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12.00
10.00
8.00
the horizontal axis 6.00
corresponds to the 4.00
2.00
time periods 0.00
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Year
Sales
Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall Time 16-7
Trend Component
(continued)
Sales Sales
Time Time
Downward linear trend Upward nonlinear trend
Sales
Summer
Winter
Summer
Winter Spring Fall
Spring Fall
Time (Quarterly)
Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall 16-9
Cyclical Component
Long-term wave-like patterns DCOVA
Regularly occur but may vary in length
Often measured peak to peak or trough to
trough
1 Cycle
Sales
Year
Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall 16-10
Irregular Component
DCOVA
Unpredictable, random, residual fluctuations
Due to random variations of
Nature
Accidents or unusual events
Noise in the time series
Y b0 b1X
2004 0 20
2005 1 40
2006 2 30 In least squares linear, non-linear, and
2007 3 50 exponential modeling, time periods are
numbered starting with 0 and increasing
2008 4 70 by 1 for each time period.
2009 5 65
Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall 16-14
Linear Trend Forecasting
(continued)
DCOVA
The linear trend forecasting equation is:
Time
Year Period Sales Yi 21.905 9.5714 Xi
(X) (Y)
Sales trend
2004 0 20
80
2005 1 40 70
60
2006 2 30 50
sales
40
2007 3 50 30
20
2008 4 70 10
0
2009 5 65
0 1 2 3 4 5 6
Year
Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall 16-15
Linear Trend Forecasting
(continued)
DCOVA
Forecast for time period 6 (2010):
Time
Period
Y 21.905 9.5714 (6)
Year Sales
(X) (y) 79.33
2004 0 20 Sales trend
2005 1 40
80
2006 2 30 70
2007 3 50 60
50
sales
2008 4 70 40
30
2009 5 65 20
2010 6 ?? 10
0
0 1 2 3 4 5 6
Year
Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall 16-16