N-UniE

31:5. TREND PROJECTION IN FORECASTING

artt
In the trend projection method of forecasting, the value of time series
exhibits a long-term linear
trend. This trend line may be linear (straight line) or curvilinear
in this chapter is on linear trend only which is determined (non-linear) in nature. But our focus
by graphical means. For this, the given time
series data are plotted on the graph that represent the time scale on
X-axis.
Then, a
drawn through these points in such a way, that () the sum of deviations above the line straight
line is
is equal to the
sum of deviations below the line so hat the sum of
deviations is equal to zero, and (ii) the sum of
the squares of these (vertical) deviations is the minimum. In other words, the
trend line is drawn on
the basis of the
principle of least squares. Such a line, like any other straight line, is represented by
the equation
Y a+ bx
where a = intercept of the trend line,
b= slope of the trend line,
x = independent variable, i.e., time, and
Y, the trend value (which is to be computed).
The value of constant a' and "b' of the trend line drawn on the
principle of least squares are
obtained by using the following pair of normal equations
y Na + bEx, and 2xy
=
aEx + bEx
=

b Nry
Alternatively, 2- N and a =
y - bx
924
OPERATIONS RESEARCH
Here, 2x =
summation of the values of independent variable, i.e.,
time,
2y summatiòn of the values of dependent variable (the variable whose
values are to be
forecasted),
Zxy summation
=
of the b
products of x and corresponding y values,
summation of the squares of values
of the independent variable
y the average value of the time series, and eusg tdW

N =number of obiwoliot sb ol E
periods. oiage
Note. If we take the middle time
will be
or period the mid-point of the two time periods as the
x
equal to zero and the pair of normal equations becomes starting point,
Eyy Na and 2xy b2:2 =
odh nvig
or
a = and b
31:6 SEASONAL COMPONENTS IN FORECASTING
seasonal index is used. The seasonal index is
In measuring seasonal variation of a time series,
the percentage which the seasonal averages bear
expressed as percentage and is obtained by finding
of monthly or quarterly time series data
to the average of the seasonal averages. A consideration
makes it easy to study seasonal patterns. Seasonal indices, which are
used to study seasonal variátions
a number of methods. Here, we demonstrate the
method of simple averages
can be obtained by using
only.
In fact seasonal indices give us a clear idea about the relative position of each month or quarter
in time series data relating to such matters as production, sales, employment, and so on. Furthermore,
seasonal indices may be used for short-term forecasting, which is quite necessary for planning the
future course of action. For example.in studying the production figures of a company's overtime, the
seasonal indices may be used to plan for the hiring of personnel for peak periods, to accumulate an IS

inventory of raw materials, to allocate vacation time.

A
31:7.(CASUAL FORECASTING METHOD
be forecasted, called the
The casual forecasting method consider the situations where the variable to in a
is related to an independent variable.
For example, production of goods
dependent variable, of
manpower, ime, and so on. Similarly,
sales a

manufacturing company depends on raw

material,
on the price of product, competitors
price, level of economic activity, and
particular product depends a statistical relationship
between
The forecasting of dependent variable is done by developing
so on. analysis.
variable. This is done in terms of regression
it and the independent variable and one dependent variable
for which the
involving one independent
Regression analysis a straight line is
called simple linear
the variables is approximated by called multiple
relationship between two or independent variables is
more
regression. Regression analysis involving
regression analysis.