Question

The following is the table on the demand for ICU beds in a hospital on a monthly basis:

Month Demand for ICU beds

1 200

2 250

3 220

4 230

5 225

• Compute the forecast for ICU beds in month 6 using latest 3 month moving average from the above table ?

• What is the forecast for ICU beds in month 7 IF the month 6 actual demand for ICU beds is 227 using latest 3 month moving average ?

• Compute the forecast for ICU beds in month 6 using latest 3 month weighted average using a weight of 50%, 25% and 25% for months 3, 4 and 5 respectively ?

• Compute the forecast demand for ICU beds in month 6 using exponential smoothing equation. Assume the smoothing constant is 0.15 ?

Answer 1

Answer a. Use the following formula of Three Month Moving Average method to find the forecast for July:

Let, An = Actual Demand of nth Month

Then, Fn = Forecast Demand of nth Month = (An-1 + An-2 + An-3) / 3

(Note: We divide here by 3 as we have applied 3-Month Moving Average method)

Here, we are forecasting the demand for ICU beds for month 6.

Hence, n = 6th Month, n-1 = 5th Month, n-2 = 4th Month, and n-3 = 3rd Month

Thus, by replacing the appropriate values, we get:

Forecast demand for

= 225 ICU Beds

Answer b. Here, we will apply the same formula as we did in answer a, as mentioned below:

Let, An = Actual Demand of nth Month

Fn = Forecast Demand of nth Month = (An-1 + An-2 + An-3) / 3

(Note: We divide here by 3 as we have applied 3-Month Moving Average method)

Here, we are forecasting the demand for ICU beds for month 7.

Hence, n = 7th Month, n-1 = 6th Month, n-2 = 5th Month, and n-3 = 4th Month

Thus, by replacing the appropriate values, we get:

Forecast demand for ICU Beds (Rounded to 2 decimal places)

Answer c. Use the following formula of 3-Month Weighted Average Moving Average to find the forecast for 6th Month:

Where,

Ft = Forecast Demand for the month of "t" (6 th Month)

At-1 = Actual Demand for the month of "t-i"(5th Month), At-2 = Actual Demand for the month of "t-2"(4th Month), At-3 = Actual Demand for the month of "t-3"(3rd Month),

W(t-1) = Weight for the 5th Month = 0.25, W(t-2) = Weight for the 4th Month= 0.25, and W(t-3) = Weight for the 3rd Month= 0.50,

= Sum of Weights = 0.25 + 0.25 + 0.50 = 1.00

Hence,

ICU beds

Answer d. We will find the forecast for the 6th Month by applying the following formula of exponential smoothing method:

Ft = Ft-1 + [ x(At-1 - Ft-1)]

Where,

Ft = Forecast Demand for current month (6th Month) =? (We are finding this value)

At-1= Actual Demand for Previous Month (5th Month) = 225 (As given in the question)

= 0.15 (As given in the question)

Ft-1 = Forecast Demand for Previous Month (5th Month) =? (First, find this value as mentioned below)

As there is no forecast demand is given in the question, for any of the previous months, we assume that Actual Demand = Forecast Demand = 200 for the 1st Month.

Now, by applying the formula of forecast demand as mentioned above, we will calculate forecast demand for each month, one by one, starting from 1st month to 5th month, so as to derive the value of Ft-1 = forecast demand of the previous month (5th month).

Hence, we get:

Now, apply the same formula to derive the forecast demand for the 6th month.

Hence,

Forecast for Month 6 = 212.47 + 0.15 ( 225 - 212.47 ) = 214.35 ICU Beds (Rounded to 2 decimal places)