Transcript 8114-08
Session 8 Overview Forecasting Methods • Exponential Smoothing – Simple – Trend (Holt’s Method) – Seasonality (Winters’ Method) • Regression – Trend – Seasonality – Lagged Variables Applied Regression -- Prof. Juran 2 Forecasting 1. Analysis of Historical Data • Time Series (Extrapolation) • Regression (Causal) 2. Projecting Historical Patterns into the Future 3. Measurement of Forecast Quality Applied Regression -- Prof. Juran 3 Measuring Forecasting Errors • Mean Absolute Error • Mean Absolute Percent Error • Root Mean Squared Error • R-square Applied Regression -- Prof. Juran 4 Mean Absolute Error n MAE Applied Regression -- Prof. Juran i 1 i n 5 Mean Absolute Percent Error i n Y i MAPE 100% * 1 n Or, alternatively 100% * Applied Regression -- Prof. Juran i n i Yˆ i 1 i n 6 Root Mean Squared Error n RMSE 2 i i 1 n SSE n Applied Regression -- Prof. Juran 7 R-Square R 2 SSE SSR 1 TSS TSS Applied Regression -- Prof. Juran 8 Trend Analysis • Part of the variation in Y is believed to be “explained” by the passage of time • Several convenient models available in an Excel chart Applied Regression -- Prof. Juran 9 Example: Revenues at GM GM Revenue 60000 50000 Revenue 40000 30000 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 10 You can “add chart element – trendline”, and choose to superimpose a trend line on the graph. Applied Regression -- Prof. Juran 11 GM Revenue - Linear Trend 60000 50000 Revenue 40000 30000 20000 y = 340.23x + 31862 2 R = 0.6618 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 12 GM Revenue - Logarithmic Trend 60000 50000 Revenue 40000 30000 20000 y = 5162.3Ln(x) + 24937 2 R = 0.6601 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 13 GM Revenue - Polynomial Trend 60000 50000 Revenue 40000 30000 20000 y = -5.6121x2 + 604x + 29752 R2 = 0.6872 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 14 GM Revenue - Power Trend 60000 50000 Revenue 40000 30000 20000 0.1372 y = 26532x 2 R = 0.6783 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 15 GM Revenue - Exponential Trend 60000 50000 Revenue 40000 30000 y = 32044e0.0088x 2 R = 0.6505 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 16 You can also show moving-average trend lines, although showing the equation and R-square are no longer options: GM Revenue - 4-Period Moving Average 60000 50000 Revenue 40000 30000 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 17 GM Revenue - 3-Period Moving Average 60000 50000 Revenue 40000 30000 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 18 GM Revenue - 2-Period Moving Average 60000 50000 Revenue 40000 30000 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 19 Simple Exponential Smoothing Basically, this method uses a forecast formula of the form: Ft k Lt Forecast “k” periods in the future = Current “Level” = Weighted Current Observed Value + Weighted Previous Level Yt 1 Lt 1 Note that the weights must add up to 1.0. Applied Regression -- Prof. Juran 20 Why is it called “exponential”? Lt Lt 1 t Yt 1 Yt 1 1 2 Yt 2 1 3 Yt 3 ... See p. 918 in W&A for more details. Applied Regression -- Prof. Juran 21 Example: GM Revenue GM Revenue 60000 50000 Revenue 40000 30000 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 22 In this spreadsheet model, the forecasts appear in column G. