Microsoft Office Tutorials and References
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Calculating moving averages
Calculating moving averages
A moving average is a forecasting technique that simplifies trend analysis by smoothing
fluctuations that occur in measurements taken over time. These fluctuations can be caused
by random noise that is often a by-product of the measurement technique. For example,
measurements of the height of a growing child vary with the accuracy of the ruler and
whether the child is standing straight or slouching. You can take a series of measurements,
however, and smooth them over time, resulting in a curve that reflects the child’s actual
growth rate. Fluctuations in measurements can result from other temporary conditions that
introduce bias. Monthly sales, for example, might vary with the number of working days in
the month or the absence of a star salesperson who is on vacation.
Suppose you created the 18-month demand curve shown in Figure 17-16. To generate a
less noisy trendline from this data, you can plot a six-month moving average. The first point
in the moving average line is the average of the first six monthly figures (January through
June 2014). The next point averages the figures for the second through seventh months
(February through July 2014), and so on. You can use the Moving Average tool to perform
this analysis for you. Click the Data Analysis button on the Data tab, select Moving Average,
and then click OK to display the Moving Average dialog box, as shown in Figure 17-17.
Figure 17-16 We’ll use this 18-month demand curve to demonstrate the Moving Average tool.
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