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CS/OCT 2006/QMT335

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE COURSE CODE EXAMINATION TIME

BUSINESS FORECASTING QMT335 OCTOBER 2006 3 HOURS

INSTRUCTIONS TO CANDIDATES 1. This question paper consists of four (4) parts : PART A (20 Questions) PARTS (10 Questions) PART C (4 Questions) PART D (3 Questions)

2. 3. 4. 5.

Answer ALL questions from all four (4) parts in the Answer Booklet. Answers to each question from PART D should start on a new page. Do not bring any material into the examination room unless permission is given by the invigilator. The question paper must be submitted together with the Answer Booklet. Please check to make sure that this examination pack consists of: i) ii) the Question Paper an Answer Booklet - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 11 printed pages
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PART A (20 marks)

State the following statements either true (T) or false (F). 1. Under steady environment, previous experience is normally used as the basis to predict the future.

2.
3.
4.

Under the environment of uncertainty, most organizations tend to consider forecasting as not important.
Accuracy is the most important criterion in forecasting.
Forecasting is the whole process of developing the necessary methods to generate the future values.

5.
6.
7. 8.

The assumption that the relationships driving demand in the past would continue unaltered is always correct.
When a forecast value is generated it always mark the end of the forecasting process.
Various approach have been proposed to overcome the common managerial problems of forecasting. There is no single forecasting technique that can be safely said as the best to be applied in all situations.

9. 10. 11. 12.

13.
14.

The availability of sophisticated computer software makes deriving accurate forecast values more difficult. Lack of sufficiently usable data series enables the forecaster to develop the necessary forecast model. The changing market environment makes it more difficult for the forecaster to ensure that the assumptions made on the initial models remains valid. Qualitative techniques are useful in situation where large amount of data are available to formulate the necessary mathematical models.
Qualitative techniques are objective in nature and are generally classified as either projective or univariate.
The quantitative techniques involve the development of the mathematical models needed to generate forecast values.

15.

The quantitative techniques are designed to produce in an objective manner accurate and unbiased estimates of future values in the presence of certainty.

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16. 17.
18. 19.

The projective method of forecasting is usually comprised of models using many variables. The Box-Jenkins methodology is not an example of univariate models in quantitative forecasting techniques.
The causal method of forecasting involved the construction of multiple variable models, generally termed as the regression technique. The causal method of forecasting also provides the explanations of the behavior of the subject under investigation and factors affecting it.

20.

The process of developing quantitative models and generating the forecast is a straightforward activity.

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PART B (20 marks)

Choose the best answer.

1. Which of the following statements is TRUE about forecasting in an organization?

A. B.

C.
D.
E.

It is usually easy to convince the planner and others to use the forecasts effectively and wisely. The managers usually able to realize the forecasters' role and how the forecasters can also mesh their functions within the organization. The forecasters are always viewed as an integral part of the top-level management's decision-making team. Forecasters are always considered as just "backroom boys" in the organization. None of the above.

2.

Which of the following statements is FALSE about forecasting in an organization? A. B. C. Accurate forecasting of future business or economic activities can guide the firm in the right direction. Inaccurate forecast can put a firm in a very difficult financial situation. Forecasting provides the mangers with vital information to plan strategies that fit the firm's environment. Forecasting does not intend to provide users and prepares with standards or criteria of performance and procedure for comparing actual against target. None of the above.

D.
E.

3.

Identify the statements which is TRUE about forecasting in an organization.

A.
B.

C.

D.
E.

The people who are mainly responsible for preparing the forecast were always the top management such as the financial mangers or directors, marketing and accounting executive, university administrator etc. There is always a standard procedure that determines how the forecasts should be prepared within each organization. In some organizations, forecasting is treated as a line function where the forecaster also prepares the plans and then makes decisions. The forecaster cannot be part of a staff function, located away from the other decision-makers or planners who are part of the line function located elsewhere in the organization. None of the above.

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4.

Which of the following skills is needed to get the forecast across to the planners and managers?

I. II. III. IV. A. B. C. D. E.

Communication Salesmanship Strategic Planning Critical Thinking I only I and III only I, II and III only I, II and IV only I, II, III and IV

5.

Which of the following are examples that cannot be classified as a forecasting techniques?

I. II. III. IV. A. B. C. D. E.

Judgmental Subjective Objective Guess Ill only Ill and IV only II and III only I, III and IV only II, III and IV only

6.

Which of the followings are typical examples in the application of qualitative techniques of forecasting?
I. II. III. IV. Forecasting of new products Predicting new technologies Forecasting the state of society Forecasting the Gross Domestic Product (GDP)

A. B. C. D. E.

I only I and III only I, II and III only I, II and IV only I, II, III and IV

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7.

Which of the following is the main weakness in the application of the qualitative techniques? A. B. C. D. E. The forecast values generated are difficult to be evaluated. The forecast values generated are less accurate. Lead to differences in the forecast values. Create different opinions among individuals or groups on the same thing to be forecast. The same individuals may have varying perceptions on the same thing over different points of time.

8.

Which of the following is NOT an example of the qualitative forecasting techniques?

