Multiple Techniques
Difficulty: Moderate
Keywords: combination, forecast

37. Focus forecasting selects the best forecast from a group of forecasts generated by individual
techniques.
Answer: True
Reference: Using Multiple Techniques
Difficulty: Moderate
Keywords: focus, forecasting

MULTIPLE CHOICE

38. Which one of the following basic patterns of demand is difficult to predict because it is affected by
national or international events or because of a lack of demand history reflecting the stages of demand
from product development to decline?
a. Horizontal
b. Seasonal
c. Random
d. Cyclical
Answer: d
Reference: Demand Patterns
Difficulty: Moderate
Keywords: cyclical, cycle, demand, pattern

39. The electricity bill at Padco was driven solely by the lights throughout the office; everything else was
driven by alternative energy sources. The office was open roughly 8 hours a day, five days a week
and the cleaning crew spent about the same amount of time in the offices each week night. The
kilowatt hour usage for the office was best described as a:
a. horizontal demand pattern.
b. random demand pattern.
c. seasonal demand pattern.
d. cyclical demand pattern.
Answer: a
Reference: Demand Patterns
Difficulty: Easy
Keywords: horizontal, demand, pattern

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40. A regression equation with a coefficient of determination near one would be most likely to occur
when the data demonstrated a:
a. seasonal demand pattern.
b. trend demand pattern.
c. cyclical demand pattern.
d. random demand pattern.
Answer: b
Reference: Demand Patterns
Difficulty: Easy
Keywords: trend, demand, pattern, coefficient, determination, regression

41. Professor Willis noted that the popularity of his office hours mysteriously rose in the middle and the
end of each semester, falling off to virtually no visitors throughout the rest of the year. The demand
pattern at work is:
a. cyclical.
b. random.
c. seasonal.
d. trend.
Answer: c
Reference: Demand Patterns
Difficulty: Easy
Keywords: seasonal, demand, pattern

42. There are historically three 32-month periods of generally rising prices in the stock market for every
one 9-month period of falling prices. This observation leads you to conclude that the stock market
exhibits a:
a. random pattern.
b. trend pattern
c. seasonal pattern.
d. cyclical pattern.
Answer: d
Reference: Demand Patterns
Difficulty: Easy
Keywords: cyclical, demand, pattern

43. Polly Prognosticator was the greatest quantitative forecaster in recorded history. A skillful user of all
techniques in your chapter on forecasting, she knew better than to try and develop a forecast for data
that exhibited a:
a. random pattern.
b. horizontal pattern.
c. seasonal pattern.
d. cyclical pattern.
Answer: a
Reference: Demand Patterns
Difficulty: Easy
Keywords: random, demand, pattern

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44. Which one of the following statements about the patterns of a demand series is FALSE?
a. The five basic patterns of most business demand series are the horizontal, trend, seasonal, cyclical,
and random patterns.
b. Estimating cyclical movement is difficult. Forecasters do not know the duration of the cycle
because they cannot predict the events that cause it.
c. The trend, over an extended period of time, always increases the average level of the series.
d. Every demand series has at least two components: horizontal and random.
Answer: c
Reference: Demand Patterns
Difficulty: Moderate
Keywords: demand, pattern, trend

45. Which one of the following factors affecting demand for goods and services is an external factor?
a. Product design
b. Consumer tastes
c. Price and advertising promotions
d. Packaging design
Answer: b
Reference: Demand Patterns
Difficulty: Moderate
Keywords: factor, consumer, demand, external

46. Which one of the following factors affecting demand for goods and services is an internal factor?
a. Backlog policy
b. General state of the economy
c. Competitor actions
d. Consumer tastes
Answer: a
Reference: Demand Patterns
Difficulty: Moderate
Keywords: internal, factor

47. One aspect of demand that makes every forecast inaccurate is:
a. trend variation.
b. random variation.
c. cyclical variation.
d. seasonal variation.
Answer: b
Reference: Demand Patterns
Difficulty: Moderate
Keywords: random, variation

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48. Which one of the following statements about forecasting is FALSE?

a. To achieve the objective of developing a useful forecast from the information at hand, the
forecaster must select the appropriate technique. This choice sometimes involves a trade-off
between forecast accuracy and cost.
b. Three general types of forecasting techniques are used for demand forecasting: time-series analysis,
causal methods, and judgment methods.
c. Time series express the relationship between the factor to be forecast and related factors such as
promotional campaigns, economic conditions, and competitor actions.
d. A time series is a list of repeated observations of a phenomenon, such as demand, arranged in the
order in which they actually occurred.
Answer: c
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: time, series, factor, causal

49. When forecasting total demand for all their services or products, few companies err by more than:
a. one percent.
b. ten percent.
c. five percent.
d. twenty percent.
Answer: c
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: aggregation, accuracy, forecast

50. Which one of the following statements about forecasting is TRUE?

a. The five basic patterns of demand are the horizontal, trend, seasonal, cyclical, and the subjective
judgment of forecasters.
b. Judgment methods are designed particularly for situations in which historical data are lacking.
c. Casual methods are used when historical data are available and the relationship between the factor
to be forecast and other external and internal factors cannot be identified.
d. Focused forecasting is a technique that focuses on one particular component of demand and
develops a forecast from it.
Answer: b
Reference: Multiple sections
Difficulty: Moderate
Keywords: judgment, data, forecast

51. Which one of the following statements about forecasting is TRUE?

a. Determining turning points, which are periods when the growth rate of demand will change, can
best be accomplished with time-series methods.
b. In the short-term (here, one to three months in the future), managers are typically interested in
forecasts of total sales and groups or families of products.
c. Causal models are the methods most often used for short-term forecasting.
d. For time horizons exceeding two years, forecasts are usually developed for total sales demand in
dollars or some other common unit of measurement such as barrels, pounds, or kilowatts.
Answer: d
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: forecast, time, series, horizon, future, units
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52. A short term forecast (up to 3 months) would most probably use:
a. total sales dollars to describe the output.
b. aggregated groups of services or products as the output.
c. individual services or products as the outputs.
d. sales dollars for each product or group as the output.
Answer: c
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: forecast, horizon

53. Long term is the correct time horizon for which of the following decisions?
a. Master production planning.
b. Staff planning
c. Inventory management
d. Facility location
Answer: d
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: forecast, horizon, long, term, facility, location

54. Short term is the correct time horizon for which of the following decisions?
a. Master production planning.
b. Capacity planning
c. Process management
d. Facility location
Answer: a
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: forecast, horizon, short, term, master, production