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 A Alpha B 0.100 MAE RMSE MAPE 4014.376 4690.9738 11.148% C D E F GM_Rev SmLevel 1-91 29200 29200.0 =AVERAGE(I3:I47) 2-91 31300 29410.0 =SQRT(AVERAGE(K3:K47)) 3-91 28900 29359.0 =AVERAGE(J3:J47) 4-91 33600 29783.1 1-92 32000 30004.8 2-92 35200 30524.3 3-92 29400 30411.9 4-92 35800 30950.7 1-93 35000 31355.6 2-93 36658 31885.9 3-93 30138 31711.1 4-93 37268 32266.8 1-94 37495 32789.6 2-94 40392 33549.8 3-94 34510 33645.8 4-94 42553 34536.6 G Forecast H I J Error abs(error) abs(%error) K error^2 L M 29200.0 2100.0 2100.0 7.2% 4410000.0 29410.0 -510.0 510.0 1.7% 260100.0 29359.0 4241.0 4241.0 14.4% 17986081.0 29783.1 2216.9 2216.9 7.4% 4914645.6 =$B$1*E7+(1-$B$1)*F6 30004.8 5195.2 5195.2 17.3% 26990206.8 30524.3 -1124.3 1124.3 3.7% 1264075.3 =F8 30411.9 5388.1 5388.1 17.7% 29031838.1 30950.7 4049.3 4049.3 13.1% 16396895.8 =E11-G11 31355.6 5302.4 5302.4 16.9% 28115204.6 31885.9 -1747.9 1747.9 5.5% 3055016.2 =ABS(H13) 31711.1 5556.9 5556.9 17.5% 30879421.8 32266.8 5228.2 5228.2 16.2% 27334420.4 =ABS(H15/G15) 32789.6 7602.4 7602.4 23.2% 57796633.2 33549.8 960.2 960.2 2.9% 921924.0 =H17^2 33645.8 8907.2 8907.2 26.5% 79337354.0 Note that our model assumes that there is no trend. We use a default alpha of 0.10. Applied Regression -- Prof. Juran 23 GM Revenue - Simple Smoothing (alpha 0.10) 60000 50000 Revenue 40000 30000 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 24 We use Solver to minimize RMSE by manipulating alpha. A 1 Alpha 2 3 MAE 4 RMSE 5 MAPE 6 7 8 9 10 11 12 13 14 15 16 17 B 0.350 3275.989 3653.2722 8.584% C D 1-91 2-91 3-91 4-91 1-92 2-92 3-92 4-92 1-93 2-93 3-93 4-93 1-94 2-94 3-94 4-94 E F GM_Rev SmLevel 29200 29200.0 31300 29935.9 28900 29572.9 33600 30984.1 32000 31340.1 35200 32692.7 29400 31538.9 35800 33032.1 35000 33721.7 36658 34750.6 30138 33134.3 37268 34582.8 37495 35603.3 40392 37281.4 34510 36310.2 42553 38497.9 G Forecast 29200.0 29935.9 29572.9 30984.1 31340.1 32692.7 31538.9 33032.1 33721.7 34750.6 33134.3 34582.8 35603.3 37281.4 36310.2 H I J Error abs(error)abs(%error) 2100.0 -1035.9 4027.1 1015.9 3859.9 -3292.7 4261.1 1967.9 2936.3 -4612.6 4133.7 2912.2 4788.7 -2771.4 6242.8 2100.0 1035.9 4027.1 1015.9 3859.9 3292.7 4261.1 1967.9 2936.3 4612.6 4133.7 2912.2 4788.7 2771.4 6242.8 7.2% 3.5% 13.6% 3.3% 12.3% 10.1% 13.5% 6.0% 8.7% 13.3% 12.5% 8.4% 13.5% 7.4% 17.2% K error^2 4410000.0 1073072.4 16217616.5 1032075.0 14898909.3 10841859.2 18157357.9 3872765.0 8621982.5 21276434.3 17087842.8 8480779.8 22931441.8 7680620.3 