MicrosoftВ® Office ExcelВ® 2007: Data Analysis and Business Modeling (Bpg -- Other)

Initializing Winter’s Method

To start Winter’s method, we must have initial estimates for the series base, trend, and seasonal indexes. We will use monthly housing starts for the years 1986 through 1987 to initialize Winter’s method. Then we will choose our smoothing parameters to optimize our one-month-ahead forecasts for the years 1988 through 1996. See Figure 53-1 and the file House2.xlsx. We’ll use the following process.

Figure 53-1: Initialization of Winter’s method

• Step 1: We will estimate, for example, the January seasonal index as the average of January housing starts for 1986 through 1987 divided by the average monthly starts for 1986 through 1987. Therefore copying from G14 to G15:G25 the formula =AVERAGE(B2,B14)/ AVERAGE($B$2:$B$25) will generate our estimates of seasonal indexes. For example, the January estimate is 0.75 and the June estimate is 1.17.

• Step 2: To estimate the average monthly trend, we take the twelfth root of (1987 mean starts divided by the 1986 mean starts). We compute this in cell J3 (and copy it to cell D25) with the formula =(J1/J2)^(1/12)

• Step 3: Going into January 1987, we estimate the base of the series as the deseasonalized December 1987 value. This is computed in C25 with the formula =(B25/G25).