55. Medium term (3 months to 2 years) is the correct time horizon for which of the following decisions?
a. Workforce scheduling.
b. Capacity planning
c. Staff planning
d. Facility location
Answer: c
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: forecast, horizon, medium, staff

56. A forecasting system that brings the manufacturer and its customers together to provide input for
forecasting is a(n):
a. nested system.
b. harmonically balanced supply chain.
c. iterative Delphi method system for the value chain.
d. collaborative planning, forecasting, and replenishment system.
Answer: d
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: forecast, horizon
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57. Using salesforce estimates for forecasting has the advantage that:
a. no biases exist in the forecasts.
b. statistical estimates of seasonal factors are more precise than any other approach.
c. forecasts of individual sales force members can be easily combined to get regional or national sales
totals.
d. confusion between customer “wants” (wish list) and customer “needs” (necessary purchases) is
eliminated.
Answer: c
Reference: Judgment Methods
Difficulty: Moderate
Keywords: forecast, aggregate

58. A salesforce estimate may be used to forecast future demand when data are unavailable. This
technique suffers when:
a. a salesman is unable to distinguish between customer wants and needs.
b. the sales force estimates are for intermediate time horizons.
c. the sales force estimates are aggregated to make an overall estimate for demand.
d. the sales territories are broken down into region or by product.
Answer: a
Reference: Judgment Methods
Difficulty: Easy
Keywords: salesforce, estimate

59. Which one of the following is an example of a time-series forecasting technique?

a. Survey analysis
b. Delphi method
c. Trend-adjusted exponential smoothing
d. Market research
Answer: c
Reference: Multiple sections
Difficulty: Moderate
Keywords: time, series, trend, exponential, smoothing

60. The judgment methods of forecasting are to be used for purposes of:
a. making adjustments to quantitative forecasts due to unusual circumstances.
b. forecasting seasonal demands in lieu of time-series approaches.
c. avoiding the calculations necessary for quantitative forecasts.
d. making forecasts more variable.
Answer: a
Reference: Judgment Methods
Difficulty: Moderate
Keywords: judgment, adjustments, quantitative

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61. The Delphi method of forecasting is useful when:

a. judgment and opinion are the only bases for making informed projections.
b. a systematic approach to creating and testing hypotheses is needed and the data are usually
gathered by sending a questionnaire to consumers.
c. historical data are available and the relationship between the factor to be forecast and other external
or internal factors can be identified.
d. historical data is available and the best basis for making projections is to use past demand patterns.
Answer: a
Reference: Judgment Methods
Difficulty: Moderate
Keywords: Delphi, judgment, opinion

62. The manufacturer developed and tested a questionnaire, designed to assist them in gauging the level
of acceptance for their new product, and identified a representative sample as part of their:
a. salesforce estimate.
b. market research.
c. executive opinion.
d. Delphi method.
Answer: b
Reference: Judgment Methods
Difficulty: Easy
Keywords: market research, judgment

63. It would be most appropriate to combine a judgment approach to forecasting with a quantitative
approach by:
a. having a group of experts examine each historical data point to determine whether it should be
included in the model.
b. combining opinions about the quantitative models to form one ubermodel.
c. adjusting a forecast up or down to compensate for specific events not included in the quantitative
technique.
d. developing a trend model to predict the outcomes of judgmental techniques in order to avoid the
cost of employing the experts
Answer: c
Reference: Judgment Methods
Difficulty: Moderate
Keywords: market research, judgment

64. A linear regression model is developed that has a slope of –2.5 and an intercept of 10. The sample
coefficient of determination is 0.50. Which of the following statements is TRUE?
a. The sample correlation coefficient must be 0.25.
b. The sample correlation coefficient must be -0.71.
c. The sample correlation coefficient must be -0.25.
d. The sample correlation coefficient must be 0.71.
Answer: b
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: linear, regression, sample correlation coefficient

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65. The number of #2 pencils the bookstore sells appears to be highly correlated with the number of
student credit hours each semester. The bookstore manager wants to create a linear regression model
to assist her in placing an appropriate order. In this scenario:
a. the dependent variable is student credit hours.
b. there are two independent variables.
c. there are two dependent variables.
d. the independent variable is student credit hours.
Answer: d
Reference: Causal Methods: Linear Regression
Difficulty: Easy
Keywords: linear, regression, sample correlation coefficient

66. Which of the following statements regarding a sample correlation coefficient is TRUE?
a. The sample correlation coefficient is always less than the coefficient of determination.
b. The sample correlation coefficient is always less than the slope.
c. The sample correlation coefficient is always less than or equal to 1.
d. The sample correlation coefficient is always between 0 and 1.
Answer: c
Reference: Causal Methods: Linear Regression
Difficulty: Easy
Keywords: linear, regression, sample correlation coefficient

Table 13.1
The Agricultural Extension Agent’s Office has tracked fertilizer application and crop
yields for a variety of chickpea and has recorded the following data as shown in the
following table. Their staff statistician developed the regression model and computed
the performance statistics displayed below the data.

FertilizerBushels10481571202122529030195SUMMARY OUTPUTRegression
Statistics CoefficientsMultiple R0.671774612Intercept26.7645833R
Square0.45128113Fertilizer8.85273298Adjusted R Square0.26837484Standard
Error89.11239227Observations5

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67. Use the information provided in Table 13.1. What percent in the variation of the variable Bushels is
explained by the value of the variable Fertilizer?
a. 67%
b. 45%
c. 26%
d. 8.8%
Answer: b
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, coefficient, determination, variance

68. Use the information provided in Table 13.1. For every unit of fertilizer applied, the crop yield
increases by:
a. 26.7 bushels.
b. 8.85 bushels.
c. 89.11 bushels.
d. 5 bushels.
Answer: b
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, intercept

69. Use the information provided in Table 13.1. The value of Bushels when Fertilizer is 60 is:
a. 1614.
b. 226.
c. 873.
d. 558.
Answer: d
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, forecast

70. Use the information provided in Table 13.1. The value of Fertilizer required to generate 100 bushels
yield must be:
a. 8.28.
b. 3.40.
c. 5.12.
d. 1.07.
Answer: a
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, forecast

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71. Use the information provided in Table 13.1. We might expect that unfertilized crops would yield a
total of:
a. 89 bushels.
b. 52 bushels.
c. 26 bushels.
d. 9 bushels.
Answer: c
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, intercept

