TIME SERIES Madam Fatimah

Madam Nursyahira
Dr Phang
 INTRODUCTION Example of time series charts

Definition : A time series is a sequence or series of

measurements taken at regular intervals of time –
daily, weekly, monthly, quarterly, or annually.
It is used to understand the determining factors and
structure behind the observed data, choose a model to
forecast, thereby leading to better decision making.
A time series carries profound importance in business
and policy planning. It is used to study the past
behaviour of the phenomena under consideration. It is
also used to compare the current trends with that in the
past or the expected trends. Thus it gives a clear
picture of growth or downfall.
Examples of time series include the continuous
monitoring of a person's heart rate, hourly readings of
air temperature, daily closing price of a company
stock, monthly rainfall data, and yearly sales figures. 
There are four components of time series :

•Trend – It is a gradual movement of data over a relatively long period of time. Direction
of movement can be upward (increasing) or downward (decreasing).
E.g. Increase in the number of students’ intake to pursue studies in UiTM.

•Seasonal variation – It is a short term oscillations with rises and falls occur at specific
time of a year. The pattern repeats annually.
E.g. Increase in the number of vehicles in the PLUS Highway during Hari Raya holidays.

•Cyclical variation –It is a long term oscillations with gentle rises and falls largely due to
general economic conditions. Each cycle occurs over several years.
E.g. Increase in the unemployment rate due to economic stability.

•Irregular variation – It is a movement with a sudden erratic and drastic deviation from
the norm. The deviation occurs randomly and do not repeat regularly.
E.g. Increase in demand for roof materials in Aceh after the tsunami.
MOVING AVERAGE METHOD
A moving average is a technique to get an overall idea of the trends in a data set. It
is an average of any subset of numbers. The moving average is extremely useful
for forecasting long-term trends. You can calculate it for any period of time.
For example, if you have sales data for a twenty-year period, you can calculate a
five-year moving average, a four-year moving average, a three-year moving average
and so on. 
Stock market analysts will often use a 50 or 200 day moving average to help them
see trends in the stock market and (hopefully) forecast where the stocks are headed.
ODD MOVEMENT
The following table shows the total daily sales of a company for the first 3 weeks of a
particular month.
Week Daily sales (RM’00)
Mon Tues Wed Thurs Fri
1 36 40 60 48 65
2 35 58 49 43 68
3 49 44 38 59 68

a) Calculate trend using the moving average method.

b) Plot the actual data together with the trend values obtained in i)
c) Compute the seasonal index for each day.
d) Explain the meaning of the seasonal index on Thursday & Friday.
e) Predict the sales on Wednesday of the 4 th week.
 Week Day Sales (Y) 5 MA total Trend (T)

a) 1 Mon 36 - - -
Odd movement –
Tue 40 - - - 3/5/7/…
Wed 60 249 ÷𝟓 49.80 120.48
How to identify
Thur
s
48
248
÷𝟓 49.60 96.77
number of
movement – refer to
Fri 65 266 53.20 122.18 number of rows in
2 Mon 35 255 51.00 68.63 the 2nd column
Tue 58 (in this example,
250 50.00 116.00
there are 5 rows in
Wed 49 253 50.60 96.84 the 2nd column, Day)
Thur  5 MA
43
s 267 53.40 80.52
Fri 68 253 50.60 134.39
3 Mon 49 242 48.40 101.24
Tue 44 258 51.60 85.27
Wed 38 258 51.60 73.64
Thur - - -
59
s
b)
Total daily sales of a company
80
70
60
50
Sales (RM'00)

40
Sales (Y)
30 Trend (T)
20
10
0

Tue

Thurs
Tue

Tue
Thurs

Thurs
Fri

Fri
Fri
Wed

Wed
Wed
Mon

Mon

Mon
1 2 3

Day/Week
 c)