38972198.5 After optimizing, we see that alpha is 0.350 (instead of 0.10). This makes an improvement in RMSE, from 4691 to 3653. Applied Regression -- Prof. Juran 25 GM Revenue - Simple Smoothing (alpha 0.35) 60000 50000 Revenue 40000 30000 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 26 Exponential Smoothing with Trend: Holt’s Method Weighted Current Level Ft k Lt kTt Yt 1 Lt 1 Tt 1 k Lt Lt 1 1 Tt 1 Weighted Current Observation Applied Regression -- Prof. Juran Weighted Current Trend 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 A Smoothing constant(s) Level (alpha) Trend (beta) B C MAE RMSE MAPE 3094.683 3568.391 8.01% 0.266 0.048 D 1-91 2-91 3-91 4-91 1-92 2-92 3-92 4-92 1-93 2-93 3-93 4-93 1-94 2-94 3-94 4-94 E GM_Rev 29200 31300 28900 33600 32000 35200 29400 35800 35000 36658 30138 37268 37495 40392 34510 42553 Applied Regression -- Prof. Juran F SmLevel 29200.000 29757.957 29549.579 30637.081 31048.143 32212.293 31564.039 32760.991 33465.944 34443.591 33457.270 34585.269 35507.934 36980.394 36542.128 38331.485 G H I J K L M SmTrend Forecast Error abs(error)abs(%error) error^2 0.000 26.659 29200.000 2100.0 2100.0 7.2% 4410000.0 =$B$2*E4+(1-$B$2)*(F3+G3) 15.429 29784.616 -884.6 884.6 3.0% 782545.7 66.652 29565.008 4035.0 4035.0 13.6% 16281159.9 =$B$3*(F6-F5)+(1-$B$3)*G5 83.108 30703.733 1296.3 1296.3 4.2% 1680308.2 134.760 31131.251 4068.7 4068.7 13.1% 16554716.2 =F7+G7 97.348 32347.053 -2947.1 2947.1 9.1% 8685120.1 149.887 31661.387 4138.6 4138.6 13.1% 17128119.6 =E10-H10 176.407 32910.877 2089.1 2089.1 6.3% 4364433.2 214.690 33642.352 3015.6 3015.6 9.0% 9094133.3 =ABS(I12) 157.306 34658.282 -4520.3 4520.3 13.0% 20432945.1 203.686 33614.577 3653.4 3653.4 10.9% 13347499.7 =ABS(I14/H14) 238.038 34788.955 2706.0 2706.0 7.8% 7322680.1 297.019 35745.973 4646.0 4646.0 13.0% 21585567.4 =I16^2 261.887 37277.413 -2767.4 2767.4 7.4% 7658572.1 334.869 36804.015 5749.0 5749.0 15.6% 33050827.6 28 N GM Revenue - Holts Method (Smoothing with Trend) 60000 50000 Revenue 40000 30000 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Holt’s model with optimized smoothing constants. This model is slightly better than the simple model (RMSE drops from 3653 to 3568). Applied Regression -- Prof. Juran 29 Exponential Smoothing with Seasonality: Winters’ Method This method includes an explicit term for seasonality, where M is the number of periods in a season. We will use M = 4 because we have quarterly data. Yt 1 Lt 1 Tt 1 St M Level: Lt Trend: Tt Lt Lt 1 1 Tt 1 Seasonality: St Yt 1 St M Lt Now, for any time k periods in the future, the forecast is given by: Ft k Lt kTt St k M Note that the trend term is additive, and the seasonality term is multiplicative. Applied Regression -- Prof. Juran 30 Weighted Current Seasonal Factor St Yt 1 St M Lt Weighted Seasonal Factor from Last Year Applied Regression -- Prof. Juran 31 Now, for any time k periods in the future, the forecast