72. Use the information in Table 13.1. If the correlation coefficient were negative, what would also be
true?
a. The coefficient of determination would also be negative.
b. An increase in fertilizer would result in a decrease in crop yield.
c. Applying no fertilizer would mean a negative crop yield.
d. The standard error would also be negative.
Answer: b
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, slope, coefficient, correlation

73. Which one of the following statements about forecasting is FALSE?

a. You should use the simple moving-average method to estimate the mean demand of a time series
that has a pronounced trend and seasonal influences.
b. The weighted moving-average method allows forecasters to emphasize recent demand over earlier
demand. The forecast will be more responsive to change in the underlying average of the demand
series.
c. The most frequently used time-series forecasting method is exponential smoothing because of its
simplicity and the small amount of data needed to support it.
d. In exponential smoothing, higher values of alpha place greater weight on recent demands in
computing the average.
Answer: a
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: forecasting, moving, average, trend, seasonal

74. Which of the following statements regarding time-series methods is FALSE?

a. A naïve forecast is identical to a simple moving average of one period.
b. Exponential smoothing with an alpha equal to 1.00 is identical to a naïve forecast.
c. A weighted moving average with weights of 0.5 and 0.5 is identical to a simple moving average of
two periods.
d. A simple moving average of three periods is identical to exponential smoothing with an alpha equal
to 0.33.
Answer: d
Reference: Time-Series Methods
Difficulty: Hard
Keywords: time, series, exponential, average, naïve, smoothing

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75. When the underlying mean of a time series is very stable and there are no trend, cyclical, or seasonal
influences:
a. a simple moving-average forecast with n = 20 should outperform a simple moving-average forecast
with n = 3.
b. a simple moving-average forecast with n = 3 should outperform a simple moving-average forecast
with n = 20.
c. a simple moving-average forecast with n = 20 should perform about the same as a simple moving-
average forecast with n = 3.
d. an exponential smoothing forecast with a = 0.30 should outperform a simple moving-average
forecast with α = 0.01.
Answer: a
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: time, series, moving, average, stable

76. With the trend-adjusted exponential smoothing method:

a. the forecast for the next period is simply the average computed this period.
b. an estimate of the trend is computed by taking the difference between the demand this period and
the demand last period to avoid lengthy averaging calculations.
c. the only smoothing is done on the trend estimates using exponential smoothing.
d. the forecast can be adjusted to account for changes in the trend.
Answer: d
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: trend, adjusted, exponential

77. With the multiplicative seasonal method of forecasting:

a. the times series cannot exhibit a trend.
b. seasonal factors are multiplied by an estimate of average demand to arrive at a seasonal forecast.
c. the seasonal amplitude is a constant, regardless of the magnitude of average demand.
d. there can be only four seasons in the time-series data.
Answer: b
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: multiplicative, seasonal

78. Which one of the following statements about forecasting is FALSE?

a. The method for incorporating a trend into an exponentially smoothed forecast requires the
estimation of three smoothing constants: one for the mean, one for the trend, and one for the
error.
b. The cumulative sum of forecast errors (CFE) is useful in measuring the bias in a forecast.
c. The standard deviation and the mean absolute deviation measure the dispersion of forecast errors.
d. A tracking signal is a measure that indicates whether a method of forecasting has any built-in
biases over a period of time.
Answer: a
Reference: Multiple sections
Difficulty: Moderate
Keywords: trend, exponential, smoothing

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79. Which one of the following is most useful for measuring the bias in a forecast?
a. Cumulative sum of forecast errors
b. Standard deviation of forecast errors
c. Mean absolute deviation of forecast errors
d. Percentage forecast error in period t
Answer: a
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: bias, cumulative, sum, error

80. Which one of the following time-series forecasting methods will generate the most accurate forecasts
when demands have a consistent trend pattern?
a. Simple moving-average method
b. Weighted moving-average method
c. Exponential smoothing method
d. Trend-adjusted exponential smoothing method
Answer: d
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: trend, adjusted, exponential, smoothing

81. A tracking signal greater than zero and a mean absolute deviation greater than zero imply that the
forecast has:
a. no bias and no variability of forecast error.
b. a nonzero amount of bias and a nonzero amount of forecast error variability.
c. no bias and a nonzero amount of forecast error variability.
d. a nonzero amount of bias and no variability of forecast error.
Answer: b
Reference: Choosing a Time-Series Method
Difficulty: Hard
Keywords: tracking, signal, error

82. Assume that a time-series forecast is generated for future demand and subsequently it is observed that
the forecast method did not accurately predict the actual demand. Specifically, the forecast errors
were found to be:
Mean absolute percent error = 10%
Cumulative sum of forecast errors = 0%
Which one of the statements concerning this forecast is TRUE?
a. The forecast has no bias but has a positive standard deviation of errors.
b. The forecast has a positive bias and a standard deviation of errors equal to zero.
c. The forecast has no bias and has a standard deviation of errors equal to zero.
d. The forecast has a positive bias and a positive standard deviation of errors.
Answer: a
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: bias, standard, deviation

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83. Which one of the following statements is TRUE?

a. The ideal of zero bias and zero MAD can be accomplished by systematically searching for the best
values of the smoothing constants.
b. Bias is always less than MAD.
c. For projections of more stable demand patterns without trends, seasonal influences, or cyclical
influences, use larger values of n in the simple moving-average approach.
d. Getting a single forecast of 500 units for the month of July is better than getting a forecast showing
a 95 percent chance that demand for July will be between 450 and 550 units.
Answer: c
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: simple, moving, average, trend

84. Which one of the following is an example of causal forecasting technique?

a. Weighted moving average
b. Linear regression
c. Exponential smoothing
d. Delphi method
Answer: b
Reference: Multiple sections
Difficulty: Moderate
Keywords: causal, regression, linear

Table 13.2
The manager of a pizza shop must forecast weekly demand for special pizzas so that he can
order pizza shells weekly. Recent demand has been:

85. Use the information from Table 13.2. Using a three-week moving average, what is the forecast for
week 7?
a. 55
b. 56
c. 57
d. 58
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: moving, average
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86. Use the information from Table 13.2. If a naïve forecast were constructed for week 7, the value
obtained would be:
a. 53 pizzas.
b. 55 pizzas.
c. 56 pizzas.
d. 60 pizzas.
Answer: d
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: naïve, forecast, time, series

87. Use the information from Table 13.2. If a four-week weighted moving average were used, what
would be the forecast for week 7? (The weights are 0.60, 0.30, 0.07, and 0.03 with 0.60 applied to the
most recent period and 0.03 applied to the oldest period.)
a. 58 pizzas
b. 60 pizzas
c. 62 pizzas
d. 64 pizzas
Answer: a
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: weighted, moving, average, time

