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Chapter 9. Forecasting and Projections > Moving Average Forecasts

Moving Average Forecasts

Moving averages are easy to use, but sometimes they are too simple to provide a useful forecast. Using this approach, the forecast at any period is just the average of several observations in the time series. For example, if you choose a three-month moving average, the forecast for May would be the average of the observations for February, March, and April. If you choose to take a four-month moving average, then the forecast for May would be the average of January, February, March, and April.

This method is easy to compute, and it responds well to recent changes in the time series. Many time series respond more strongly to recent events than they do to long established patterns. Suppose, for example, that you are forecasting the sales volume of a mature product, one that has averages of 1,000 units per month for several years. If your company significantly downsizes its sales force, the units sold per month would probably decline, at least for a few months.


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