Question

Given an actual demand this period of 8, a (smoothed) forecast average for this period of 9, and a (smoothed) trend of 4, what is the Forecast Including Trend (FIT) for next period? Use alpha = 0.15 and beta = 0.25. If necessary, round your answer to two (2) decimal places.

Answer 1

Here,

Demand for the current period, At = 8
Trend, Tt = 4
Average forecast, St = 9
Alpha = 0.15
Beta = 0.25

Step 1: Smoothing the Level of the Series

St+1 = Alpha*At + (1-Alpha)(St + Tt)
St+1 = 0.15*8 + 0.85(9+4) = 12.25

Step 2: Smoothing the Trend

Tt+1 = Beta*(St+1 - St) + (1-Beta)Tt
Tt+1 = 0.25*(12.25-9) + 0.75(4) = 3.81

Step 2: Forecast Including Trend

FIT = St+1 + Tt+1
FIT = 12.25 + 3.81 = 16.06

Therefore the forecast including trend, FIT for the next period is 16.06