88. Demand for a new five-inch color TV during the last six periods has been as follows:

What is the forecast for period 7 if the company uses the simple moving-average method with n = 4?
a. Fewer than or equal to 115
b. Greater than 115 but fewer than or equal to 120
c. Greater than 120 but fewer than or equal to 125
d. Greater than 125
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: simple, moving, average

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89. Demands for a newly developed salad bar at the Great Professional restaurant for the first six months
of this year are shown in the following table. What is the forecast for July if the 3-month weighted
moving-average method is used? (Use weights of 0.5 for the most recent demand, 0.3, and 0.2 for the
oldest demand.)

a. Fewer than or equal to 432 units

b. Greater than 432 units but fewer than or equal to 442 units
c. Greater than 442 units but fewer than or equal to 452 units
d. Greater than 452
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: weighted, moving, average

90. It is now near the end of May and you must prepare a forecast for June for a certain product. The
forecast for May was 900 units. The actual demand for May was 1000 units. You are using the
exponential smoothing method with  = 0.20. The forecast for June is:
a. fewer than 925 units.
b. greater than or equal to 925 units but fewer than 950 units.
c. greater than or equal to 950 units but fewer than 1000 units.
d. greater than or equal to 1000 units.
Answer: a
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing

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91. The owner of the Crossed Connections electronic appliance repair shop is enjoying increasing
demand for her services. Total weekly demand, measured in standard labor hours, has been
increasing. The owner uses trend-adjusted exponential smoothing to make forecasts for the following
week so that she can plan work schedules and staffing levels. She has the following data to prepare
her forecast:

At–1 = 100 hours  = 0.30

Tt–1 = 10 hours  = 0.10
Dt = 120 hours

Assuming she is now at the end of week t, what is the forecast for week t + 1?

a. Fewer than or equal to 114 hours

b. Greater than 114 hours but fewer than or equal to 118 hours
c. Greater than 118 hours but fewer than or equal to 122 hours
d. Greater than 122 hours
Answer: d
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: trend, adjusted, exponential, smoothing

92. The Acme Computer Company has recorded sales of one of its products for a six-week period:

Using the three-week moving-average method, forecast sales for week 7.

a. 20
b. 21
c. 22
d. 23
Answer: d
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: moving, average

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Table 13.3

93. Use the information in Table 13.3. Compute a three-week moving-average forecast for the arrival of
medical clinic patients in week 5.
a. Fewer than or equal to 382
b. Greater than 382 but fewer than or equal to 389
c. Greater than 389 but fewer than or equal to 396
d. Greater than 396
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: moving, average

94. Use the information in Table 13.3. If the actual number of patients is 415 in week 5, what is the
forecast for week 6, using a three-week moving-average forecast?
a. Fewer than or equal to 390
b. Greater than 390 but fewer than or equal to 398
c. Greater than 398 but fewer than or equal to 406
d. Greater than 406
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: moving, average

95. Use the information in Table 13.3. Calculate the exponential smoothing forecast for week 5 using  =
0.10 and F4 = 410.
a. Fewer than or equal to 400
b. Greater than 400 but fewer than or equal to 408
c. Greater than 408 but fewer than or equal to 416
d. Greater than 416
Answer: b
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing

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Table 13.4

96. Use the information in Table 13.4. Use the three-month moving-average method to forecast sales for
June.
a. Fewer than or equal to 20 units
b. Greater than 20 but fewer than or equal to 22 units
c. Greater than 22 but fewer than or equal to 24 units
d. Greater than 24 units
Answer: d
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: moving, average

97. Use the information in Table 13.4. Suppose actual sales in June turn out to be 40 units. Use the three-
month moving-average method to forecast the sales in July.
a. Fewer than or equal to 27
b. Greater than 27 but fewer than or equal to 29 units
c. Greater than 29 but fewer than or equal to 31 units
d. Greater than 31 units
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: moving, average

98. Use the information in Table 13.4. What is the forecast for July with the two-month moving-average
method and June sales of 40 units?
a. Fewer than or equal to 25 units
b. Greater than 25 but fewer than or equal to 30 units
c. Greater than 30 but fewer than or equal to 35 units
d. Greater than 35 units
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: moving, average

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99. Use the information in Table 13.4. The forecasting equation for a three-month weighted moving
average is:
Ft = W1Dt + W2Dt–1 + W3Dt–2
If the sales for June were 40 units and the weights are W1= 1/2, W2 = 1/3, and W3 = 1/6, what is
the forecast for July?
a. Fewer than or equal to 30 units
b. Greater than 30 but fewer than or equal to 33 units
c. Greater than 33 but fewer than or equal to 36 units
d. Greater than 36 units
Answer: b
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: weighted, moving, average

Table 13.5

100. Use the information in Table 13.5. Using the simple moving-average technique for the most
recent three months, what will be the forecasted demand for November?
a. Fewer than or equal to 260 units
b. Greater than 260, but fewer than or equal to 275 units
c. Greater than 275, but fewer than or equal to 290 units
d. More than 290 units
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: simple, moving, average

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101. Use the information in Table 13.5. Using the 4-month weighted moving-average technique and
the following weights, what is the forecasted demand for November?

Time Period Weight

Most recent month 50%
One month ago 20%
Two months ago 20%
Three months ago 10%

a. Fewer than or equal to 250 units

b. Greater than 250 but fewer than or equal to 265 units
c. Greater than 265 but fewer than or equal to 280 units
d. More than 280 units
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: weighted, moving, average

102. Use the information in Table 13.5. Using the exponential smoothing method, with alpha equal
to 0.2, what is the forecasted demand for November? Use an initial value for the forecast equal to 277
units.
a. Fewer than or equal to 260 units
b. Greater than 260 but fewer than or equal to 275 units
c. Greater than 275 but fewer than or equal to 285 units
d. More than 285 units
Answer: b
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing

Table 13.6

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103. Use the information in Table 13.6. Use an exponential smoothing model with a smoothing
parameter of 0.30 and an April forecast of 525 to determine what the forecast sales would have been
for June.
a. Fewer than or equal to 535
b. Greater than 535 but fewer than or equal to 545
c. Greater than 545 but fewer than or equal to 555
d. Greater than 555
Answer: c
Reference: Time-Series Methods
Difficulty: Hard
Keywords: exponential, smoothing

104. Use the information in Table 13.6. Use the exponential smoothing method with  = 0.5 and a
February forecast of 500 to forecast the sales for May.
a. Fewer than or equal to 530
b. Greater than 530 but fewer than or equal to 540
c. Greater than 540 but fewer than or equal to 550
d. Greater than 550
Answer: b
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing

Table 13.7
TOMBOW is a small manufacturer of pencils and has had the following sales record for the
most recent five months:

Use an exponential smoothing model to forecast sales in months 2, 3, 4, and 5. Let the
smoothing parameter  equal 0.6; select F1 = 150 to get the forecast started.

