Forecasting technique - additive model
TS=T + SV
LINEAR REGRESSION TO FORECAST
y= a+ bx
X is the time period asked about e’.g. Month 13
A and B are provided
Index number - listed at 100 and compared to 100
Current period
——————— x100
Base period
If want more than 100 the biggest number goes at top and smallest at bottom and vice versa
Limitation of index number
-
-will need to revise due to products being introduced and others being discounted
Limitation of forecasting
- based on data therefore if limited data then forecast will be limited
if provided limited historical data than the forecast provided will be less reliable
- if forecast is for future terms the longer the less reliable
- less reliability to future forecast
Sensitivity analysis - assess risks
Profit / variable cost * 100
When risks arise there is a range so to dictate the range we use the EV equation. The highest EV is the one chosen
EV= sum of PX
P= probability of outcome
X = value of outcome