is given by: Ft k Lt kTt St k M Note that the trend term is additive, and the seasonality term is multiplicative. This is a little tricky at first, because we need a few periods of data to get the model started. The first forecast has no trend information (so we use 0 as the default), and the first four have no seasonality (so we use 1.0 as the default). Applied Regression -- Prof. Juran 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 A Smoothing constant(s) Level (alpha) Trend (beta) Seasonality (gamma) B C MAE RMSE MAPE 2670.440 3233.995 6.82% 0.312 0.037 0.202 D 1-91 2-91 3-91 4-91 1-92 2-92 3-92 4-92 1-93 2-93 3-93 4-93 1-94 2-94 3-94 E GM_Rev 29200 31300 28900 33600 32000 35200 29400 35800 35000 36658 30138 37268 37495 40392 34510 F SmLevel 29200.000 29855.671 29573.917 30839.828 31242.711 32527.642 31631.252 32987.284 33649.376 34502.621 33394.029 34492.750 35401.921 36772.011 36570.220 G H I J K L SmTrend SmSeason Forecast Error abs(error) abs(%error) 0.000 1.000 24.178 1.000 12.897 1.000 59.102 1.000 71.779 1.005 30898.931 1101.1 1101.1 3.6% 116.515 1.017 31314.491 3885.5 3885.5 12.4% =$B$2*(E8/H4)+(1-$B$2)*(F7+G7) 79.164 0.986 32644.157 -3244.2 3244.2 9.9% =$B$3*(F9-F8)+(1-$B$3)*G8 126.249 1.017 31710.415 4089.6 4089.6 12.9% =$B$4*(E10/F10)+(1-$B$4)*(H6) 146.008 1.012 33275.398 1724.6 1724.6 5.2% =(F10+G10)*H7 172.088 1.026 34355.316 2302.7 2302.7 6.7% 124.862 0.969 34181.443 -4043.4 4043.4 11.8% 160.774 1.030 34095.266 3172.7 3172.7 9.3% 188.371 1.022 35069.261 2425.7 2425.7 6.9% 231.948 1.040 36509.418 3882.6 3882.6 10.6% 215.954 0.964 35856.098 -1346.1 1346.1 3.8% M error^2 1212353.7 15097181.1 10524553.4 16724701.7 2974252.4 5302351.4 16349433.8 10066242.9 5884208.4 15074445.5 1811980.8 Winters’ model with optimized smoothing constants. This model is better than the simple model and the Holt’s model (as measured by RMSE). Applied Regression -- Prof. Juran 33 GM Revenue - Winters Method (Smoothing with Trend and Seasonality) 60000 50000 Revenue 40000 30000 20000 10000 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters Applied Regression -- Prof. Juran 34 Forecasting with Regression A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 1-91 2-91 3-91 4-91 1-92 2-92 3-92 4-92 1-93 2-93 3-93 4-93 1-94 2-94 3-94 4-94 1-95 2-95 B GM_Rev 29200 31300 28900 33600 32000 35200 29400 35800 35000 36658 30138 37268 37495 40392 34510 42553 43285 42204 C GM_EPS -1.28 -1.44 -1.88 -4.25 -0.53 -1.18 -1.86 -1.25 0.42 0.92 -0.49 1.28 1.86 2.23 0.4 1.74 2.51 2.39 Applied Regression -- Prof. Juran D E F Trend 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 G 1Q 1 0 0 0 1 0 0 0 1 0 0 0 1 0 0 0 1 0 H 2Q 0 1 0 0 0 1 0 0 0 1 0 0 0 1 0 0 0 1 3Q 0 0 1 0 0 0 1 0 0 0 1 0 0 0 1 0 0 0 35 Applied Regression -- Prof. Juran 36 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 B C Regression Statistics Multiple R 0.8852 R Square 0.7835 Adjusted R Square 0.7624 Standard