105. Use the information in Table 13.7. The forecast for month 2 is:
a. fewer than or equal to 120 units.
b. greater than 120 but fewer than or equal to 140 units.
c. greater than 140 but fewer than or equal to 160 units.
d. greater than 160 units.
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing

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106. Use the information in Table 13.7. The forecast for month 3 is:
a. fewer than or equal to 140 units.
b. greater than 140 but fewer than or equal to 160 units.
c. greater than 160 but fewer than or equal to 180 units.
d. greater than 180 units.
Answer: b
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing

107. Use the information in Table 13.7. The forecast for month 4 is:
a. fewer than or equal to 140 units.
b. greater than 140 but fewer than or equal to 150.
c. greater than 150 but fewer than or equal to 160 units.
d. greater than 160 units.
Answer: c
Reference: Time-Series Method
Difficulty: Moderate
Keywords: exponential, smoothing

108. Use the information in Table 13.7. The forecast for month 5 is:
a. fewer than or equal to 150 units.
b. greater than 150 but fewer than or equal to 160 units.
c. greater than 160 but fewer than or equal to 170 units.
d. greater than 170 units.
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: exponential, smoothing

109. Use the information in Table 13.7. The cumulative sum of errors CFE from months 2 through 5
is:
a. fewer than or equal to 80.
b. greater than 80 but fewer than or equal to 85.
c. greater than 87 but fewer than or equal to 90.
d. greater than 90.
Answer: b
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: CFE, cumulative, sum, error

110. Use the information in Table 13.7. What is the MAD for months 2 through 5?
a. Less than or equal to 20
b. Greater than 20 but less than or equal to 25
c. Greater than 25 but less than or equal to 30
d. Greater than 30
Answer: b
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: MAD, mean, absolute, deviation
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111. The Classical Consultant Company provides forecasting research for clients such as a group of
five doctors associated with a new hospital health-maintenance program. The company has been
asked to forecast the number of patients requesting blood analysis per week. The past weekly average
is 38 and, for the trend, is 2 per week. This week’s demand was 42 blood tests. How many patients
will come next week? (Suppose  = 0.10 and  = 0.30.)
a. Fewer than or equal to 39
b. Greater than 39 but fewer than or equal to 41
c. Greater than 41 but fewer than or equal to 43
d. Greater than 43
Answer: c
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: trend, exponential, smoothing

Table 13.8
A sales manager wants to forecast monthly sales of the machines the company makes
using the following monthly sales data.
Month Balance
1 $3,803
2 $2,558
3 $3,469
4 $3,442
5 $2,682
6 $3,469
7 $4,442
8 $3,728

112. Use the information in Table 13.8. Forecast the monthly sales of the machine for month 9, using
the three-month moving-average method.
a. $3,728
b. $4,085
c. $3,880
d. $3,277
Answer: c
Reference: Time-Series Method
Difficulty: Moderate
Keywords: time, series, moving, average

113. Use the information in Table 13.8. Use the 3-month weighted moving-average method to
calculate the forecast for month 9. The weights are 0.60, 0.30, and 0.10, where 0.60 refers to the most
recent demand.
a. $3,916
b. $3,880
c. $3,396
d. $3,229
Answer: a
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: weighted, moving, average
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114. Use the information in Table 13.8. If the forecast for period 7 is $4,300, what is the forecast for
period 9 using exponential smoothing with an alpha equal to 0.30?
a. $4,300
b. $4,342
c. $4,158
d. $3,957
Answer: c
Reference: Time-Series Methods
Difficulty: Hard
Keywords: exponential, smoothing

115. Use the information in Table 13.8. Calculate the forecast for period 9 using a naïve forecast.
a. $3,728
b. $3,803
c. $4,442
d. $4,085
Answer: a
Reference: Time-Series Methods
Difficulty: Easy
Keywords: naïve, forecast, time, series

Table 13.9
The management of an insurance company monitors the number of mistakes made by
telephone service representatives for a company they have subcontracted with. The number
of mistakes for the past several months appears in this table along with forecasts for errors
made with three different forecasting techniques. The column labeled Exponential was
created using exponential smoothing with an alpha of 0.30. The column labeled MA is
forecast using a moving average of three periods. The column labeled WMA uses a 3-month
weighted moving average with weights of 0.65, 0.25, and 0.10 for the most-to-least recent
months.
MonthMistakesExponentialMAWMA155   261   371   47771626758873707461007779847
10984889581229299105912610111011710126108119123

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116. Using Table 13.9, what is the CFE for months 6-10 for the exponential smoothing technique?
a. Less than or equal to 120
b. Greater than 120 but less than or equal to 123
c. Greater than 123 but less than or equal to 126
d. Greater than 126
Answer: b
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: CFE, forecast, error

117. Using Table 13.9, what is the MSE for months 6-10 for the exponential smoothing technique?
a. Less than 591
b. Greater than or equal to 591 but less than 595
c. Greater than or equal to 595 but less than 599
d. Greater than 599
Answer: d
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: MSE, forecast, error

118. Using Table 13.9, what is the MAD for months 6-10 for the exponential smoothing technique?
a. Less than 23
b. Greater than or equal to 23 but less than 25
c. Greater than or equal to 25 but less than 27
d. Greater than or equal to 27
Answer: b
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: MAD, forecast, error, mean, absolute

119. Using Table 13.9, what is the order of the forecasting techniques from most accurate to least
accurate based on their errors for months 6-10?
a. Exponential smoothing, weighted moving average, moving average
b. Exponential smoothing, moving average, weighted moving average
c. Moving average, exponential smoothing, weighted moving average
d. Weighted moving average, moving average, exponential smoothing
Answer: d
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: forecast, error

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120. Using Table 13.9, what is the mean absolute percent error for months 6-10 using the
exponential smoothing forecasts?
a. Less than 22%
b. Greater than or equal to 22% but less than 24%
c. Greater than or equal to 24% but less than 26%
d. Greater than 26%
Answer: a
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: MAPE, mean, absolute, percent, error

