Smoothing: How You Profit from Your Mistakes
IN THIS CHAPTER
Familiarizing yourself with smoothing
Working with the Exponential Smoothing tool
Deciding on a smoothing constant
Dealing with smoothing problems
Smoothing, in this case exponential smoothing, is a kind of modified moving average. Don’t let the name put you off. You won’t have to deal with any exponents (or, for that matter, proponents, deponents, opponents, or components). It’s a simple idea, tricked out — as so many simple ideas are — with a fancy name. The idea is to correct a prior forecast and use that correction in making the next forecast. That’s pretty straightforward, no?
The Data Analysis add-in does exponential smoothing on your behalf. The Exponential Smoothing tool is one of the tools in the Data Analysis add-in that returns a formula, so if your input data changes, the forecasts will update automatically. But you want a bit more control over the formulas than the Exponential Smoothing tool gives you, and this chapter shows you how to get that control.
Exponential smoothing uses something called — here’s another bit of jargon — a smoothing constant. It helps determine the amount of the error in an earlier forecast to use in making the next one.
After you’ve chosen a smoothing constant, even just for the moment, you’ve automatically chosen a damping factor — yet another piece of jargon. I wouldn’t even bring it up here except that the Data Analysis add-in’s Exponential Smoothing tool uses that ...
Get Excel Sales Forecasting For Dummies, 2nd Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.