AMA Q22 - Chapter 2 Flashcards
Time series definition
a series of values or figures recorded over time
What does T mean?
Trend
How is a trend noticed?
Evaluating whether there are moving averages in a particular value
SV
Seasonal Variation
How is a Seasonal Variation observed?
A smaller and shorter trend that counters the overall long-term trend that is predictable
TS
Time Series Forecast
Formula for TS
TS = T + SV
How do you calculate a trend across a moving average?
determine how often the seasonal variations are (must be even) and then divide each seasonal period by an individual period
What is the criteria for a centred moving average?
The seasonal variations are an even number; must not be odd
How do you calculate a centred moving average?
You average the moving average
formula for the Multiplicative Model
TS = T x SV
Linear Regressions
Predicting a value based on the assumption that a known value has a linear relationship to the unknown value
Index Number
The average change in a group of different items. Can be used to inflate/deflate future/past datasets for forecasting
Basket
An sub-group within an index number
Base Period (Index numbers)
the period in a time series that yields the index of 100
Index Formula
current period value / base period value x 100
Cash flow deflated to previous period
cash flow to deflate x (previous period index number / cash flow year index number)
What are some downsides to index forecasting?
The weightings of each basket item may not reflect the reality of the business
Due to frequent changes, the weightings or even make up of a basket need to be revised regularly
Interpolation definition
forecasts data within a historical data range
Extrapolation definition
forecasts data outside of a historical data range
List some limitations of forecasting
- Factors outside the business’ control like political, economical or market changes can alter the accuracy
- Marketing/advertising will impact data and therefore need to be factored
- The further the forecast, the more unpredictable and unreliable it becomes
Two approaches of sensitivity analysis
- Calculating max change in a variable before the outcome would change
- Determining whether an estimated change in a variable would impact the outcome
Pros of sensitivity analysis
- easy to understand
- highlights most important variables
Cons of sensitivity analysis
- assumes all variables are independent from each other
- Does not assess probability
How to calculate the seasonal variation?
original value less the centred moving average
