Time series and forecasting

Forecasting or predicting is an essential tool in any decision making process Inventory requirements, sales projections, price trends Time series analysis tries to detect a pattern in statistical information over intervals of time These patterns are then projected to arrive at an estimate for the future

Variations/ Components in time series

Secular trends- steady increase or decrease over long periods eg: price index Cyclical fluctuation-business cycles; ups and downs Seasonal variation-patterns of change within a year eg: flu, cold epidemics Irregular fluctuation-completely unpredictable eg: Japan earthquake, 9/11

 Coding time- odd and even number of elements Odd no. of elements in the time series- mean year is easily identifiable Even no of elements-find the mean year and subtract from each element

Odd number of elements

X 1989 1990 1991 1992 (mean year) 1993 1994 1995 X-X bar 1989-1992 1990-1992 Coded time -3 -2 -1 0 1 2 3

Even number of elements

X 1990 1991 X-Xbar 1990-1992.5 1991-1992.5 (X-Xbar)x2 -2.5x2 -1.5x2 Coded time -5 -3

1992
1993 1994 1995

-1
1 3 5

 Slope of the trend line for coded time values Y=a+bx

 The data of the number of ships loaded at Mumbai port are given overleaf.Calculate the equation that describes the secular trend of the loadings. What is the estimated loading of ships for 1996?

X 1988 1989 1990 1991 1992 1993 1994 1995

Y 98 105 116 119 135 156 177 208

X-Xbar

x -5 -3 -1 1 3 5 7

xY -686

xsquared 49 25

1988-1991.5 -3.5x2=-7

1456

49

Second degree (quadratic) trends

Y=a+bx+cx2 In recent years the ales of electronic quartz watches has increased at a significant rate. Data on sales for five years is given in the attached table. Fit a second degree to the data

Sales 13 24

Year 1991 1992

x -2 -1

39
65 106

1993
1994 1995

0
1 2

Seasonal variations
The management of a ski resort has these quarterly occupancy data for a 5- year period. To improve service management must understand the seasonal patterns in the demand for rooms. What is the seasonal pattern for demand ?

Year 1991

No Q1 1861

Of guests Q2 2203

per Q3 2415

quarter Q4 1908

1992
1993 1994 1995

1921
1834 1837 2073

2343
2154 2025 2414

2514
2098 2304 2339

1986
1799 1965 1967

1) 2) 3) 4)

Calculate 4-quarter moving total for the time series Compute the 4 quarter moving average Center the 4 quarter moving average Calculate the percentage of the actual value to the moving average value for each quarter in the time series having a 4 quarter moving average entry 5) Calculate modified mean-remove the highest and lowest in each quarter and average the other two 6) Adjust the modified mean-

Quarter

Occup.

4 Qmoving total

4Q moving average

4Q centred mov av

% of act to mov av

1991

1861

2
3 4 1992 1 2

2203
8387 2415 8447 1908 8587 1921 8686 2343 8764 2171.5 107.4 2146.75
2159.125

2096.75 2104.25 2111.75 2129.25 89.6 89 114.8

Q1

Q2

Q3

Q4

1991
1992 1993 1994 1995

89 88.6 93.5 94.5

107.4 108.0 100.6 109.8

114.8
115.3 106.4 111.7

89.6
92.6 92.0 91.8

 Seasonal indices used to deseasonalize data Deseasonalized occupancy =(Actual occupancy)/ ((seasonal index)/100)

Irregular variation
Follows a random pattern Cannot be explained mathematically

Cylical variation
A farmers marketing cooperative wants to measure the variations in members wheat harvest over an 7 year period. Data are given overleaf. Calculate the percent of trend and the cyclical residual

Y act (bushels) 1988 1989 1990 7.5 7.8 8.2

Y trend line 7.6 7.8 8.0

% of trend 98.7 100

1991 1992 1993

1994

8.2 8.4 8.5

8.7

8.2 8.4 8.6

8.8 98.9