Error 2736.1392 Observations 46 D E F G ANOVA df Regression Residual Total Intercept Trend 1Q 2Q 3Q SS MS 4 1111067275.3109 277766818.8277 41 306944777.4065 7486457.9855 45 1418012052.7174 Coefficients 33286.7628 335.8508 -1289.9144 423.4015 -4582.6038 Applied Regression -- Prof. Juran Standard Error 1101.4629 30.4091 1142.5337 1142.1290 1167.0899 t Stat 30.2205 11.0444 -1.1290 0.3707 -3.9265 F Significance F 37.1026 0.0000 P-value 0.0000 0.0000 0.2655 0.7128 0.0003 37 Which Method is Better? The most reasonable statistic for comparison is probably RMSE for smoothing models vs. standard error for regression models, as is reported here: Revenue Mattel McD Lilly GM MSFT ATT Nike GE Coke Ford Regression $99.37 $112.23 $109.22 $2,736.14 $154.25 $12,836.41 $279.45 $1,164.02 $164.20 $969.14 Winters' $76.44 $84.92 $135.33 $3234.00 $103.91 $14,622.26 $191.94 $1,184.06 $258.02 $1,648.61 EPS Regression $0.0874 $0.0205 $0.3727 Winters' $0.1327 $0.0295 $0.5285 $1.3882 $1.2603 $0.0687 $0.0635 $0.6879 $0.5719 $0.2080 $0.2687 $0.6591 $0.7587 $0.0164 $0.0228 $0.4988 $1.3475 The regression models are superior most of the time (6 out of 10 revenue models and 7 out of 10 EPS models). Applied Regression -- Prof. Juran 38 For GM, a regression model seems best for forecasting revenue, but a Winters model seems best for earnings: GM Revenue - Regression 60000 50000 50000 40000 40000 Re v e nue Re v e nue GM Revenue - Winters Method (Smoothing with Trend and Seasonality) 60000 30000 30000 20000 20000 10000 10000 0 0 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 1-91 1-92 1-93 1-94 1-95 1-96 Quarters GM EPS - Winters Method (Smoothing with Trend and Seasonality) 1-98 1-99 1-00 1-01 1-02 GM EPS - Regression 4 4 3 3 2 2 1 1 Re v e nue Re v e nue 1-97 Quarters 0 -1 0 -1 -2 -2 -3 -3 -4 -4 -5 -5 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 Quarters Applied Regression -- Prof. Juran 1-01 1-02 1-91 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 Quarters 39 For Nike, the Winters model is better for revenue, and the regression model is best for earnings. Nike Revenue (Regression) 3500 3000 3000 2500 2500 Re v e nue Re v e nue Nike Revenue (Winters) 3500 2000 1500 2000 1500 1000 1000 500 500 0 0 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 1-02 1-03 1-92 1-93 1-94 1-95 1-96 1-97 Quarters Nike EPS (Winters) 1-99 1-00 1-01 1-02 1-03 1-99 1-00 1-01 1-02 1-03 Nike EPS (Regression) 1.4 1.4 1.2 1.2 1 1 0.8 0.8 Re v e nue Re v e nue 1-98 Quarters 0.6 0.4 0.6 0.4 0.2 0.2 0 0 -0.2 -0.2 -0.4 -0.4 1-92 1-93 1-94 1-95 1-96 1-97 1-98 1-99 1-00 1-01 Quarters Applied Regression -- Prof. Juran 1-02 1-03 1-92 1-93 1-94 1-95 1-96 1-97 1-98 Quarters 40 Time series characterized by relatively consistent trends and seasonality favor the regression model. If the trend and seasonality are not stable over time, then Winters’ method does a better job of responding to their changing patterns. Applied