APO DP 1st Order

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APO DP - Forecast Model Parameters: First-Order Exponential Smoothing

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The system uses the alpha factor for smoothing the basic value. If you do not specify an alpha factor, the

system will automatically use the alpha factor 0.3.

In the following forecasting graphs you will see the impact of Alpha:

a = 0.1

a = 0.2

a = 0.3

a = 0.4

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APO DP - Forecast Model Parameters: First-Order Exponential Smoothing

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a = 0.5

a = 0.6

a = 0.7

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APO DP - Forecast Model Parameters: First-Order Exponential Smoothing

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a = 0.8

a = 0.9

a = 1.0

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APO DP - Forecast Model Parameters: First-Order Exponential Smoothing

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The choice of Alpha is very important: the following table contains the monthly forecasting quantity of the

different a alpha factors:

 a Monthly Forecast

0.1 172191

0.2 140316

0.3 116096

0.4 97226

0.5 83583

0.6 73978

0.7 67247

0.8 62622

0.9 59673

1.0 58213

Note that the forecast got with alpha 0.1 is 4 times bigger than the forecast got with alpha 1.0.

Historical Periods:

In the table you will see the impact of changing the historical periods with alpha = 0.3:

a History Monthly Forecast

0.3 6 120331

0.3 12 118608

0.3 18 116065

0.3 24 116096

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APO DP - Forecast Model Parameters: First-Order Exponential Smoothing

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Conclusion: 0.3 is a good compromise

• a (alpha) close to 0: use more historical data smooth the historical data.

•

a (alpha) close to 1: use only the most recent data the historical data are not smoothed the ex-postforecast is lagged