Allah is almighty

Syl :- 5. Forecasting and time series analysis:

Understanding Forecasting- Forecasting Methods-
time series analysis-time series decomposition Models-
Trend projection methods-Quantitative forecasting
methods-Measurement of Seasonal effects-
measurement of cyclic variations-ResidualMethod-
Measurement of Irregular variations.
Formula:
The equation of the straight line is: Yc = a + bx
y  xy
Where, a= ; b=
N  x2

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 Time series
Time series:- When we observe numerical data at different points of time, the set of
observations is known as time series. For example, if we observe production, sales,
imports, etc., at different points of time, say over the last 5 or 10 years, the set
observations formed shall constitute time series. Or
According to Croxton and cowden,’ A time series consists of data arranged
chronologically.’
Components of Time Series: The various factors that affects the value of the
phenomenon in a time series may be termed as components of time series. The following
four factors, mainly are know as the components of time series:
(a) Trend, (b) Seasonal variation, (c) Cyclic variation and (d) Irregular variation.
(a)Trend: The general tendency of a data set to increase or decrease or remain stable
over a period of time is called trend or secular trend or long-term movement of the data.
For example, an upward tendency is seen in the population data while in the data of birth,
death epidemics etc.
There are many sorts of trend which can be divided into two fountain heads.
(i) Linear or straight line trends
(ii) Non-linear trends.
(i)Linear trends: If in a time series analysis, the time series values cluster more or less
around a straight line then the trend is known as linear trend.
(ii) Non- linear trends: If in time series analysis, the time series values not anyway lie
around any straight line is called the non-linear trend.
(b)Seasonal variation: The changes observed in time series data which data are due to
the changes in season are called seasonal variations. The variations may occur for the
changes of climate, or for some occasions, festivals etc. These variations are periodic in
nature, where the period is one year. There will be seasonal variations in a series if data
are recorded quarterly, monthly, weekly and so on.
Examples: (i)The demand of umbrella increases in rainy season. (ii) The demand for
shopping, gifts etc. increase on certain occasion like Eid, Christmas etc.
c) Cyclic variation: The period movements in a time series where the period is more
than one year are called cyclic variations. Normally, the period of business is 2 to 10
years.
Example: the production of jute in Bangladesh which is influenced by weather, socio-
economic condition, farmer’s personal view etc.

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(d) Irregular variation (or random variation): The fluctuations in a time series which
are purely random, un-predictable and are due to factors which are beyond the control of
human hands are called irregular or random fluctuations.
Example: (i) Fluctuations in agricultural data due to floods, draughts, famine etc.
(ii) Fluctuations in the price of goods due to war.
Q.(2011):-How does analysis of time series helps in making business forecast?
Describe the seasonal variations and cyclical variations in a time series.
Time series analysis is very importance in making business forecast cause of the
following
(i) It helps in understanding past behavior and it will help in estimating the future
behavior.
(ii) We can evaluate the progress in any field of economic and business activity. For
example, with the change in price level. We can know the change in the
purchasing power of money.
(iii) Comparison between data of one period with that of another period is possible.
(iv) It helps in planning and forecasting. It is very essential in business and
economics. With the helps of time series we can prepare plans for the future;
short range and long range estimates are also possible.
Seasonal variation: The changes observed in time series data which data are due to the
changes in season are called seasonal variations. The variations may occur for the
changes of climate, or for some occasions, festivals etc. These variations are periodic in
nature, where the period is one year. There will be seasonal variations in a series if data
are recorded quarterly, monthly, weekly and so on.
Examples: (i)The demand of umbrella increases in rainy season. (ii) The demand for
shopping, gifts etc. increase on certain occasion like Eid, Christmas etc.
Cyclic variation: The period movements in a time series where the period is more than
one year are called cyclic variations. Normally, the period of business is 2 to 10 years.
Example: the production of jute in Bangladesh which is influenced by weather, socio-
economic condition, farmer’s personal view etc.
Q (2010):- What are the components of time series? How time series analysis help
management to take decision?
=) The following four factors, mainly are know as the components of time series: (i)
Trend, (ii) Seasonal variation, (iii) Cyclic variation and (iv) Irregular variation.