Regression -- Prof. Juran 41 Lagged Variables • Only applicable in a causal model • Effects of independent variables might not be felt immediately • Used for advertising’s effect on sales Applied Regression -- Prof. Juran 42 Example: Motel Chain 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 B Sales 1200 880 1800 1050 1700 350 2500 760 2300 1000 1570 2430 1320 1400 1890 3200 2200 1440 4000 4100 C Applied Regression -- Prof. Juran D E F G H I Quarter Adv Adv-Lag1 Qtr_1 Qtr_2 Qtr_3 1 30 * 1 0 0 2 20 30 0 1 0 3 15 20 0 0 1 4 40 15 0 0 0 5 10 40 1 0 0 6 50 10 0 1 0 7 5 50 0 0 1 8 40 5 0 0 0 9 20 40 1 0 0 10 10 20 0 1 0 11 60 10 0 0 1 12 5 60 0 0 0 13 35 5 1 0 0 14 15 35 0 1 0 15 70 15 0 0 1 16 25 70 0 0 0 17 30 25 1 0 0 18 60 30 0 1 0 19 80 60 0 0 1 20 50 80 0 0 0 43 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 A Summary measures Multiple R R-Square Adj R-Square StErr of Est B C D E F G 0.9856 0.9714 0.9571 213.2 ANOVA Table df SS MS 6 18515047.32 3085841.22 12 545531.63 45460.97 Regression Residual F 67.88 p-value 0.0000 Regression coefficients Constant Quarter Advertising Advertising_Lag1 Qtr_1 Qtr_2 Qtr_3 Coefficient 98.36 41.58 4.53 34.03 280.62 -491.59 532.60 Applied Regression -- Prof. Juran Std Err 174.96 13.56 3.25 3.13 157.66 145.37 143.04 t-value 0.5622 3.0672 1.3959 10.8759 1.7799 -3.3817 3.7235 p-value Lower limit Upper limit 0.5843 -282.9 479.6 0.0098 12.0 71.1 0.1880 -2.5 11.6 0.0000 27.2 40.9 0.1004 -62.9 624.1 0.0055 -808.3 -174.9 0.0029 221.0 844.2 44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A B Qtr Sales 1 1200 2 880 3 1800 4 1050 1 1700 2 350 3 2500 4 760 1 2300 2 1000 3 1570 4 2430 1 1320 2 1400 3 1890 4 3200 1 2200 2 1440 3 4000 4 4100 1 2 3 4 C D E F G H I J Quarter Adv Adv-Lag1 Qtr_1 Qtr_2 Qtr_3 Forecast 1 30 * 1 0 0 2 20 30 0 1 0 802 3 15 20 0 0 1 1504 4 40 15 0 0 0 957 5 10 40 1 0 0 1994 6 50 10 0 1 0 423 7 5 50 0 0 1 2646 8 40 5 0 0 0 783 9 20 40 1 0 0 2205 10 10 20 0 1 0 749 11 60 10 0 0 1 1701 12 5 60 0 0 0 2662 13 35 5 1 0 0 1248 14 15 35 0 1 0 1448 15 70 15 0 0 1 2083 16 25 70 0 0 0 3259 17 30 25 1 0 0 2073 18 60 30 0 1 0 1648 19 80 60 0 0 1 3826 20 50 80 0 0 0 3879 21 50 50 1 0 0 3181 22 50 50 0 1 0 2450 23 50 50 0 0 1 3516 24 50 50 0 0 0 3025 Applied Regression -- Prof. Juran K L Coefficient M N O P Q R S Constant Quarter Adv Adv-Lag1 Qtr_1 Qtr_2 Qtr_3 98.36 41.58 4.53 34.03 280.62 -491.59 532.60 =$M$2+SUMPRODUCT($N$2:$S$2,D5:I5) 45 Simple Exponential Smoothing Forecast 6,000 5,250 Observation Forecast 4,500 3,750 3,000 2,250 1,500 750 - 1 2 3 4 5 6 7 8 9 Applied Regression -- Prof. Juran 10 11 12 13 Quarter 14 15 16 17 18 19 20 21 22 46 23 24 Holt's Forecast 6,000 5,250 Observation Forecast 4,500 3,750 3,000 2,250 1,500 750 - 1 2 3 4 5 6 7 8 9 Applied Regression -- Prof. Juran 10 11 12 13 Quarter 14 15 16 17 18 19 20 21 22 47 23 24 Winters' Forecast 6,000 5,250 Observation Forecast 4,500 3,750 3,000 2,250 1,500 