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Process documentationCalculating Standard Deviation for Phase-In Forecasting

 

When the system creates phase-in forecasting for a product, it also calculates a standard deviation for each existing phase-in profile. This standard deviation is based on the historical values of the products in the phase-in group. If the phase-in group contains only one product, the standard deviation is always zero. If the phase-in group comprises more than one product, the system calculates the standard deviation as described below.

Process

  1. The system takes into account the number of historical periods specified in the phase-in profile and calculates the average demand of all products in the phase-in group for each of these periods .

  2. For each product and historical period, the system calculates the square of the actual demand data minus the average demand.

  3. For each product, the system totals the values that were calculated in step 2.

  4. The system totals all the values calculated in step 3.

  5. The system multiplies the number of products in the phase-in group by the number of historical periods.

  6. The system divides the value calculated in step 4 by the value calculated in step 5.

  7. The system extracts the root of the value calculated in step 6 and uses this value as the standard deviation.

Example

Your phase-in group comprises product A and product B. The following historical data for the demand exists for these products:

Historical Periods

1

2

3

4

5

Product A demand

556

431

466

479

693

Product B demand

296

188

109

271

287

  1. The system determines the following average demand for each historical period:

    Historical Periods

    1

    2

    3

    4

    5

    Average demand

    (556 + 296) / 2 = 426

    309,5

    287,5

    375

    490

  2. The system determines the following values as the square of the actual demand data minus the average demand:

    Historical Periods

    1

    2

    3

    4

    5

    Product A

    (556 — 426)2 = 16900

    14762,25

    31862,25

    10816

    41209

    Product B

    16900

    14762,25

    31862,25

    10816

    41209

  3. The system calculates 115549.5 as the total for product A (16900 + 14762.25 + 31862.25 + 10816 + 41209).

    The system calculates 115549.5 as the total for product B.

  4. The total of all the values determined in step 3 is 231099.

  5. The system multiplies the 2 products in the phase-in group by the 5 historical periods, which results in the value 10.

  6. The system divides 231099 by 10, resulting in the value 23109.9.

  7. The system extracts the root of 23109.9, which returns the value 152.019 as the standard deviation.