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The Time series analysis is useful is every sphere. It is very important in economics,
business, stat administration and planning, science, astronomy, sociology, biology,
research work, etc,. be cause of the following reasons.
(i) It helps in understanding past behavior and it will help in estimating the future
behavior.
(ii) We can evaluate the progress in any field of economic and business activity. For
example, with the change in price level. We can know the change in the
purchasing power of money.
(iii) Comparison between data of one period with that of another period is
possible.
(iv) It helps in planning and forecasting. It is very essential in business and
economics. With the helps of time series we can prepare plans for the future;
short range and long range estimates are also possible.
Q (2009):- Why is time series considered to be an effective tool of forecasting?
=) Time series analysis is very important tool of business forecasting because-
i) To study the past behavior of the phenomenon under consideration.
ii) To forecast the behavior of the phenomenon in future which is essential for future
planning.
iii) To compare the changes in the values of different phenomena at different time or
places.
iv) The segregation and study of the various components is of great importance to the
planner in business, policy making, decision making and so forth.
Q(2008):- What is time series? What are its components?
=) When we observe numerical data at different points of time, the set of observations is
known as time series. For example, if we observe production, sales, imports, etc., at
different points of time, say over the last 5 or 10 years, the set observations formed shall
constitute time series.
The following four factors, mainly are know as the components of time series: (i)
Trend, (ii) Seasonal variation, (iii) Cyclic variation and (iv) Irregular variation.
2012:Explain the following terms in the study of time series:- 6
i) Secular trend; ii) Seasonal variation; and iii) Cyclical variation.

(i) Secular trend: The general tendency of a data set to increase or decrease or
remain stable over a period of time is called trend or secular trend or long-term

Mizan sir 01911-971203

 movement of the data. For example, an upward tendency is seen in the
population data while in the data of birth, death epidemics etc.
There are many sorts of trend which can be divided into two fountain heads.
(iii) Linear or straight line trends
(iv) Non-linear trends.
(a)Linear trends: If in a time series analysis, the time series values cluster more or less
around a straight line then the trend is known as linear trend.
(b) Non- linear trends: If in time series analysis, the time series values not anyway lie
around any straight line is called the non-linear trend.
(ii)Seasonal variation: The changes observed in time series data which data are due to
the changes in season are called seasonal variations. The variations may occur for the
changes of climate, or for some occasions, festivals etc. These variations are periodic in
nature, where the period is one year. There will be seasonal variations in a series if data
are recorded quarterly, monthly, weekly and so on.
Examples: (i)The demand of umberalla increases in rainy season. (ii) The demand for
shopping, gifts etc. increase on certain occasion like Eid, Christmas etc.
iii) Cyclic variation: The period movements in a time series where the period is more
than one year are called cyclic variations. Normally, the period of business is 2 to 10
years.
Example: the production of jute in Bangladesh which is influenced by weather, socio-
economic condition, farmer’s personal view etc.
2014:. Explain different components of a time series with example and briefly describe any
one method of smoothing the time series data. 6

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1. Math(2011, 2009):- The following are annual profits (in thousands Taka) in a
business firm:-
Years 2005 2006 2007 2008 2009 2010 2011
Profits (in ‘000 60 72 75 65 80 85 95
TK.)
(i) Use the method of least squares to fit a straight line to the above data.
(ii) Plot the above figures and draw the line.
(iii) Also make an estimate of the profits for the year 2015.

Solution: (i) Fitting the straight line Trend

Years Profits (in’000 Deviation from xy X2 Trend
Tk.) middle year (x) Values Yc
Y
2005 60 -3 -180 9 61.33
2006 72 -2 -144 4 66.22
2007 75 -1 -75 1 71.11
2008 65 0 0 0 76
2009 80 +1 +80 1 80.89
2010 85 +2 +170 4 85.78
2011 95 +3 +285 9 90.67
N= 7  y=532  x= 0  xy=136  x2=28

We know, The equation of the straight line is: Yc = a + bx

 y 532  xy 136
Where, a= = = 76; b= = = 4.89
N 7  x2 28
Hence the equation of the straight line is: Yc = 76 + 4.89x
When x= -3, then Yc = 76 + 4.89(-3) =61.33
When x= -2, then Yc = 76 + 4.89(-2) =66.22
When x= -1, then Yc = 76 + 4.89(-1) =71.11
When x= 0, then Yc = 76 + 4.89(0) =76
When x= 1, then Yc = 76 + 4.89(1) =80.89
When x= 2, then Yc = 76 + 4.89(2) =85.78
When x= 3, then Yc = 76 + 4.89(3) =90.67

ii) The graph of the above data is given below:

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iii) Estimated profit for 2015:
For 2015 x will be (2015 – 2008) = 7
When x= 7, then Yc = 76 + 4.89(7) =110.23
Hence the likely profit for 2015 is 110.23 thousands.

