Quantitative Methods

Forecasting
1. Time-series forecasting
2. Causal forecasting
 FORECASTING
Objectives:

1. Discuss the different types of forecasting techniques.

2. Review accuracy measures used in forecasting.

3. Demonstrate time series forecasting techniques.

4. Give an overview of causal regression.

 Forecasting

Estimates of what will happen in the future

May be done thru subjective or quantitative

techniques

Objective: reduce uncertainty of future

event
 Types of Forecast

1.Extrapolation - historical data stable pattern continue

into the future time-series

a.Moving averages average of consecutive data

points
b.Exponential smoothing moving average with
emphasis on more recent data
c.Trend line analysis or time series regression
predicts rate of growth in a time series
d.Classical decomposition seasonal, trend, cycle,
random
e.Box-Jenkins fit optimal model to past history
2.Causal - find relationship variable to be
forecasted with one or more variables

a.Causal regression future value of a variable

predicted thru behavior of other variable/s
b.Simulation trial-and-error experiments on model
built, predict behavior of process thru time

3.Judgmental - guess, opinion, consensus, survey

a.Jury of executive opinion

b.Sales force composite
c.Customer survey
d.Delphi method
 Forecast Accuracy

1.MAD mean absolute deviation: equal weight to each

error
2.MAPE mean absolute %-age error: error relative to
original Value
3.MSE mean square error: more weight to large errors
4. Bias provides average total error and its direction
5. Standard Error
Forecasting Extrapolation
Emergency calls to a 911 phone system for the past
10 weeks are as follows:
Week Calls Week Calls
1 50 6 35
2 35 7 20
3 25 8 30
4 40 9 35
5 45 10 20

Determine forecast for the 11th week using

1. MA2, MA3, MA3 with 20,30,50 weight
2. SES with alpha = 0.3, 0.7
3. Time series regression
Using the MSE, which of the above is the best
model?
 TIME SERIES FORECASTING:

SEASONAL VARIATION WITH TREND

Quarterly sales in million pesos

Quarter Year 1 Year 2 Year 3 Ave

1 108 116 123 115.67
2 125 134 142 133.67
3 150 159 168 159.00
4 141 152 165 152.67
Ave 131.00 140.25 149.50 140.25
Forecasting Regression

Twelve students entered the undergraduate business

program at ABC College 2 years ago. The following
table indicates what their grade-point averages
(GPAs) were after being in the program for
two years and what each student scored on the
special achievement test (SAT) in high school. Is
there a meaningful relationship between GPA and
SAT scores? If a student scores 350 on SAT, what
will be his GPA? What about a student who scores
800?
GPA SAT GPA SAT GPA SAT GPA SAT
2.90 421 2.93 377 3.00 585 3.45 690
3.66 608 2.88 390 2.15 415 2.53 481
3.22 729 1.99 501 2.75 613 3.90 709