Week 5 Lecture 2 Forecasting

Question 1

What are the two types of seasonality that a business may suffer?

Answer 1

Additive seasonality

Multiplicative seasonality

Question 2

What is the ‘Additive seasonality model’?

Answer 2

The seasonality of a particular period is added to the value for the period.

Value of forecast = Trend + seasonality + irregular activity

Question 3

What is the ‘multiplicative seasonality model’?

Answer 3

The effect that seasonality has upon a business is multiplied to establish the forecast.

Value = Trend x Seasonality x Irregular activity

Question 4

What are the 4 steps to calculating seasonal factors?

Answer 4

1. Moving average over the length of the cycle.
2. Centre is necessary.
3. Calculate the seasonal factor for each value:
   Multiplicative: Seasonal = Value / Moving Average
   Additive: Seasonal = Value - Moving Average
4. Adjuste to get the correct totals
   Multiplicative should equal 1
   Additive should equal 0

Question 5

How is the correct amount of points to use in a moving average?

Answer 5

The number of periods.

E.g. If quarterly data, we should use 4 point moving average

Question 6

What is the general strategy for seasonality decomposition?

Answer 6

1. Identify the type of seasonality (additive or multiplicative)
2. calculate the seasonal factors
3. Take the seasonality out of the data (just leave the trend).
4. Forecast the trend
5. Add back the seasonality.