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Linear trend:
At = + t
Exponential trend:
At = t
Note that:
ln At = ln lnt
Gompertz trend:
At =
Exponential
Trend
Asymptotic
Trend
S-Curve Trend
ADM 3301 ~ Rim Jaber
EXAMPLE 4
(Blitz Beer Sales)
Pertiod
12
34
56
78
9
10
SaA
lets
44,,899100
45,,907100
55,,016000
55,,015700
55,,128400
Pertiod
1112
1134
1156
1178
1290
SaA
lets
55,,222800
55,,333800
55,,444600
55,,542900
55,,565000
SALES
5500
5000
4500
0
10
12
PERIOD
14
16
18
20
4
Deviation7
Deviation5
Deviation6
Deviation3
Deviation4
Deviation1
(error)
Deviation2
Trend line, ^y = a + bx
Time period
2011 Pearson Education, Inc. publishing as Prentice Hall
Figure 4.46
Deviation7
Deviation5
Deviation3
Deviation6
Deviation1
(error)
Deviation2
Trend line, ^y = a + bx
Time period
2011 Pearson Education, Inc. publishing as Prentice Hall
Figure 4.47
11
Coefficient of Determination: R2
0 <= R2 <= 1
R2 = 0.85
85% of the variability in Y or AT can be explained by the
regression equation
85% of the variability in Y or AT can be explained through
the knowledge of the independent variable X or T
13
Correlation
How strong is the linear relationship
between the variables?
Correlation does not necessarily imply
causality!
Coefficient of correlation, r, measures
degree of association
Values range from -1 to +1
14
COEFFICIENT OF
CORRELATION VALUES, r
Perfect
Negative
Correlation
-1.0
Perfect
Positive
Correlation
No
Correlation
-.5
Increasing degree of
negative correlation
+.5
+1.0
Increasing degree of
positive correlation
15
Correlation Coefficient
r=
nxy - xy
[nx2 - (x)2][ny2 - (y)2]
Correlation Coefficient
r=
nxy - xy
2
2
2
2
[nx
(x)
][ny
(y)
]
x
(b) Positive
correlation:
0<r<1
(c) No correlation:
Copyright 2014 Pearson
Canada Inc. r = 0
x
Fig. 4.10
EXCEL OUTPUT
(Blitz Beer Sales)
SUMMARY OUTPUT
Regression Statistics
|r|
Multiple R 0.9937799
R2
R Square 0.9875985
Adjusted R Square 0.9869096
18
ANOVA
df
Regression
Residual
Total 19
EXCEL OUTPUT
(Blitz Beer Sales)
SS MS F
1
926737.78 926737.78 1433.4423
18
11637.218 646.51211
938375
a
Coefficients
Standard Error t Stat P-value
Intercept
4850.5263
11.811457
410.66284
X Variable 1 37.330827
0.9860014
37.860827
b
3.331E-37
1.294E-37
t Stat >= 2
P-value <= 0.05
ADM 3301 ~ Rim Jaber
19
Coef
Stdev
4850.53 11.81
37.33
0.99
t-ratio p
410.66 0.000
37.86 0.000
s = 25.43
R-sq = 98.8%
R-sq(adj) = 98.7%
20
DF
1
18
19
SS
926738
11637
938375
MS
F
p
926738 1433.44 0.000
647
Unusual Observations
Obs. PERIOD
7
7.0
SALES
5050.00
Fit
5111.84
Stdev.Fit
6.65
Residual
-61.84 R
21
SIGNIFICANCE
(Is the model useful?)
The regression will only be useful if there is a linear
relationship between T and Y (that is, if 0)
We must test the hypotheses:
H0: =0
H1: 0
22
CAVEATS
Variation ( around the regression line must be
random, with mean equal to 0 and standard
deviation (typically normally distributed).
Predictions outside the range of observed values
are not very accurate. Unfortunately, in
forecasting, you are almost always going out of
the observed range of T values.
23
Desired Pattern
Error
Error
0
Time (Years)
Time (Years)
24
SALES
5500
5000
4500
0
10
12
PERIOD
ADM 3301 ~ Rim Jaber
14
16
18
20
25
y^ = a + b1x1 + b2x2
Computationally, this is quite complex and
generally done on the computer
ADM 3301 ~ Rim Jaber
26
TECHNIQUES FOR
SEASONALITY
Nave Method
Time Series Decomposition Models
27
Cyclical
Seasonal
Random
28
Components of Demand
Trend
component
Seasonal peaks
Actual demand
line
Average demand
over 4 years
|
1
Random variation
|
|
2
3
Time (years)
|
4
Figure 4.1
29
30
Quantity
Quantity
months
months
Additive Model
Multiplicative model
ADM 3301 ~ Rim Jaber
31
EXAMPLE 5
(Tackey Toys)
M
o1nthD
e
m
a
n
dM
o
n
t
h
D
e
m
a
n
dM
o
n
t
h
D
e
m
a
n
dM
o
n
t
h
D
e
m
a
n
d
54525 13 52978 25 52066 37 51141
14
DEMAND
90000
DEMAND
70000
50000
30000
10000
12
24
MONTH
36
48
33
34
SEASONAL INDICES
2.2
2.0
1.8
1.6
S. I.
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
12
24
MONTH
36
48
37
38
DESEASONALIZED DEMAND
WITH TREND
DES DEM
47000
42000
37000
32000
0
12
18
24
30
36
42
48
MONTH
ADM 3301 ~ Rim Jaber
39
Calculate C R = A / (T S )
t
40
C*R
1.05
1.00
0.95
0.90
0
12
18
24
30
36
42
48
MONTH
ADM 3301 ~ Rim Jaber
41
USING THE
MULTIPLICATIVE MODEL
F = T S C
Here, C 1, so we can neglect it).
t
90000
80000
DEMAND
70000
60000
50000
40000
30000
20000
10000
0
12
24
MONTH
36
48
42