As a consultant, you have been asked to generate a unit demand forecast for a product for year 2017 using exponential smoothing.You have data for the past three years and the forecast and the actual are the same for the first period of your data (3 years ago).Which of the following is most accurate?
A)Forecast for year 2017 will be higher than the actual for 2016, if your α is close to 1.0
B)Forecast for 2017 will be between all the actual sales
C)Exponential smoothing is a type of weighted average forecasting method
D)B and C
E)None of the above

Question

Quizplus · Accepted Answer

Option A is incorrect as if α is close to 1.0, the forecast will be heavily influenced by the actual sales of the previous year, leading to a lower forecast. 
Option B is incorrect as exponential smoothing takes into account the trend and seasonality of the data, which can cause the forecast to be higher or lower than the actual sales. 
Option C is correct as exponential smoothing is a type of weighted average forecasting method where more weight is given to recent data, and the weights decrease as the data becomes older. 
Therefore, the correct option is D, which states that exponential smoothing is a type of weighted average forecasting method and the forecast for 2017 can either be higher or lower than the actual sales, depending on the trend and seasonality of the data.

As a Consultant, You Have Been Asked to Generate a Unit