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Frank says

Hi, in Moving Averages – Example 1. (pg 100).

I went ahead and try to verify the trend vs actual for 2002 Q3.

We figured that the average seasonal variation for Q3 is -3.94 and I calculated the average trend increment is 3.04.

Trend in 2002 Q2 was 107.25, therefore trend in 2002 Q3 should be 107.25 + 3.04 = 110.29.

Actual in 2002 Q3 should be 110.29 (Trend) + -3.94 (Avg seasonal variation) = 106.35. However, the actual sales that we were given was 103.

Could you please let me know what is causing the discrepancy? or if I’m doing this incorrectly.

Thanks a lot.

John Moffat says

Both the average trend increment and the average seasonal variations are precisely that – averages.

It would be a miracle if the actual trend increment were exactly the same each quarter, or if the seasonal variations were exactly constant. If they were then we would not have needed to do all the work calculating the averages

Frank says

Thank you very much for the help.

John Moffat says

You are welcome

neehar says

Great lecture!

I found it really useful to put the numbers in excel and do the calculations (using =AVERAGE) to show the data graphically. Plot the MAs and CAs on a chart too to graphically show the variances.

John Moffat says

Great – thats a good exercise (but obviously not in the exam )

Bhagat says

Brilliant lecture by an equally dashing Professor, if I do say so myself. Thanks again Sir John Moffat!

John Moffat says

Thank you, Bhagat

abhinandh dileep says

thanks alot for the video lectures… its very helpful…

Javeria says

Hello John i completely understand the calculations of this topic but i never get one thing why in the end we have to Sum it to Zero ? please help

John Moffat says

It is because the seasonal variations are all above or below the averages. Some are higher than everage and some are lower that average, and because of the they should add up to zero.

Does that make sense?

Javeria says

Yes thank you so much…. one little thing we have alot of questions in our revision kit on multiplicative model and i cant find a video explaining that, i just want to know is it important and can we expect a lot of questions based on that in exams …… thanks you =)

John Moffat says

The multiplicative model is covered in this video (after the additive model).

I would not expect there to be lots of questions on time series, but there are certainly likely to be some questions – one either or both of the two models.

Javeria says

ok thank you so much =)

Rana Nabeel says

Slam… These should add up to zero as the trend is between high and low averages, and we have four quarters in a year among them two are higher than average and two are lower than average … so if we see the scenario in an “ideal way” then we come to conclusion that with the value the trend gets higher in “first quarter” it should get lower with same value in the 2nd quarter .. and respectively same in 3rd and 4th quarter so adding up these should result in a perfect zero(Ideal Case)..

Hope the answer of the question is satisfactory..

Nata says

Hello John, just for myself to not be confuse is there mistake done in sample 2 calculation multiplicative method? quarter 4: actual / trend should be 98% and in your case its 102% I presume you divide trend/ actual? I am wrong?

John Moffat says

In quarter 4 of 2000, the actual is 90 and the trend is 88.25.

You divide actual by the trend, so 90/88.25 = 102.0%

Chou says

Could you please show me how to forecast the trend of the frist quater in 2003 using additive model and multiplicative model. I do appreciate it ?^_^

Chou says

Could you please show me how to forecast the trend of the frist quater in 2003 using additive model and multiplicative model. I do appreciate it ?^_^

John Moffat says

I think you mean slightly different from what you wrote

What you do to make a forecast is first of all forecast the trend (and this would be the same whether you were using multiplicative or additive), and then you would adjust the trend forecast by the seasonal variation to get the ‘actual’ forecast.

There are several ways you could forecast the trend, but for exams you would effectively use the high low method. In example 1, the trend values increase from 86.00 to 107.25 (which is an increase of 21.25) over 7 quarters (although their are 8 values, there are 7 increases). So on average it is increasing by 21.25 / 7 = 3.036 per quarter.

If we want a forecast for qtr 1 of 2003, then this is 3 quarters away from the last trend value we have (quarter 2 of 2002) and so we take 107.25 + (3 x 3.036) = 116.36.

This is a trend forecast, but we need now to adjust by the seasonal variation.

Using the additive model, in qtr 1 the actual is on average 0.06 more than the trend, so the forecast would be 116.36 + 0.06 = 116.96

Using the multiplicative model, qtr 1 is 100% of the trend, and so the forecast would be 100% x 116.36 = 116.36

Chou says

Thank you so much! I am clear now.

Musa Bin Masood says

ttotal should be total zero can’t understand the logic ??

John Moffat says

Some are higher than average and some are lower than average – however the total difference should be zero.

Suppose you had two numbers – 70 and 80. The average of the two is 75.

The difference between the first number and the average is -5

The difference between the second number and the average is +5

The total of the differences = -5 +5 = 0

Reena says

Hello Sir,

To calculate the moving average is not clear .How to calculate to get 86

tpw says

(84.75+87.25)/2

ryanpieblock says

what is meant by perfect world sir???

chandhini says

@ryanpieblock, Perfect world implies that there are ideal conditions, ie, everything goes just as we expect it to.

hassita says

perfect lecture ever !!!!

sravani says

Thanku Open Tuition was breaking my head trying to understand Seasonal Variations,after watching this I understood in 5 mins..U r grt help for people doing self study..Thanku again.