Time Series Analysis

Introduction

Time series analysis is a statistical technique

which allows us to examine how data has been
behaving over time. In doing so it allows us to
look at trends in the market. E.g:
 Monthly sales over the last year
 Annual sales for the last 5 years
Forecasting Sales
 A common way to
forecast future sales is to
Sales Year
look back at what
happened in previous £174,000 1989
years £191,000 1990
 The table shows sales £200,000 1991
for an ice cream
manufacturer. £208,000 1992
 Can this be used to £211,000 1993
predict next years sales?
Analysing Sales
 Sales have risen each
year
Sales Year
 Sales have increased by
£37,000 over 5 years £174,000 1989
 The biggest increase £191,000 1990
was in 1989-90
 The smallest increase £200,000 1991
was in 1992-93 £208,000 1992
 The increase in sales
£211,000 1993
has fallen each year
Predicting Sales
 Method 1: There have  Method 1 Forecast:
been 4 yearly rises £ 211,000 + £9,250=
totalling £37,000. The
average is £9,250. £220,250

 Method 2 : The annual  Method 2 Forecast :

rise has been falling. £211,000 + £2000=
Last year it was £3000,
so this year we should £213,000
predict £2000
Your Sales Target

Imagine that you are the

new marketing Manager for
the firm. The Chairman
tells you: “I want to achieve
a sales revenue of at least
£213,000 and if possible
exceed £220,250. Your
bonus depends upon it.”
Researching the market

 Are sales increasing due to inflation, or

because of increased volume?
 Is sales revenue affected by the weather?
 What is the nature of competition?
 What are the overall sales trends in the ice
cream market?
 What % market share do we have?
Using Time Series Analysis
A time series of a products past sales can be split
into four parts:
 The Trend which is the long term underlying
movement of sales.
 The Cycle or long term variations about the trend
caused by booms and slumps.
 Seasonal Factors such as the weather.
 Erratic Factors which depend on unpredictable
events.
 Time Series Components

Trend Cyclical

Seasonal Irregular
 Trend Component

 Persistent, Overall Upward or Downward

Pattern
 Due to Population, Technology etc.
 Several Years Duration

Response

Mo., Qtr., Yr.

 Cyclical Component

 Repeating Up & Down Movements

 Due to Interactions of Factors Influencing
Economy
 Usually 2-10 Years Duration
Cycle Peak
Response Contraction
Trough
Expansion

Mo., Qtr., Yr.

 Seasonal Component

 Regular Pattern of Up & Down Fluctuations

 Due to Weather, Customs etc.
 Occurs Within 1 Year

Summer
Response

Mo., Qtr.
 Irregular Component

 Erratic, Unsystematic, ‘Residual’ Fluctuations

 Due to Random Variation or Unforeseen
Events
– Union Strike
– Freak weather
 Short Duration &
Non-repeating
Moving Average Calculation

Response Moving Total Moving

Time
Yi (L=3) Avg (L=3)
1993 4 NA NA
1994 6 4 + 6 + 5 = 15 15/3 = 5.0
1995 5 6 + 5 + 3 = 14 14/3 = 4.7
1996 3 5 + 3 + 7 = 15 15/3 = 5.0
1997 7 3 + 7 + 6 = 16 16/3 = 5.3
1998 6 NA NA
 Moving Average Graph

8
Sales 6
4
2
0
93 94 95 96 97 98
Year