750 - 1 2 3 4 5 6 7 8 9 Applied Regression -- Prof. Juran 10 11 12 13 Quarter 14 15 16 17 18 19 20 21 22 48 23 24 Multiple Regression Forecast (with Lagged Advertising) 6,000 5,250 Observation Forecast 4,500 3,750 3,000 2,250 1,500 750 - 1 2 3 4 5 6 7 8 9 Applied Regression -- Prof. Juran 10 11 12 13 Quarter 14 15 16 17 18 19 20 21 22 49 23 24 Here are measures of model fit for the non-regression models: MAE RMSE MAPE Simple 769.6 939.9 50.5% Holt's 766.8 866.6 36.7% Winters' 708.0 845.6 47.3% The regression model has a standard error of only 213, which is much better than any of the other models. Applied Regression -- Prof. Juran 50 Forecasting with Minitab Applied Regression -- Prof. Juran 51 Applied Regression -- Prof. Juran 52 Pay Rate/Job Grade 1500 Pay Rate 1300 Men Women 1100 900 700 500 0 1 2 3 4 5 6 7 8 9 Job Grade Applied Regression -- Prof. Juran 53 Distribution of Pay Rate / Job Grade / Sex $1,800 $1,600 $1,400 Women Men Pay Rate $1,200 $1,000 $800 $600 $400 $200 $0 1 2 3 4 5 6 7 8 9 Job Grade Applied Regression -- Prof. Juran 54 Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations 0.9072 0.8231 0.8210 97.0601 256 ANOVA Regression Residual Total df 3 252 255 Intercept GRADE SEX TinGRADE Coefficients 526.7312 75.0323 59.6220 30.8215 Applied Regression -- Prof. Juran SS MS 11045358.5367 3681786.1789 2374008.5129 9420.6687 13419367.0496 F 390.8200 Standard Error 14.1422 3.3261 15.9887 4.5689 P-value 0.0000 0.0000 0.0002 0.0000 t Stat 37.2454 22.5586 3.7290 6.7460 Significance F 0.0000 55 Artsy: Analysis of Pay Rates by Grade Grade --> SEX Female Male 1 2 3 4 5 6 7 8 Total Mean 664.71 725.50 830.02 833.61 886.92 1006.15 1093.36 1273.86 832.76 Std Dev 81.44 56.27 57.12 87.64 67.58 99.77 122.87 128.89 158.53 Count 22 51 22 18 24 15 17 2 171 Mean 804.00 835.33 824.05 918.52 1130.76 1212.91 1375.92 1128.17 36.77 87.85 161.55 114.01 133.45 103.52 223.40 Std Dev Count 1 0 9 5 11 10 33 16 85 Mean 670.77 725.50 831.56 831.53 896.85 1055.99 1172.26 1364.58 930.85 Std Dev 84.71 56.27 51.48 85.76 104.82 120.68 140.83 107.34 229.40 Count 23 51 31 23 35 25 50 18 256 Mean 139.29 5.31 -9.55 31.60 124.61 119.54 102.06 295.40 s Pooled 81.44 52.30 87.68 105.32 105.57 130.02 105.28 182.55 Confidence Lower 307.23 46.86 80.10 108.40 211.86 197.07 267.95 343.02 Limits Upper -28.65 -36.23 -99.21 -45.19 37.36 42.02 -63.83 247.78 t Stat 1.673 0.257 -0.216 0.824 2.891 3.080 1.293 12.193 p Value 0.055 0.400 0.584 0.208 0.004 0.002 0.107 0.000 Tabelled t 2.017 2.008 2.023 2.002 2.024 1.997 2.101 1.966 Total Difference 1.984 Weighted Average Female Shortfall Applied Regression -- Prof. Juran $ 65.61 56 Summary Forecasting Methods • Exponential Smoothing – Simple – Trend (Holt’s Method) – Seasonality (Winters’ Method) • Regression – Trend – Seasonality – Lagged Variables Applied Regression -- Prof. Juran 57 For Session 9 and 10 • Cars (B) • Steam Applied Regression -- Prof. Juran 58