QUANTITATIVE TECHNIQUES

By, MATHEW.M.C

Quantitative methods
 These types of forecasting methods are

based on quantitative models, and are objective in nature. They rely heavily on mathematical computations .

Quantitative methods are categorized into two
 Time series model

These models predict on the assumption that future is the projection of the past. They analyze a series of past data to forecast for the future  Casual models Casual forecasting methods are based on a known or perceived relationship between the factor to be forecast and other external or internal factors

Time series models  Simple Moving average.  Weighted moving average.  Exponential smoothing models Casual models

 Regression analysis

Components time series model
 Average: the mean of the observations over time .  Trend: a gradual increase or decrease in the average over time.  Seasonal Influence: predictable short-term cycling behavior

due to time of day, week, month, season, year, etc.  Cyclical Movement: unpredictable long-term cycling behavior due to business cycle or product/service life cycle.  Random Error: remaining variation that cannot be explained by the other four components

Simple moving average
 A moving average forecast uses a number

of most recent historical actual data values to generate a forecast.
Simple Moving Average: =1/n (D1+D2 +D3 + …..+Dn)

Where n= no. of years. D1= oldest period. Dn= recent periods

Weighted average method
 Each historical demand in the moving

average can have its own weight and the sum of the weights is equal to one

Exponential moving average
 Exponential smoothing gives greater weight to

demand in more recent periods, and less weight to demand in earlier periods.

Average: Ft= Ft-1 + a( Dt-1 – Ft-1 ) a= smoothing constant. Ft-1 = Forecast of previous month. Dt-1 = Actual sales of the month. Ft = Forecast of future month.

Regression Analysis
 Provides techniques for the modeling and analysis

of numerical data consisting of values of a dependent variable (also called response variable or measurement) and of one or more independent variables (also known as explanatory variables or predictors).  The dependent variable in the Regression equation is modeled as a function of the independent variables, corresponding parameters (constants), and an error term.

Continued..
 The error term is treated as a random

variable.  It represents unexplained variation in the dependent variable.

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