121. Using Table 13.9, what is the tracking signal for months 6-10 using the exponential smoothing
forecasts?
a. 0.5
b. –0.5
c. 5.0
d. –5.0
Answer: c
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: tracking, signal, error

122. Consider the following data concerning the performance of a forecasting method.

a. The CFE is greater than 100, and the MAD is less than 50.
b. The CFE is less than 100, and the MAD is less than 50.
c. The CFE is less than 100, and the MAD is greater than 50.
d. The CFE is greater than 100, and the MAD is greater than 50.
Answer: b
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: CFE, MAD, cumulative, forecast, error, absolute, deviation, mean

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123. Which statement about forecast accuracy is TRUE?

a. A manager must be careful not to “overfit” past data.
b. The ultimate test of forecasting power is how well a model fits past data.
c. The ultimate test of forecasting power is how a model fits holdout samples.
d. The best technique in explaining past data is the best technique to predict the future.
Answer: a
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: forecast, accuracy

124. A forecaster that uses a holdout-set approach as a final test for forecast accuracy typically:
a. uses the entire data set available to develop the forecast.
b. uses the older observations in the data set to develop the forecast and more recent to check
accuracy.
c. uses the newer observations in the data set to develop the forecast and older observations to check
accuracy.
d. uses every other observation to develop the forecast and the remaining observations to check the
accuracy.
Answer: b
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: holdout, set, accuracy

125. Barney took what he liked to call “the shotgun approach” to forecasting. Every period he tried a
number of different forecasting approaches and at the end of the period he reviewed all of the
forecasts to see which was the most accurate. The winner would be used for next period’s forecast
(but he still made forecasts all possible ways so he could use the system again for the following
period). The more formal name for this technique is:
a. combination forecasting.
b. post-hoc forecasting.
c. focus forecasting.
d. shotgun forecasting. He is using the correct terminology.
Answer: c
Reference: Using Multiple Techniques
Difficulty: Moderate
Keywords: focus, forecasting

126. Andy took what he liked to call “the sheriff without a gun” approach to forecasting. Every period he
tried a number of different forecasting approaches and simply averaged the predictions for all of the
techniques. This overall average was the official forecast for the period. The more formal name for
this technique is:
a. grand averaging.
b. focus forecasting.
c. simple average.
d. combination forecasting.
Answer: d
Reference: Using Multiple Techniques
Difficulty: Moderate
Keywords: combination, forecasting

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127. The input database to a forecasting process is typically segmented into:

a. parent and child data
b. hierarchical and relative data.
c. independent and dependent data.
d. base and nonbase data..
Answer: d
Reference: Putting It All Together: Forecasting as a Process
Difficulty: Moderate
Keywords: database, base, nonbase, data

128. The local building supply store experienced what they considered to be irregular demands for lumber
after the devastating hurricane season. These unusual data points were considered:
a. nonbase data.
b. outliers.
c. residuals.
d. erroneous.
Answer: a
Reference: Putting It All Together: Forecasting as a Process
Difficulty: Moderate
Keywords: database, base, nonbase, data

129. Which word best describes forecasting ?

a. Quantitative
b. Process
c. Resource
d. Managerial
Answer: b
Reference: Putting It All Together: Forecasting as a Process
Difficulty: Moderate
Keywords: process, forecast

FILL IN THE BLANK

130. ____________ is the prediction of future events used for planning purposes.
Answer: Forecasting
Reference: Introduction
Difficulty: Easy
Keywords: forecast, predict

131. ____________ is the act of clustering several similar products or services so that companies can
obtain more accurate forecasts.
Answer: Aggregation
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: aggregation, clustering, forecast, accuracy

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132. ____________ methods of forecasting translate the opinions of management, experts, consumers, or
salesforce into quantitative estimates.
Answer: Judgment
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: judgment, method, forecast

133. ____________ methods use historical data on independent variables to predict demand.
Answer: Causal
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: causal, method, forecasting

134. ____________ analysis is a statistical approach that relies heavily on historical demand data to
project the future size of demand, and it recognizes trends and seasonal patterns.
Answer: Time-series
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: time, series, time-series

135. The ____________ is a process of gaining consensus from a group of experts while maintaining
their anonymity.
Answer: Delphi method
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: Delphi, judgment, method

136. ____________ is a systematic approach to determine consumer interest in a product or service by

creating and testing hypotheses through data-gathering surveys.
Answer: Market research
Reference: Judgment Methods
Difficulty: Easy
Keywords: market, research, judgment

137. ____________ is a causal method of forecasting in which one variable is related to one or more
variables by a linear equation.
Answer: Linear regression
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: linear, regression, causal

138. The ____________ variable is the variable that one wants to forecast.
Answer: dependent
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: dependent, variable

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139. ____________ are assumed to “cause” the results that a forecaster wishes to predict.
Answer: Independent variables
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: independent, variable, cause

140. A(n) ____________ measures the direction and strength between the independent variable and the
dependent variable.
Answer: sample correlation coefficient, r
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: sample, correlation, coefficient, r, independent, dependent, variable

141. The ____________ measures the amount of variation in the dependent variable about its mean that is
explained by the regression line.
Answer: sample coefficient of determination, r-squared
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: sample, coefficient, determination, r-squared

142. A(n) ____________ forecast is a time-series method whereby the forecast for the next period equals
the demand for the current period.
Answer: naïve
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: naïve, forecast, method

143. ____________ is a time-series method used to estimate the average of a demand time series by
averaging the demand for the n most recent time periods.
Answer: Simple moving average
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: simple, moving, average, time

144. ____________ is a method for incorporating a trend in an exponentially smoothed forecast.