1
𝒀
× 𝟏𝟎𝟎
Average = 𝑻

3
2
4
5
SI = Average x CF

d) Sales on Thursday is 11.26% lower than trend. (100 – 88.74 = 11.26%)

Sales on Friday is 28.41% higher than trend. (128.41 – 100 = 28.41%)
e) Predict the sales on Wednesday of the 4th week. Wee 5 MA
Day Y
k total T
Steps : 1 Mon 36
  Tue 40
1) Average change, ∆ =
  Wed 60 249 49.80 T1120.48
2) T = Tn + ∆(t)   Thurs 48 248 49.60 96.77
  Fri 65 266 53.20 122.18
3 2 Mon 35 255 51.00 68.63
  Tue 58 250 50.00 116.00
  Wed 49 253 50.60 96.84
n = 11
1) Average change =   Thurs 43 267 53.40 80.52
  Fri 68 253 50.60 134.39
2) T = 51.60 + 0.18(5) = 52.5(RM’00) 3 Mon 49 242 48.40 101.24
  Tue 44 258 51.60 85.27
3) = 50.97 (RM’00)
  Wed 38 258 51.60 73.64
  Thurs 59 t=1 T
n
  Fri 68 t=2
= 97.09 4 Mon t=3
Tue t=4
Wed t=5
EVEN MOVEMENT
The advertising cost (RM’000) for DGT Tech Enterprise for each quarter for the year 2000
to 2003 were as follows.
Quarter
Year
1 2 3 4
2000 - 126 81 144
2001 81 126 86 143
2002 82 119 83 135
2003 93 145 101 -

a) Find the trend values using the moving average method. Give your answer to the nearest
RM.
b) Calculate the seasonal index for each quarter.
c) Explain the seasonal index for the 1st and the 4th quarter.
d) Forecast the advertising cost for the 3rd quarter of 2005.
 4 MA Centered Y
Year Quarter Cost (Y) Trend (T) x100
Total Total T
a) 2000 1 - - - - -
             
  2 126     - -
              Even movement –
  3 81     - - 4/6/…
      432      
  4 144   864 108 133
÷8
      432       How to identify number
2001 1 81   869 109 74
      437   ÷8     of movement – refer to
  2 126   873 109 116 number of rows in the
      436      
  3 86   873 109 79 2nd column
      437       (in this example, there
  4 143   867 108 132
      430       are 4 rows in the 2nd
2002 1 82   857 107 77 column, Quarter)
      427      
  2 119   846 106 112  4 MA
      419      
  3 83   849 106 78
      430      
  4 135   886 111 122
      456      
2003 1 93   930 116 80
      474      
  2 145     - -
             
  3 101     - -
             
  4 - - - - -
b) Year
Quarter  
1 2 3 4  
2000 - - - 133  
2001 74 116 79 132  
2002 77 112 78 122  
2003 80 - - -  
Total 231 228 157 387  
Average 77 114 78.5 129 ∑ave. = 398.5
400    
  CF     1.0038
398.5  
SI 77.3 114.4 78.8 129.5  

c) The advertising cost for the 1st quarter is 22.7% below the trend.
The advertising cost for the 4th quarter is 29.5% above the trend.
 Cost 4 MA Centered
Year Quarter Trend (T)
(Y) Total Total
  3 81     - -
d) Forecast the advertising cost for  
 
 
4
 
144
432
 
 
864
  T1
108
 
133
      432      
the 3rd quarter of 2005. 2001 1 81   869 109 74
      437      
n=10
  4 135   886 111 122
1) Average change =       456      
2003 1 93   930 116 80
2) T = 116 + 0. 89(10) = 124.9  
 
 
2
 
145
474
 
 
 
 Tn
-t=1
 
-
             
3) = 98.42 (RM’000)   3 101     -t=2 -
             
  4 - - - -t=3 -

2004 1 t=4

2 t=5

3 t=6

4 t=7

2005 1 t=8

2 t=9

3 t =10