Moving averages in excel

1. MOVING AVERAGES AND
EXPONENTIAL
SMOOTHING
We have Three Types forecasting methods that are appropriate for a time series with a horizontal
pattern:
Moving average
Weighted moving averages
Exponential smoothing

2. A quantitative method of forecasting or smoothing a time
series by averaging each successive group (no. of
observations) of data values.
Term MOVING is used because it is obtained by
summing and averaging the values from a given no of
periods, each time deleting the oldest value and adding a
new value.
Moving average method

3. . For applying the method of moving averages the
period of moving averages has to be selected
. This period can be 3- yearly moving averages 5yr
moving averages 4yr moving averages etc.
. For ex:- 3-yearly moving averages can be calculated
from the data : a,b, c,d,e,f can be computed as :

4. . If the moving average is an odd no ofvalues e.g., 3 years,
there is no problem of centring it. Because the moving
total for 3 years average will be centred besides the 2nd
year and for 5 years average be centred besides 3rd year.
. But if the moving average is an even no, e.g., 4 years
moving average, then the average of 1st 4 figures will be
placed between 2nd and 3rd year.
. This process is called centering of the averages. In
case of even period of moving averages, the trend
values are obtained after centering the averages a
second time.

5. Ali is a building contractor with a record of a total of
24 single family homes constructed over a 6-year
period. Provide Ali with a 3-year moving average
graph.
Moving Average Example

9. 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
years
In Figure, 3-yrs MA plotted on graph fallon a straight line, and the cyclic
fluctuation have been smoothed out. The straight Line is the required trend
line.
1 2
1 0
8
6
4
3
2
1
Actual line
sales

10. Calculation of moving average
based on period
When period is even:-
Example :-
Compute 4-yearly moving averages from the
following data:
year 1991 1992 1993 1994 1995 1996 1997 1998
Annual sale(Rs
in crores)
36 43 43 34 44 54 34 24

11. Year
(1)
Annual
sales (Rs in
crores) (2)
4-yearly
moving
total (T)
(3)
4-yearly
moving
averages (A)
(3)/4 {4}
4-yearly centred moving
averages OR (trend values) (5)
1991 36
1992 43
156 39
1993 43 (39+41)/2=80/2=40
164 4
1
1994 34 (41+43.75)/2=84.75/2=
42.375
175 43.75
1995 44 (43.75+41.50)/2=42.625
166 41.50
1996 54 (41.50+39)/2=40.25
15
6
39
1997 34
1998 24

12. sales
year

13. WEIGHTED MOVING AVERAGES
 A Weighted Moving Average (WMA)
is a type of moving average that
puts more weight on recent data
and less on past data.
 The WMA is obtained by multiplying
each number in the data set by a
predetermined weight and
summing up the resulting values.

14. EXPONENTIAL SMOOTHING
 It is a special case of the weighted
moving averages method in which
we select only one weight the
weight for the most recent
observation.
 The weights for the other data.
Values are computed automatically
and become smaller as the
observations move farther into the
past.