Answer: Trend-adjusted exponential smoothing
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: trend, adjusted, exponential, smoothing

145. ____________ is the difference found by subtracting the forecast from actual demand for a given
period.
Answer: Forecast error
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: forecast, error

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146. The dispersion of forecast errors is measured by both MAD and MSE, which behave differently in
the way they emphasize errors. ____________ gives larger weight to errors and ____________ gives
smaller weight to errors.
Answer: MSE, MAD
Reference: Choosing a Time-Series Method
Difficulty: Easy
Keywords: forecast, error, MAD, MSE, mean, absolute, deviation, squared

147. ____________ are often the result of neglecting or not accurately estimating patterns of demand
such as a trend, seasonal, or cyclical pattern.
Answer: Bias errors
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: bias, error

148. A(n) ____________ is a measure that indicates whether a method of forecasting is accurately
predicting actual changes in demand.
Answer: tracking signal
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: tracking, signal, measure

149. A(n) ____________ is a portion of data from more recent time periods that is used to test different
models developed from earlier time period data.
Answer: holdout set
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: holdout, set, data

150. ____________ are produced by averaging independent forecasts based on different methods or
different data, or both.
Answer: Combination forecasts
Reference: Using Multiple Techniques
Difficulty: Moderate
Keywords: combination, forecast

151. ____________ selects the best forecast from a group of forecasts generated by individual
techniques.
Answer: Focus forecasting
Reference: Using Multiple Techniques
Difficulty: Moderate
Keywords: focus, forecasting

152. A history file of past demand will often be separated into two parts; the ____________ part will
reflect irregular demands.
Answer: nonbase (data)
Reference: Putting it All Together: Forecasting as a Process
Difficulty: Moderate
Keywords: forecasting, process, nonbase, data, history

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153. Forecasting is a(n) ____________ that should continually be reviewed for improvements.
Answer: (nested) process
Reference: Putting it All Together: Forecasting as a Process
Difficulty: Moderate
Keywords: forecasting, process

SHORT ANSWERS

154. Discuss the combination of forecasts used by Unilever. If they were forced to use only one
technique, which would be the most accurate and why?
Answer: Unilever uses a CDP system developed by Manugistics to perform times-series (and
possibly causal-model) forecasting. These forecasts are then modified by judgment
techniques, including salesforce estimates. Answers will vary regarding a single best
technique, but students may be drawn toward a causal model with predictors for a time
element, advertising expenditures and form of media, and other elements.
Reference: Introduction
Difficulty: Moderate
Keywords: time, series, causal, judgment

155. Why are forecasts for product families typically more accurate than forecasts for the individual items
within a product family?
Answer: More accurate forecasts are obtained for a group of items because the individual
forecast errors for each item tend to cancel each other.
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: aggregate, forecast, accuracy

156. Which forecasting approaches would you entertain for long-term forecasts?
Answer: Long-term forecasting typically uses causal or judgment forecasting methods.
Reference: Designing the Forecasting System
Difficulty: Moderate
Keywords: long, term, forecast

157. Which forecasting technique would you consider for technological forecasts?
Answer: I would consider the Delphi method because technological change takes place at a rapid
pace and often the only way to make forecasts is to get the opinion of experts who devote
their attention to those issues.
Reference: Judgment Methods
Difficulty: Moderate
Keywords: technological, Delphi, forecast

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158. Pho Bulous, a Vietnamese restaurant in the bustling metropolis of Edmond, has had great success
using forecasting techniques to predict demand for their main menu items ever since they opened
their doors. Their forecast for last month was grossly inaccurate and so far this month, their forecast
appears to be just as bad as last month’s. It’s already time to prepare the forecast for next month, what
should they do about their model?
Answer: The answer depends on whether Pho Bulous believes that last month’s and this month’s
results are aberrations or the start of something new. Both causal and time series techniques
assume that there has been no change in how the world works, that is, independent factors of
time or other variables will permit the forecaster to make accurate predictions about the
future. If Pho Bulous believes that there is a significant change in the system, for example, a
new competitor in the Edmond restaurant scene, a significant change in population or in their
disposable income, then they might try multiple regression to include these factors or weight
more recent data more heavily in a time-series model (the scenario isn’t specific about which
technique they have used thus far). Pho Bulous might also try a combination approach if they
feel their situation has changed significantly. On the other hand, if Pho Bulous feels that these
two months are not reflective of any major paradigm shift for the restaurant crowd in
Edmond, they could continue to use the model(s) they have had success with in the past.
Reference: Multiple Sections
Difficulty: Moderate
Keywords: forecast, accuracy

159. Explain how the value of alpha affects forecasts produced by exponential smoothing.
Answer: The smoothing constant alpha allows recent demand values to be emphasized or
deemphasized depending on how the forecaster wishes to incorporate previous values. Larger
values emphasize recent levels of demand and result in forecasts more responsive to changes
in the underlying average. Smaller alpha values treat past demand more uniformly and result
in more stable forecasts.
Reference: Time-Series Methods
Difficulty: Moderate
Keywords: alpha, exponential, smoothing

160. What is the difference between mean absolute deviation (MAD) and mean squared error (MSE)?
Answer: Both MAD and MSE are measurements of the amount of forecast error, and smaller
values of both metrics reflect superior forecasting methods. The difference between the two is
that MAD places less emphasis on an outlier while MSE is more sensitive to one. A forecast
technique that seeks to minimize MSE will have overall forecast accuracy hurt by one
extreme outlier more than a forecast developed using a MAD-minimizing technique.
Reference: Choosing a Time-Series Method
Difficulty: Moderate
Keywords: MAD, MSE, mean, absolute, deviation, squared, error

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161. How is a typical forecasting process similar to the PDCA cycle?

Answer: The authors indicate that forecasting is a process that should be continually reviewed for
improvements; the PDCA cycle provides one vehicle for continuous improvement. The
authors present a six step cycle for forecasting: 1) adjust the history file, 2) prepare initial
forecasts, 3) consensus meetings and collaboration, 4) revise forecasts, 5) review by the
operating committee, and 6) finalize and communicate the forecasts. The history file
adjustment in step 1 provides a check of forecast accuracy; if results have been less than
stellar, then planners and forecasters will explore different techniques and/or independent
variables to prepare future forecasts. This approach closely parallels the PDCA cycle of
methodically trying a new approach and checking results before acting system-wide.
Reference: Putting It All Together: Forecasting as a Process
Difficulty: Moderate
Keywords: PDCA, forecasting, process

PROBLEMS

162. Calculate three forecasts using the following data. First, for periods 4 through 10, develop the
exponentially smoothed forecasts using a forecast for period 3 (F3) of 45.0 and an alpha of 0.4.
Second, calculate the three-period moving-average forecast for periods 4 through 10. Third, calculate
the weighted moving average for periods 4 through 10, using weights of .70, .20, and .10, with 0.70
applied to the most recent data. Calculate the mean absolute deviation (MAD) and the cumulative
sum of forecast error (CFE) for each forecasting procedure. Which forecasting procedure would you
select? Why?

