Process of Business Forecasting

Step 1:-At first we have to calculate the 4-quarter moving total by adding the total sale of the all four quarters respectively. At first we add the 4 quarter of 1st year and then leave the quarter 1 of the corresponding year and accept the next quarter i.e. the quarter 1 of the next year. This process is going on in the same pattern. For example:
Year Quat. Sales(Y) 1998 Q1 40 Q2 Q3 Q4 1999 Q1 Q2 Q3 Q4 25 110 15 108 30 109 38 107 26 105 13 80 28 76 4-QMT

For more see the solution page. Step2:-In this step we find the 4-quarter moving average by dividing the 4-quarter moving total by 4.For example:
4-QMT 4-QMA.

110 108 109

27.5 27 27.25

4-QMA=4-QMT/4.

Step3:-The 4-quarter central moving average can be calculated by adding the two continuous 4-quarter moving avg. and divide them by 2. After this we leave the 1st one and accept the next coming and the process is running in the same procedureFor example:

4-QMA.

4-QCMA

27.5 27.25 27 27.125 27.25 27

4-QCMA =(1 4-QMA+2nd 4-QMA)/2 Step4:-In this step specific seasonal index can be calculated .This can be achieved by dividing the actual demand(Y) by 4-quarter central moving average. For example:
Sales(Y) 40 25 15 30 27.25 27.125 0.550 1.106 4-QCMA Specific Seasonal Index(SR) SR=Y/4-QCMA

st

Step5:-After that in this step we calculate the seasonal index. At first we write all respective specific seasonal index in their correspondent quarters and years. At first we select the max. and min SR in an year. After that we add all SR of a year by leaving the max. and min. SR and get the modified sum.

 Dividing the modified sum by total no. of quarter we add,we get the mod.avg.. After that we calculate the adjuscent constant by dividing 4by the total sum of modified avg.. At last we get the seasonal index by multiplying the respective mod. mean with the adjacent constant. For example:
Year 1998 1999 2000 2001 2002 Mod.sum Mod.Avg. Adju.Const. Q1 1.407 0.662 1.463 1.451 2.858 1.429 Q2 Q3 Q4 0.550 1.106 0.981 0.562 1.436 1.054 0.706 1.086 0.971 0.483 1.067 0.908 1.952 0.976 1.112 0.556 2.192 1.096

4.057 0.98595

Red value is maximum and blue value is minimum. The modified sum is achieved by neglecting the max. and min. value.

Quarter Q1 Q2 Q3 Q4

Mod. Mean 1.429 0.976 0.556 1.096

Adju.Const. Seasonal Index(S) 0.98595 1.408923 0.98595 0.962287 0.98595 0.548188 0.98595 1.080601

Seasonal index(S) =Mod. mean X Adjacent Constant

Step6:-We know that the actual demand Y=TCSR and then dividing the Y by Seasonal index(S), we get the Deseasonalized demand (TCR).For example:
Sales(Y) 40 25 15 Seasonal Index(S) 1.40892255 0.9622872 0.5481882 Deaseasionalized Demand(TCR) 28.39048889 25.97976986 27.36286553

30 38

1.0806012 1.40892255

27.76232342 26.97096444

Deseasonalized demand(TCR) = Actual demand/Seasonal index Step7:-After that we develop the coding time value which is (year-the base year). If the total no. of quarter is even then we multiply the coding time value by 2 to get x i.e. coded time value. Step8:-In this step we calculate trend(T) which is Y=a+bx , if the actual demand is straight line or if the actual demand is quadratic in nature then we consider Y=a+bx+cx2. To calculate a,b,c, we consider the following equations: For Straight line:y=na+bx xy=ax+bx For Quadratic curve:y=na+bx+cx xy=ax+bx+cx xy=ax+bx+cx4 For example in this case we get a=26.98714264 and b=0.091596541 and the actual demand is St. line ,then the trend will be Y=26.98+0.091x.
Coded Timevalue(x) -19 -17 -15 -13 -11 Trend (Y=a+bx) 25.24680836 25.43000144 25.61319452 25.79638761 25.97958069

Step9:-After that we calculate the CR which is TCR/T i.e. deseasonalized demand/trend .For example:
Deaseasionalized Demand(TCR) 28.39048889 25.97976986 27.36286553 27.76232342 26.97096444 27.01896066 Trend (Y=a+bx) 25.24680836 25.43000144 25.61319452 25.79638761 25.97958069 26.16277377 CR(TCR/T) 1.1245179 1.0216189 1.0683113 1.0762097 1.0381601 1.0327254

Step10:-In this step we calculate the cyclical component (C) which is obtain by adding the consequent three CR and divided by 3. The process is going on by leaving the 1st one and accepting the next one. For example:
CR(TCR/T) 1.1245179 1.0216189 1.0683113 1.0762097 1.0381601 1.071482715 1.05537998 1.060893721 1.049031745 Cyclical Component

Cyclical component=(1st CR+2nd CR+3rd CR)/3.

Step11:-At last we calculate the random component(R) which is CR/C. For example:
CR(TCR/T) 1.1245179 1.0216189 1.0683113 1.0762097 1.071482715 1.05537998 1.060893721 0.953462783 1.012252777 1.014436896 Cyclical Component Random Component

To see the total calculation please refer to the solution page. ***