Scribd Logo
Upload

Welcome to Scribd!

  • 686 views

    Evans Analytics2e PPT 09

    Uploaded by

    qun
    This document discusses various forecasting techniques that can be used by managers and business analysts to support decision making. It describes three major categories of forecasting approaches: qualitative and judgmental techniques, statistical time-series models, and explanatory/causal models. Within these categories, it provides examples and explanations of techniques like qualitative forecasting, indicators and indexes, moving average models, exponential smoothing models, regression-based forecasting, and Holt-Winters models. It also demonstrates how to implement some of these techniques using Excel and XLMiner tools.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Evans Analytics2e PPT 09

    Uploaded by

    qun
    686 views50 pages
    This document discusses various forecasting techniques that can be used by managers and business analysts to support decision making. It describes three major categories of forecasting approaches: qualitative and judgmental techniques, statistical time-series models, and explanatory/causal models. Within these categories, it provides examples and explanations of techniques like qualitative forecasting, indicators and indexes, moving average models, exponential smoothing models, regression-based forecasting, and Holt-Winters models. It also demonstrates how to implement some of these techniques using Excel and XLMiner tools.

    Original Description:

    Evans Analytics2e Ppt 09

    Original Title

    Evans Analytics2e Ppt 09

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses various forecasting techniques that can be used by managers and business analysts to support decision making. It describes three major categories of forecasting approaches: qualitative and judgmental techniques, statistical time-series models, and explanatory/causal models. Within these categories, it provides examples and explanations of techniques like qualitative forecasting, indicators and indexes, moving average models, exponential smoothing models, regression-based forecasting, and Holt-Winters models. It also demonstrates how to implement some of these techniques using Excel and XLMiner tools.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    686 views50 pages

    Evans Analytics2e PPT 09

    Uploaded by

    qun
    This document discusses various forecasting techniques that can be used by managers and business analysts to support decision making. It describes three major categories of forecasting approaches: qualitative and judgmental techniques, statistical time-series models, and explanatory/causal models. Within these categories, it provides examples and explanations of techniques like qualitative forecasting, indicators and indexes, moving average models, exponential smoothing models, regression-based forecasting, and Holt-Winters models. It also demonstrates how to implement some of these techniques using Excel and XLMiner tools.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 50
    At a glance
    Powered by AI
    The key takeaways are that there are various forecasting techniques that can be used including qualitative and judgmental techniques, statistical time-series models, and explanatory/causal models. Managers require good forecasts to support decision making.

    The three major categories of forecasting approaches discussed are 1) qualitative and judgmental techniques, 2) statistical time-series models, and 3) explanatory/causal models.

    Some examples of qualitative and judgmental forecasting techniques discussed are the historical analogy approach and the Delphi method.

    Chapter 9

    Forecasting
    Techniques

    Forecasting Techniques
    Managers require good forecasts of future events.
    Business Analysts may choose from a wide range
    of forecasting techniques to support decision
    making.
    Three major categories of forecasting approaches:
    1. Qualitative and judgmental techniques
    2. Statistical time-series models
    3. Explanatory/causal models

    Qualitative and Judgmental Forecasting


    Qualitative and Judgmental techniques rely on
    experience and intuition.
    They are necessary when historical data is not
    available or when predictions are needed far into the
    future.
    The historical analogy approach obtains a forecast
    through comparative analysis with prior situations.
    The Delphi method questions an anonymous panel
    of experts 2-3 times in order to reach a convergence
    of opinion on the forecasted variable.

    Example 9.1: Predicting the Price of Oil


    Early 1988 oil price was about $22 a barrel
    Mid-1988 oil price dropped to $11 a barrel
    because of oversupply, high production in nonOPEC regions, and lower than normal demand
    In the past, OPEC would raise the price of oil.
    Historical analogy would forecast a higher price.
    However, the price continued to drop even though
    OPEC agreed to cut production.
    Historical analogies cannot always account for
    current realities!

    Indicators and Indexes


    Indicators are measures that are believed to
    influence the behavior of a variable we wish to
    forecast.
    Indicators are often combined quantitatively into
    an index, a single measure that weights multiple
    indicators, thus providing a measure of overall
    expectation.

    Example: Dow Jones Industrial Average

    Example 9.2: Economic Indicators

    GDP (Gross Domestic Product) measures the value of all


    goods and services produced.
    GDP rises and falls in a cyclic fashion.

    Forecasting GDP is often done using leading indicators


    (series that change before the GDP changes) and lagging
    indicators (series that follow changes in the GDP)
    indicators.

