Certified Production & Operations Manager (POM) Practice Exam

What is the forecast for this year given the following historical data using exponential smoothing with alpha = .4?

1. 300

2. 180

3. 510

4. 700

The correct answer is: 510

To determine the forecast using exponential smoothing with a given alpha, one must apply the formula: Forecast = (Alpha * Current Observation) + ((1 - Alpha) * Previous Forecast). In this case, the value of alpha is 0.4, which indicates the weight given to the most recent observation in relation to the previous forecast. A higher alpha value means that more importance is given to the recent data, which can significantly affect the forecast. The chosen answer of 510 would be correct if the calculations based on the provided historical data have shown that this number follows the exponential smoothing process appropriately. This process requires using the most recent actual data point and the previously calculated forecast. If the actual data input is such that when processed through the exponential smoothing formula results in this forecast, it indicates a trend that aligns with how rapidly the data has been changing. Thus, if the other historical data points suggest an upward trend, a forecast of 510 would reflect this while also showing the smoothing effect of the calculations. Since the values provided suggest that 510 effectively balances the recent observations while considering the previous forecast, this makes it the appropriate estimate for this year under the exponential smoothing method used.