Question

In: Statistics and Probability

Using the data provided: Plot the data. What does the plot tell you about the appropriateness...

Using the data provided:

  1. Plot the data. What does the plot tell you about the appropriateness of using a trend and seasonally adjusted model for your data?
  2. Develop a forecast model that incorporates both a trend and seasonal adjustment (even if its not necessarily there).
  3. Develop a forecast for the four periods beyond your data.
  4. Calculate a MAD and Bias based on the last 12 periods of known data. What do the MAD and bias indicate about your model?
  5. Overall, are you satisfied with your model? If so, why? If not, suggest some things that could be done to improve your model.

data:

Year Quarter Revenue
1999 Qtr1 1,939
Qtr2 2,373
Qtr3 2,651
Qtr4 3,111
2000 Qtr1 3,187
Qtr2 3,634
Qtr3 3,702
Qtr4 3,738
2001 Qtr1 3,627
Qtr2 3,916
Qtr3 3,588
Qtr4 2,932
2002 Qtr1 2,931
Qtr2 3,556
Qtr3 3,812
Qtr4 4,085
2003 Qtr1 4,570
Qtr2 4,189
Qtr3 4,594
Qtr4 4,576
2004 Qtr1 5,245
Qtr2 6,276
Qtr3 6,558
Qtr4 7,420
2004 2003 2002 2001 2000 1999
Qtr1 5,245 4,570 2,931 3,627 3,187 1,933
Qtr2 6,276 4,189 3,556 3,916 3,634 2,373
Qtr3 6,558 4,594 3,812 3,588 3,702 2,651
Qtr4 7,429 4,576 4,085 2,932 3,738 3,111
Year 25,508 17,929 14,384 14,063 14,300 10,068

Solutions

Expert Solution

Plot of the Raw Data

I don't find any seasonality effect in the data. Definitely, there is a trend. So, my choice is Holt's method. We can implement Holt's method in Minitab (or any other software) or in Excel spreadsheet. I prefer Excel.

Alpha = 0.99 Beta = 0.1
Period Revenue
(Yt)
At Tt Period
ahead
Forecast Absolute Error Absolute %
Error
1 1939 1939.0 0.0
2 2373 2368.7 43.0 1 1939.0 434.0 18.3%
3 2651 2648.6 66.7 1 2411.6 239.4 9.0%
4 3111 3107.0 105.8 1 2715.3 395.7 12.7%
5 3187 3187.3 103.3 1 3212.9 25.9 0.8%
6 3634 3630.6 137.3 1 3290.5 343.5 9.5%
7 3702 3702.7 130.8 1 3767.8 65.8 1.8%
8 3738 3739.0 121.3 1 3833.4 95.4 2.6%
9 3627 3629.3 98.2 1 3860.3 233.3 6.4%
10 3916 3914.1 116.9 1 3727.6 188.4 4.8%
11 3588 3592.4 73.0 1 4031.0 443.0 12.3%
12 2932 2939.3 0.4 1 3665.5 733.5 25.0%
13 2931 2931.1 -0.5 1 2939.7 8.7 0.3%
14 3556 3549.7 61.5 1 2930.6 625.4 17.6%
15 3812 3810.0 81.3 1 3611.2 200.8 5.3%
16 4085 4083.1 100.5 1 3891.3 193.7 4.7%
17 4570 4566.1 138.8 1 4183.6 386.4 8.5%
18 4189 4194.2 87.7 1 4704.9 515.9 12.3%
19 4594 4590.9 118.6 1 4281.8 312.2 6.8%
20 4576 4577.3 105.4 1 4709.5 133.5 2.9%
21 5245 5239.4 161.0 1 4682.7 562.3 10.7%
22 6276 6267.2 247.7 1 5400.4 875.6 14.0%
23 6558 6557.6 252.0 1 6515.0 43.0 0.7%
24 7420 7413.9 312.4 1 6809.6 610.4 8.2%
25 1 7726.3
26 2 8038.7
27 3 8351.2
28 4 8663.6
MAD = 333.3
MAPE = 8.5%

Formulation

Determine Bias (With Tracking Signal)

Period Revenue
(Yt)
Forecast Absolute Error Error RSFE Tracking Signal Biased?
13 2931 2770.4 160.6 160.6 -443.0 -2.76 Y
14 3556 2813.8 742.2 742.2 299.2 0.40 N
15 3812 3637.0 175.0 175.0 474.2 2.71 Y
16 4085 3938.2 146.8 146.8 621.0 4.23 Y
17 4570 4250.1 319.9 319.9 940.9 2.94 Y
18 4189 4820.3 631.3 -631.3 309.6 0.49 N
19 4594 4269.8 324.2 324.2 633.8 1.95 N
20 4576 4762.9 186.9 -186.9 446.9 2.39 Y
21 5245 4694.2 550.8 550.8 997.8 1.81 N
22 6276 5510.9 765.1 765.1 1762.8 2.30 Y
23 6558 6745.4 187.4 -187.4 1575.4 8.41 Y
24 7420 6975.6 444.4 444.4 2019.8 4.55 Y

Considering an acceptable range of [-2,2] for the tracking signal, we cannot say that the forecast is free from bias.

Overall, the bias is high and the MAPE and MAD are also not very low (e.g. a MAPE below 5% would have been a good estimate). We thus propose a more advanced model such as ARIMA.


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