Month Demand
1 45
2 48
3 43
4 48
5 49
6 54
7 47
8 50
9 46
10 47

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Answer:

Month Demand Exponential Error Absolute Simple Error Absolute Weighted Error Absolute
Smoothing Deviation Moving Deviation Moving Deviation
Average Average
1 45                  
2 48                  
3 42 45.00                
4 48 43.80 4.20 4.20 45.00 3.00 3.00 43.5 4.50 4.50
5 49 45.48 3.52 3.52 46.00 3.00 3.00 46.8 2.20 2.20
6 54 46.89 7.11 7.11 46.33 7.67 7.67 48.1 5.90 5.90
7 47 49.73 -2.73 2.73 50.33 -3.33 3.33 52.4 -5.40 5.40
8 50 48.64 1.36 1.36 50.00 0.00 0.00 48.6 1.40 1.40
9 46 49.18 -3.18 3.18 50.33 -4.33 4.33 49.8 -3.80 3.80
10 47 47.91 -0.91 0.91 47.67 -0.67 0.67 46.9 0.10 0.10
Sum     9.37 23.02   5.33 22.00   4.90 22.20
Mean     1.34 3.29   0.76 3.14   0.70 3.33

Exponential Simple Weighted

  Moving Moving
Smoothing Average Average
CFE 9.37 5.33 4.90
MAD 3.29 3.14 3.33

Using MAD, the simple moving average is best. However, the weighted moving average does
better on CFE.
Reference: Multiple sections
Difficulty: Moderate
Keywords: MAD, time, series, CFE, error, average, exponential

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163. Calculate three forecasts using the following data. First, for periods 4 through 10, develop the
exponentially smoothed forecasts using a forecast for period 3 (F3) of 120.0 and an alpha of 0.3.
Second, calculate the three-period moving-average forecast for periods 4 through 10. Third, calculate
the weighted moving average for periods 4 through 10, using weights of .60, .30, and .10. Calculate
the mean absolute deviation (MAD) and the cumulative sum of forecast error (CFE) for each
forecasting procedure. Which forecasting procedure would you select? Why?

Month Demand

1 120
2 115
3 125
4 119
5 127
6 114
7 120
8 124
9 116
10 137

Answer:
Month Demand Exponential Error Absolute Simple Error Absolute Weighted Error Absolute
Smoothing Deviation Moving Deviation Moving Deviation
Average Average
1 120                  
2 115                  
3 125 120.00                
4 119 121.50 -2.50 2.50 120.00 -1.00 1.00 121.5 -2.50 2.50
5 127 120.75 6.25 6.25 119.67 7.33 7.33 120.4 6.60 6.60
6 114 122.63 -8.63 8.63 123.67 -9.67 9.67 124.4 -10.40 10.40
7 120 120.04 -0.04 0.04 120.00 0.00 0.00 118.4 1.60 1.60
8 124 120.03 3.97 3.97 120.33 3.67 3.67 118.9 5.10 5.10
9 116 121.22 -5.22 5.22 119.33 -3.33 3.33 121.8 -5.80 5.80
10 137 119.65 17.35 17.35 120.00 17.00 17.00 118.8 18.20 18.20
Sum     11.19 43.95   14.00 42.00   12.80 22.20
Mean     1.60 6.28   2.00 6.00   1.83 7.17

Exponential Simple Weighted

  Moving Moving
Smoothing Average Average
CFE 11.19 14.00 12.80
MAD 6.28 6.00 7.17

Using MAD, the simple moving average is best. However, the exponential smoothing does better
on CFE.
Reference: Multiple sections
Difficulty: Moderate
Keywords: time, series, error, CFE, MAD, error, exponential, average

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164. The marketing department for a major manufacturer tracks sales and advertising expenditures each
month. Data from the past nine months and regression output appear in the following table. Interpret
the equation coefficients and the values for the coefficient of determination and the correlation
coefficient.

Advertising
Month Sales (units) ($1,000)
1 86,010 25
2 134,697 40
3 202,025 65
4 141,180 45
5 217,086 70
6 178,399 55
7 156,975 50
8 113,155 35
9 191,901 60

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.997
R Square 0.995
Adjusted R
Square 0.994
Standard Error 3298.324
Observations 9

ANOVA
  Df
Regression 1
Residual 7
Total 8

  Coefficients
Intercept 12312.05
Advertising
($1,000) 2945.21
Answer: The regression equation is:
y=a+bX
Sales (units)=12,312.05+2945.21×Advertising ($1,000s)
The intercept of 12,312 suggests that if no money were spent on advertising, sales would be
12,312 units for that month. The slope may be interpreted as for every $1,000 spent on
advertising, sales increase by a little over 2,945 units.
The correlation coefficient of 0.997 shows a very strong positive relationship between the
independent and dependent variables. The sample coefficient of determination is 0.995, so the
level of advertising expenditure explains 99.5% of the variation in sales.
Reference: Causal Methods: Linear Regression
Difficulty: Moderate
Keywords: regression, coefficient, determination, correlation

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165. A local moving company has collected data on the number of moves they have been asked to
perform over the past three years. Moving is highly seasonal, so the owner/operator, who is both
burly and highly educated, decides to apply the multiplicative seasonal method (based on a linear
regression for total demand) to forecast the number of customers for the coming year. What is his
forecast for each quarter?

2004 2005 2006

Quarter Demand Quarter Demand Quarter Demand
1 20 1 27 1 33
2 40 2 45 2 45
3 45 3 55 3 55
4 30 4 40 4 40

Answer:
The seasonal factor calculations for each year show:
2004 2004 2004 2005 2005 2005 2006 2006 2006 2006
Quarter Demand Seas Fact Quarter Demand Seas Fact Quarter Demand Seas Fact Avg SF
1 20 0.592 1 27 0.647 1 33 0.763 0.667
2 40 1.185 2 45 1.078 2 45 1.040 1.1014
3 45 1.333 3 55 1.317 3 55 1.272 1.307
4 30 0.889 4 40 0.958 4 40 0.925 0.924

The regression equation for total demand is y=120.33+19*year; for the fourth year
y=196.33. (This is assuming the regression is done in year sequence, i.e. year 1, year
2, year 3. If a regression is run using the actual year dates, the equation of the line is
y=-37936.7+19*year.) Both equations result in a forecast for 2007 of 196.33.
Dividing this total demand by 4 yields 49.08333.
Forecasts for the next four quarters are:
Quarter 1:  49.083  0.67  32.74
Quarter 2 :  49.083 1.10  54.06
Quarter 3 :  49.083  1.31  64.15
Quarter 4 :  49.083  0.92  45.35

Reference: Time Series Methods

Difficulty: Hard
Keywords: seasonal, forecast, multiplicative

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