Forecasting Flashcards
Time series analysis
Time series analysis is a method which businesses use past sales figures in order to predict there future sales.
Why use TSA?
TSA allows a business to predict there forthcoming sales and they can adjust spending and strategies around this.
How does the graph look?
Simple X and Y axis, Plotted with the average sales( Time series) and then the three day moving average is illustrated as a line of best fit.
What does the time series look like if the business is on a steady growth
Steady elevation with a line of best fit
What does the graph illustrate?
It illustrates growing trends and patterns in business sales which can show some variation.
How do you calculate 3 period moving averages (Trends) Figure 1 in notes
You calculate the average sales for 1 period and then move down. You need to add together the first 3 periods and divide them by three for a 3 day moving average.
E.G figure 1 in revision notes
Month. Time series. 3 day moving average
1 70.
2. 80. 100
3. 150
70 + 80 + 150 = 300
300/3 = 100
Define Seasonal Variation
Sales increase over specific times e.g winter jackets upcoming and across winter.
Define cyclical variation
Sales of your product depend on the state of the economy (trade cycle)
Working out season variation and average variation.
The difference between time series and the three period moving average gives you seasonal variation.
The average variation between every odd month period for example. 2 consecutive seasonal variations added together and divided by 2 (Number of months)
What is forecasting
Forecasting is predicting upcoming business performance based upon prior sales or expert opinion
Advantages of forecasting
Allows for businesses to choose strategy Can help determine investment Predicting profit and loss can prevent less emotional stress if the stakeholders are expecting it. Stock movements and managements -Cost reductions.
Disadvantages of forecasting
Does not account for unforeseen events
Usually based upon past sales so can limit innovation
Qualitative forecasting
Forecasting that does not use numerical data, instead uses expert opinion.
Structured qualitative forecasting and its advantages and disadvantages
Forecasting which is using expert opinion such as DELPHI Which uses a group of experts to come to a conclusion
Advantages
Objective set of eyes
Likely have experience in implementing strategies
Disadvantages
They do not know the business and how it works
Unstructured qualitative research and its advantages and disadvantages
Methods such as the business brainstorming
Advantages
Cheaper
People within the business know the best alternative strategies and implementation
Disadvantages
May not have considered things experts would consider.
