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Cash demand forecasting in ATMs by clustering and neural networks

Author

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  • Venkatesh, Kamini
  • Ravi, Vadlamani
  • Prinzie, Anita
  • Poel, Dirk Van den

Abstract

To improve ATMs’ cash demand forecasts, this paper advocates the prediction of cash demand for groups of ATMs with similar day-of-the week cash demand patterns. We first clustered ATM centers into ATM clusters having similar day-of-the week withdrawal patterns. To retrieve “day-of-the-week” withdrawal seasonality parameters (effect of a Monday, etc.) we built a time series model for each ATMs. For clustering, the succession of seven continuous daily withdrawal seasonality parameters of ATMs is discretized. Next, the similarity between the different ATMs’ discretized daily withdrawal seasonality sequence is measured by the Sequence Alignment Method (SAM). For each cluster of ATMs, four neural networks viz., general regression neural network (GRNN), multi layer feed forward neural network (MLFF), group method of data handling (GMDH) and wavelet neural network (WNN) are built to predict an ATM center’s cash demand. The proposed methodology is applied on the NN5 competition dataset. We observed that GRNN yielded the best result of 18.44% symmetric mean absolute percentage error (SMAPE), which is better than the result of Andrawis, Atiya, and El-Shishiny (2011). This is due to clustering followed by a forecasting phase. Further, the proposed approach yielded much smaller SMAPE values than the approach of direct prediction on the entire sample without clustering. From a managerial perspective, the clusterwise cash demand forecast helps the bank’s top management to design similar cash replenishment plans for all the ATMs in the same cluster. This cluster-level replenishment plans could result in saving huge operational costs for ATMs operating in a similar geographical region.

Suggested Citation

  • Venkatesh, Kamini & Ravi, Vadlamani & Prinzie, Anita & Poel, Dirk Van den, 2014. "Cash demand forecasting in ATMs by clustering and neural networks," European Journal of Operational Research, Elsevier, vol. 232(2), pages 383-392.
  • Handle: RePEc:eee:ejores:v:232:y:2014:i:2:p:383-392
    DOI: 10.1016/j.ejor.2013.07.027
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    References listed on IDEAS

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    1. Andrawis, Robert R. & Atiya, Amir F. & El-Shishiny, Hisham, 2011. "Forecast combinations of computational intelligence and linear models for the NN5 time series forecasting competition," International Journal of Forecasting, Elsevier, vol. 27(3), pages 672-688.
    2. Wichard, Jörg D., 2011. "Forecasting the NN5 time series with hybrid models," International Journal of Forecasting, Elsevier, vol. 27(3), pages 700-707, July.
    3. Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
    4. Castro, Jordi, 2009. "A stochastic programming approach to cash management in banking," European Journal of Operational Research, Elsevier, vol. 192(3), pages 963-974, February.
    5. Andrawis, Robert R. & Atiya, Amir F. & El-Shishiny, Hisham, 2011. "Forecast combinations of computational intelligence and linear models for the NN5 time series forecasting competition," International Journal of Forecasting, Elsevier, vol. 27(3), pages 672-688, July.
    6. Wichard, Jörg D., 2011. "Forecasting the NN5 time series with hybrid models," International Journal of Forecasting, Elsevier, vol. 27(3), pages 700-707.
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