How to Improve Forecasting Accuracy with Weighted Moving Average

How can we enhance forecasting accuracy using a weighted moving average?

What is the forecast for year 6 using a 3-year weighted moving average?

Improving Forecasting Accuracy with Weighted Moving Average

Forecasting accuracy plays a crucial role in decision-making for businesses. One of the methods to enhance forecasting accuracy is by using a weighted moving average. This method assigns different weights to historical data, giving more importance to recent data points. By incorporating weights, the weighted moving average provides a more accurate representation of trends and patterns in the data.

Weighted moving average is particularly useful when there is a need to react quickly to changing market conditions or when older data may not be as relevant. By giving higher weights to recent data, businesses can better capture the current trajectory of their performance and make more informed decisions for future planning.

When applying a 3-year weighted moving average for forecasting, it is essential to determine the appropriate weights for each year. The weights assigned to each year reflect the level of significance or impact that year's data holds in the forecast. By calculating the weighted moving average, businesses can generate more accurate predictions and improve their overall forecasting process.