    Examples
    Leading - formation of business enterprises
    - percent change in money supply (M1)
    Lagging - business investment expenditures
    - prime rate
    - inventories on hand

    Example 9.3: Leading Economic


    Indicators
    An Index of Leading Indicators was developed by
    the Department of Commerce.
    This index is related to the economic performance
    is available from www.conference-board.org.
    It includes measures such as:
    - average weekly manufacturing hours
    - new orders for consumer goods
    - building permits for private housing
    - S&P 500 stock prices

    Statistical Forecasting Models

    Time Series a stream of historical data, such as


    weekly sales
    T = number of periods, t = 1, 2, , T

    Time series generally have components such as:


    - random behavior
    - trends (upward or downward)
    - seasonal effects
    - cyclical effects
    Stationary time series have only random behavior.
    A trend is a gradual upward or downward movement
    of a time series.

    Example 9.4: Identifying Trends in a Time


    Series

    The Energy Production & Consumption


    General upward trend with some short downward trends;
    the time series is composed of several different short
    trends.

    Seasonal Effects

    A seasonal effect is one that repeats at fixed


    intervals of time, typically a year, month, week, or
    day.

    Cyclical Effects

    Cyclical effects describe ups and downs over a


    much longer time frame, such as several years.

    Forecasting Models for Stationary


    Time Series
    Moving average model
    Exponential smoothing model

    These are useful over short time periods when trend,


    seasonal, or cyclical effects are not significant

    Moving Average Models


    The simple moving average method is a
    smoothing method based on the idea of averaging
    random fluctuations in the time series to identify
    the underlying direction in which the time series is
    changing.
    The simple moving average forecast for the next
    period is computed as the average of the most
    recent k observations.

    Larger values of k result in smoother forecast models


    since extreme values have less impact.

    Example 9.5: Moving Average


    Forecasting

    The Tablet Computer Sales data contains the number of


    units sold over the past 17 weeks.

    Three-period moving average forecast for week 18:

    Spreadsheet Implementation of
    Moving Average Forecasting

    Excel Moving Average Tool

    Data Analysis options

    We do not
    recommend using the
    chart or error options
    because the forecasts
    generated by this tool
    are not properly
    aligned with the data

    Example 9.7: Moving Average


    Forecasting with XLMiner

    Select Smoothing from the


    Time Series group and
    select Moving Average

    Enter the data range and


    move the time variable and
    dependent variable to the
    boxes on the right. Enter
    the interval (k).

    Examnle 9.7 Continued

    XLMiner
    results

    Error Metrics and Forecast Accuarcy

    Mean absolute
    deviation (MAD)

    Mean square error


    (MSE)

    Root mean square


    error (RMSE)

    Mean absolute
    percentage error
    (MAPE)

    Example 9.8: Using Error Metrics to


    Compare Moving Average Forecasts

    Tablet Computer Sales data


    2-, 3-, and 4-period moving average models
    2-period model ahs lowest error metric values

    Exponential Smoothing Models

    Simple exponential smoothing model:

    where Ft+1 is the forecast for time period t + 1, Ft is the


    forecast for period t, At is the observed value in period t,
    and is a constant between 0 and 1 called the
    smoothing constant.
    To begin, set F1 and F2 equal to the actual observation in
    period 1, A1.

    Example 9.9: Using Exponential Smoothing to


    Forecast Tablet Computer Sales

    Forecast for week 3 when = 0.7: (1 0.7)(88) + (0.7)(44) = 57.2

    Example 9.10: Finding the Best Exponential


    Smoothing Model for Tablet Computer Sales

    The forecast using = 0.6 provides the lowest error metrics.

    Example 9.11: Using Excels Exponential


    Smoothing Tool

    Select Data Analysis from the Analysis group and then


    choose Exponential Smoothing
    Note that Damping factor = 1
    The first cell of the Output Range should be adjacent to
    the first data point

    Example 9.11 Continued

    Exponential Smoothing tool results

    Exponential Smoothing in XLMiner


    Select Exponential from the Time
    Series/Smoothing menu.
    Within the Weights pane, it provides options to
    either enter the smoothing constant, Level (Alpha)
    or to check an Optimize box, which will find the
    best value of the smoothing constant.

    Example 9.12: Optimizing Exponential Smoothing


    Forecasts Using XLMiner

    The best
    smoothing
    constant is
    0.63

    Forecasting Models for Time Series with


    a Linear Trend

    Double moving average and double exponential


    smoothing
    Based on the linear trend equation

    The forecast for k periods into the future is a function of


    the level at and the trend bt

    The models differ in their computations of at and bt

    XLMiner does not support a procedure for double


    moving average; however, it does provide one for double
    exponential smoothing.

