Why does the Year 2 forecast come out to 310 in this example?

Conditions

• The smoothing constant $\alpha$ is fixed at 0.4.
• The actual demand for Year 1 ($A_1$) is 310.
• The initialized forecast for Year 1 ($F_1$) is 310.

Reasoning, step by step

1. Substitute $A_1 = 310$ and $F_1 = 310$ into the formula $F_2 = \alpha A_1 + (1-\alpha)F_1$.
2. Calculate the weighted sum: $F_2 = 0.4(310) + 0.6(310)$.
3. Observe that factoring out 310 gives $310 \times (0.4 + 0.6) = 310 \times 1 = 310$.

Example

The instructor substitutes the values into the formula: $F_2 = 0.4(310) + 0.6(310)$. A calculator window confirms the arithmetic, showing $0.4 \times 310 + 0.6 \times 310 = 310$, and the result 310 is written in the Forecast Demand column for Year 2.

Common misconceptions

• Assuming the forecast must change every period even if the actual demand and previous forecast are identical.
• Believing that the weights $\alpha$ and $(1-\alpha)$ must be equal for the weighted average to equal the input values.

Watch the explanation

Explore next

• How is the Year 3 forecast calculated from the Year 2 values?
• What do alpha and 1 minus alpha represent in this forecasting method?