Question

In: Statistics and Probability

Due to the ongoing COVID-19 pandemic, your employer closed down and retrenched all its employees. You...

Due to the ongoing COVID-19 pandemic, your employer closed down and retrenched all its employees. You decided to return to your hometown, a small town in the east coast of MARGATE. You noticed that there was no food delivery service business in the town and decided to start such a service using your cars. Your delivery riders would collect the orders from food outlets in the town and deliver the food to customers for a fee. However, you did not have sufficient funds to run the business. When you tried to obtain a business loan from a bank, the bank officer requested that you prepare a sales forecast for the proposed business.

i)   Explain two main challenges in making the sales forecast as required by the bank.

ii) Describe which specific method is suitable for the sales forecast and provide the reasons why you choose this method.

c) After the bank approved your loan, you began operating delivery service company as described in 2(b).

The company recorded the following number of deliveries in the last 6 months:

Month

Actual Deliveries

January

270

February

280

March

350

April

250

May

340

June

320

Due to the expected increase in deliveries, you approached the bank again to obtain another business loan. This time, the bank officer asked for a forecast of the deliveries for the rest of the year based on your July forecast. You decided to use naive, 3month moving average and 6-month moving average forecast methods.

i) Calculate your forecast for July using the three methods stated.

ii) If actual deliveries for July are 309, which one among the three methods is the most accurate using absolute deviation calculation?

Solutions

Expert Solution

Naive Method:

Period Demand Forecast Error Absolute Squared Abs Pct Err
Period 1 270
Period 2 280 270 10 10 100 03.57%
Period 3 350 280 70 70 4900 20.00%
Period 4 250 350 -100 100 10000 40.00%
Period 5 340 250 90 90 8100 26.47%
Period 6 320 340 -20 20 400 06.25%
Total 50 290 23500 96.29%
Average 10 58 4700 19.26%
Bias MAD MSE MAPE
SE 88.50612
Next period 320

3-month moving average:

Period Demand Forecast Error Absolute Squared Abs Pct Err
Period 1 270
Period 2 280
Period 3 350
Period 4 250 300 -50 50 2500 20.00%
Period 5 340 293.3333 46.66667 46.66667 2177.778 13.73%
Period 6 320 313.3333 6.666667 6.666667 44.44444 02.08%
Total 3.333333 103.3333 4722.222 0.3580882
Average 1.111111 34.44444 1574.074 0.1193627
Bias MAD MSE MAPE
SE 68.71843
Next period 303.333333

6-month moving average:

Not possible because there are only 6 data values.

3-month moving average is the most accurate using absolute deviation calculation.


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