    Double Exponential Smoothing

    Estimates of the parameters are obtained from


    the following equations:

    Initial values are chosen for a1 as A1 and b1 as


    A2 A1. Equation (9.7) must then be used to
    compute at and bt for the entire time series to be
    able to generate forecasts into the future.

    Example 9.13: Double Exponential


    Smoothing with XLMiner

    Excel file Coal Production

    Example 9.13 Continued


    XLMiner
    optimization
    results
    the best
    values of
    and are
    0.684 and
    0.00

    Regression-Based Forecasting for


    Time Series with a Linear Trend

    Simple linear regression can be applied to


    forecasting using time as the independent
    variable.

    Example 9.14: Forecasting Using


    Trendlines

    Coal Production data with a linear trendline


    Note that the linear
    model does not
    adequately predict the
    recent drop in
    production after 2008.

    Autocorrelation in Time Series

    When autocorrelation is present, successive


    observations are correlated with one another; for
    example, large observations tend to follow other large
    observations, and small observations also tend to follow
    one another.
    In such cases, other approaches, called autoregressive models,
    are more appropriate.

    Forecasting Time Series with Seasonality

    When time series exhibit seasonality, different


    techniques provide better forecasts than the ones
    we have described:
    Multiple regression models with categorical variables for
    the seasonal components
    Holt-Winters models, similar to exponential smoothing
    models in that smoothing constants are used to
    smooth out variations in the level and seasonal
    patterns over time. For time series with seasonality but
    no trend, XLMiner supports a Holt-Winters method but
    does not have the ability to optimize the parameters.

    Example 9.15: Regression-Based


    Forecasting for Natural Gas Usage

    Gas & Electric Excel file


    Use a seasonal categorical
    variable with k = 12 levels.
    Construct the regression
    model using k - 1 dummy
    variables, with January
    being the reference month.

    Example 9.15 Continued

    Data matrix

    Example 9.15 Continued

    Final
    regression
    results (time
    and February
    were
    insignificant)

    Holt-Winters Models for Forecasting


    Time Series with Seasonality and Trend

    The Holt-Winters additive model applies to time series with


    relatively stable seasonality and is based on the equation

    The Holt-Winters multiplicative model applies to time series


    whose amplitude increases or decreases over time and is

    A chart of the time series should be viewed first to identify the


    appropriate type of model to use.

    Example 9.16: Forecasting Natural Gas


    Usage Using Holt-Winters No-Trend Model

    XLMiner > Time Series >


    Smoothing >Holt Winter No
    Trend
    In the Parameters pane, the
    value of Period is the length
    of the season, in this case,
    12 months.
    You will generally have to
    experiment with the
    smoothing constants to
    identify the best model.

    Example 9.16 Continued

    XLMiner
    results

    Example 9.17: Forecasting New Car


    Sales Using Holt-Winters Models

    There is clearly a stable seasonal factor in the time


    series, along with an increasing trend; therefore, the
    Holt-Winters additive model would appear

    Example 9.17: Continued

    XLMiner > Time


    Series > Smoothing >
    Holt Winter Additive

    Example 9.17 Continued

    XLMiner
    results

    Selecting Appropriate Time-Series-Based


    Forecasting Methods

    Regression Forecasting with Causal


    Variables
    In many forecasting applications, other
    independent variables besides time, such as
    economic indexes or demographic factors, may
    influence the time series.
    Explanatory/causal models, often called
    econometric models, seek to identify factors that
    explain statistically the patterns observed in the
    variable being forecast, usually with regression
    analysis

    Example 9.18: Forecasting Gasoline


    Sales Using Simple Linear Regression

    Excel file Gasoline Sales


    Simple trendline using week as the independent variable

    Predicted sales for week 11 = 812.99(11) + 4790.1 = 13,733 gallons

    Example 9.19: Incorporating Causal Variables in


    a Regression-Based Forecasting Model

    The average price per gallon changes each week, and


    this may influence consumer sales. Average price per
    gallon is a causal variable.
    Develop a multiple linear regression model to predict
    gasoline sales using both time and price per gallon.

    Example 9.19 Continued

    Multiple regression model

    Predicted sales for week 11


    = 72,333 + 508.7(11) 16,463(3.80) = 15,368 gallons

    The Practice of Forecasting


    Judgmental and qualitative methods are used for
    forecasting sales of product lines and broad
    company and industry forecasts.
    Simple time-series models are used for short- and
    medium-range forecasts.
    Regression methods are typically used for longterm forecasts.

    You might also like