A. B. C. D. E. Delphi Method. Jury of Executive Opinion. Consumer Market Survey. Sales Force Composite. Naive Method.

Questions 9 and 10, refers to the following five (5) of the issues in formulating quantitative forecasting models. For each question given, you are to relate to any one of the issues you considered most appropriate.

A. B. C. D. E.

Forecast Accuracy. Forecast Horizon. Technological Change. Elasticity of Demand. Barrier to Entry.

9.

This explains why forecasting is difficult for highly elastics products as compared to inelastic products. Airlines cannot at will, change for instance, their configurations and fares in order to meet new challenges or competitors.

10.

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PART C (20 marks)

QUESTION 1

Describe the main points as depicted by the following graph which represents the quarterly sales (1997 - 2004) of a company. (Hint: you should concentrate on the description of the components of time series data).
Quarterly Sales (1997 - 2004)

50000

Year/Quarter

(5 marks)

QUESTION 2

The table given represents an Excel spreadsheet. For the cells marked "?", write the appropriate Excel instruction based on the equations given below. Use a = 0.8.

At=aYt a, = 2At ~B, b. = a l-a (4-*,)

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(5 marks)
QUESTION 3

The following figures show the ACF and PACF of a certain time series data. Comment on the data set. YT

.5 -

II I I I I I I I I I I I I I

Confidence Limits

Coefficient
1 2 3 4 5 6 7
9 10 11 12 13 14 15 16

Lag Number

YT
1.0

Confidence Limits

-1.0 1 3 5 7

11 10 12

13 14

15 16

Lag Number

(5 marks)

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QUESTION 4

The following tables represent the statistical output pertaining to a regression model estimated using 4 independent variables.

a) b)

Comment on the value of the Durbin-Watson statistic obtained. (1 mark) Based on the output, write the estimated equation in full (excluding the insignificant variables). (2 marks)
Write the corresponding theoretical model being estimated. (2 marks)
Model Summary(b)
Std. Error of R

c)

Change Statistics

Adjusted
R Square .671

the Estimate 4.478

R Square F
Change .674

Model R 1

Square

Change
204.412

df1 df2 4 395

F DurbinChange Watson Sig.

.000 .964

.821 (a) .674

a. Predictors: (Constant), Time to Accelerate from 0 to 60 mph (sec), Vehicle Weight (kg.), Horsepower, Engine Displacement (cu. cm.), b. Dependent Variable: Kilometre per Litre
ANOVA(b)

Sum Model 1 Regression Residual Total Squares

of
df 4 395 399

Mean Square
4099.073 20.053

F 204.412

Sig. .OOO(a)

16396.293 7920.948 24317.240

a. Predictors: (Constant), Time to Accelerate from 0 to 60 mph (sec), Vehicle Weight (kg.), Horsepower, Engine Displacement (cu. cm.), b. Dependent Variable: Kilometre per Litre. Coefficients(a) Unstandardized Model Coefficients B 1 (Constant)
43.212 Std. Error 2.605 .007 .018 .001
.132

Standardized Coefficients Beta

16.590 .000
.442 .004 .000 .780

Sig.

Engine

Displacement

(cu. cm.) Horsepower -.051 Vehicle Weight (kg.) -.005 Time to Accelerate from
0 to 60 mph (sec)
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-.005

-.073
-.253 -.515 .013

-.770 -2.911 -5.575 .280

.037

a Dependent Variable: Kilometre per Litre

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PART D (40 marks)

QUESTION 1 The following data represent quarterly sales of TY Sdn. Bhd. for the years 2002 to 2005: Sales (RM ' 0 000) 2002 2003 17 10 20 22 15 25 26 35

Period I II III
IV

2004 25 29 34 31

2005 20 34 30 28

a) b)

Find the trend values using the moving average method.

(4 marks)

Determine the seasonal index for each quarter. Comment on the 1st and 4th. quarter indices obtained. (7 marks)
Forecast the sales value for the fourth quarter 2006.
T = 16.625+ 0.9779t.

c)

Given the trend equation: (4 marks)

QUESTION 2

a) b)

State the three stages in the Box-Jenkins methodology. (3 marks) State and explain briefly the major assumption used in the Box-Jenkins methodology. (2 marks)

c)

Write the full equations for each of the following models,

i. ii.
iii.

AR(3) ARMA(1,3)
ARIMA(2,1,2)

(5 marks)

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QUESTION 3

Data below indicate the amount of sales achieved by Syarikat CA Sdn Bhd. for the period 1995 till 2004. As a statistician, you are required by your manager to determine the bestforecast model for this data set, to be used by the company for its planning purposes. From this three (3) models:

i.
ii. iii.

Na'ive with trend,

Average change model, Single exponential smoothing technique (use a = 0.9),

choose one (1) model that you consider is the best for the given data set. Show how the choice of model has been made. Then forecast the sales for 2005.

Year Sales (RM million)

1995 10.0

1996 11.0

1997 11.5

1998 1999 2000 2001 2002 2003 2004

12.0 13.4 14.5 15.0 12.3 11.4 13.0

(15 marks)

END OF QUESTION PAPER

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