3.3 Flashcards
what is time series
a set of observations that are measured at specific time intervals
why is time series analysis useful
-attempts to identify factors that exert an influence on the values in the series
-trends can then be projected to the future and used in forecasting
-reveals a pattern in observations
-shows long-term underlying growth movement in a time series (trends)
give some examples of time series
sales figures
gross national product
currency comparison
unemployment rates
economic growth
foreign debt
trade figures
what are the 4 time series components
trend - long term underlying movement of sales
cyclical - long term variations about the trend caused by booms & slumps
seasonal - ie weather
irregular - unpredictable events
what is a decision tree
method of tracing the alternative outcomes of any decisions
what are decision points
points where decisions are made in decisions trees represented by a square, choosing between certain courses of action
what are outcome points/chance nodes
points where there are different possible outcomes in a decision tree represented by a circle
when are decision trees used
a new product launch
a new marketing campaign on the current product
relocation to a new building
what are the advantages of using decision trees
enables a business to quantify decision making
useful when outcomes are uncertain
places a numerical value on likely or potential outcomes
allows comparison of different possible decisions
encourages clear thinking and planning
what are the disadvantages of using decision trees
reliant on the accuracy if data used
requires qualitative input to complete picture
probabilities are only estimated
real time data problems
what is the problem 3 point moving averages
businesses will often report their sales in quarters so the 3 cycle points are different so not useful for forecasting
how do you calculate earliest start time
earliest start time of previous activity + duration of previous activity
what is critical pathway analysis (CPA)
a project management technique that requires mapping out every key task that is necessary to complete a project
what is free float
the spare time available without delaying the next activity
how do you calculate free float
(est at start + duration) - est at the end
what is total float
the spare time available without delaying the whole project
how do you calculate total float
(est + duration) - latest start time
what is a dummy activity
an activity that is purely to show dependencies, they are not labelled on critical pathway as they take up no time or resources
what are the advantages and disadvantages of CPA
+/ maximize efficiency & use of time
generates cost saving in the use of resources
beneficial to monitoring cash flow
-/ usefulness may be limited in complex and large scale operations
necessity of having clear and reliable information
skilled management and team philosophy is essential
what is payback period
the period of time required to recoup the funds expended on an investment/reach break even point
what are the advantages and disadvantages of payback
+/ simple & easy to calculate
focuses on cash flow
emphasizes speed of return
easy to compare projects
-/ ignored cash flows which arise after payback has been reached
doesn’t take into account the time value of money
encourages short term thinking
ignored qualitative aspects of the decision
what is average rate of return
looks at the total accounting return for a project to see if it meets target return
how do you calculate average rate of return
add up all cash flows
minus the original cost of the project
then divide this by the number of years the project runs for
then divide by the cost of the project
times by 100 to get a percentage
what are the advantages and disadvantages of average rate of return
+/ provides a percentage return which can be compared with a target return
looks at profitability of the entire project
focuses on profitability
-/ does not take into account cash flow
takes no account of the time value of money
treats profits arising late the same as those arising early
what is net present value and how is it calculated
calculates the monetary value now of the projects future cash flow
the total of present values - original investment
what are the advantages and disadvantages of net present value
+/ takes into account time value of money
places emphasis on earlier cash flows
looksat all cash flow involved in the life of the project
helps with decision making
-/ complicated to create
difficult to select correct discount rate
sensitive to investment cost
how do you calculate present value
net cash flow x discount factor
