The simple average method is to attenuate the data by obtaining the arithmetic mean of a certain number of historical data to get with this the forecast for the next period. The number of data to consider when calculating the average is a decision of the planning team making the forecast.
When to use a simple average forecast?
A simple average forecast is the simplest of standard forecasting methods. This method is optimal for random or level demand patterns without seasonal or trend elements.
Simple Average Model
Average sales in units in period t
Actual sales in units of periods prior to t
Number of data
Example of applying a Simple Average forecast
A company wants to make a forecast for the month of April, taking into account the following information:
The sales forecast for period 4 (April month) is equivalent to: 2865 units.