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Class notes forecasting
- 1. Forecasting
- 14. Time Series Components Trend Seasonal Cycle Random
Editor's Notes
- At this point, it may be useful to point out the ātime horizonsā considered by different industries. For example, some colleges and universities look 30 to fifty years ahead, industries engaged in long distance transportation (steam ship, railroad) or provision of basic power (electrical and gas utilities, etc.) also look far ahead (20 to 100 years). Ask them to give examples of industries having much shorter long-range horizons.
- One can use an example based upon oneās college or university. Students can be asked why each of these forecast types is important to the college. Once they begin to appreciate the importance, one can then begin to discuss the problems. For example, is predicting ādemandā merely as simple as predicting the number of students who will graduate from high school next year (i.e., a simple counting exercise)?
- A point to be made here is that one requires a forecasting āplan,ā not merely the selection of a particular forecasting methodology.
- This slide distinguishes between Quantitative and Qualitative forecasting. If you accept the argument that the future is one of perpetual, and perhaps significant change, you may wish to ask students to consider whether quantitative forecasting will ever be sufficient in the future - or will we always need to employ qualitative forecasting also. (Consider Tupperwareās ājury of executive opinion.ā)
- This slide outlines several qualitative methods of forecasting. Ask students to give examples of occasions when each might be appropriate. The next several slides elaborate on these qualitative methods.
- This and subsequent slide frame a discussion on time series - and introduce the various components.
- This slide introduces the naĆÆve approach. Subsequent slides introduce other methodologies.
- At this point, you might discuss the impact of the number of periods included in the calculation. The more periods you include, the closer you come to the overall average; the fewer, the closer you come to the value in the previous period. What is the tradeoff?
- This slide introduces the exponential smoothing method of time series forecasting. The following slide contains the equations, and an example follows.
- You may wish to discuss several points: - this is just a moving average wherein every point in included in the forecast, but the weights of the points continuously decrease as they extend further back in time. - the equation actually used to calculate the forecast is convenient for programming on the computer since it requires as data only the actual and forecast values from the previous time point. - we need a formal process and criteria for choosing the ābestā smoothing constant.
- This slide introduces the equation produced in linear trend progression.
- This slide can frame the start of a discussion of correlation.. You should probably expect to add to this a discussion of cause and effect, emphasizing in particular that correlation does not imply a cause and effect relationship. Ask student to suggest examples of significant correlation of unrelated phenomenon.
- This slide introduces overall guideline for selecting a forecasting model. You may also wish to re-emphasize the role of scatter plots, and discuss the role of āunderstanding what is going onā (especially in limiting oneās choice of model).