2. Math (2010):- You are given below the figures of annual production (in thousand
tones) of sugar mill:-
Year 2003 2004 2005 2006 2007 2008 2009
Production 70 75 90 91 95 98 100
(i) Use the method of least squares to fit a straight line to the above data.
(ii) Estimate likely production for 2012.
(iii) Plot the above figures and draw the line.
Solution: (i) Fitting the straight line Trend
Years Production (in Deviation from xy X2 Trend
thousand tones) middle year (x) Values Yc
Y
2003 70 -3 -210 9 73.31
2004 75 -2 -150 4 78.35
2005 90 -1 -90 1 83.39
2006 91 0 0 0 88.43
2007 95 +1 +95 1 93.47
2008 98 +2 +196 4 98.51
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2009 100 +3 +300 9 103.55
N= 7  y=619  x= 0  xy=141  x =28
2

We know, The equation of the straight line is: Yc = a + bx

 y 619  xy 141
Where, a= = = 88.43; b= = = 5.04
N 7  x2 28
Hence the equation of the straight line is: Yc = 88.43 + 5.04x
When x= -3, then Yc = 88.43 + 5.04(-3) = 73.31
When x= -2, then Yc = 88.43 + 5.04(-2) = 78.35
When x= -1, then Yc = 88.43 + 5.04(-1) = 83.39
When x= 0, then Yc = 88.43 + 5.04(0) = 88.43
When x= 1, then Yc = 88.43 + 5.04(1) = 93.47
When x= 2, then Yc = 88.43 + 5.04(2) = 98.51
When x= 3, then Yc = 88.43 + 5.04(3) = 103.55
ii) Estimated profit for 2012:
For 2012 x will be (2012 – 2006) = 6
When x= 6, then Yc = 88.43 + 5.04(6) = 118.67
Hence the likely production for 2012 is 118.67 thousand tones.
iii) The graph of the above data is given below:

3. Math (2008):- calculate the trend values by the method of least squares from the
data given below and estimate the sales for the year 2005:-
Year 1996 1997 1998 1999 2000
Sales of TV sets (in ‘000) 12 18 20 23 27

Solution: (i) Fitting the straight line Trend

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Years Sales (in’000 Deviation from xy X2 Trend
Tk.) middle year (x) Values Yc
Y
1996 12 -2 -24 4 13
1997 18 -1 -18 1 16.5
1998 20 0 0 0 20
1999 23 +1 23 1 23.5
2000 27 +2 54 4 27
N= 5  y=100  x= 0  xy=35  x2=10
We know, The equation of the straight line is: Yc = a + bx
 y 100  xy 35
Where, a= = = 20; b= = = 3.5
N 5  x 2 10
Hence the equation of the straight line is: Yc = 20 + 3.5x
When x= -2, then Yc = 20 + 3.5(-2)= 13
When x= -1, then Yc = 20 + 3.5(-1)= 16.5
When x= 0, then Yc = 20 + 3.5(0)= 20
When x= 1, then Yc = 20 + 3.5(1)= 23.5
When x= 2, then Yc = 20 + 3.5(2) = 27
ii) Estimated profit for 2005:
For 2005 x will be (2005 –1998) = 7; When x= 7, then Yc = 20 + 3.5(7) = 44.5
Hence the likely sales for2005 is 44.5 thousand TV sets.

4. Math 1:- Below are given the figures of production (in million tones) of a cement
factory:-
Year 2002 2004 2005 2006 2007 2008 2009
Production(in 77 88 94 85 91 98 90
m. tones)
(i) Fit a straight line trend by the least squares method and tabulate the trend
values.to fit a straight line to the above data.
(ii) Eliminate the trend. What components of the Time Series are thus left over?.
(iii) What is monthly increase in the production of cement?
Solution: (i) Fitting the straight line Trend
Years Production (in Deviation from xy X2 Trend
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 thousand tones) middle 2006 (x) Values Yc
y
2002 77 -4 -308 16 81.84
2004 88 -2 -176 4 85.38
2005 94 -1 -94 1 87.33
2006 85 0 0 0 89.28
2007 91 +1 +91 1 91.23
2008 98 +2 +196 4 93.18
2009 90 +3 +270 9 95.13
N= 7  y=623  x= -1  xy=-21  x2=35
We know, The equation of the straight line is: Yc = a + bx. Since  x is not zero, we will
solve the two normal equations.
 y = Na + b  x ------------(i)
 xy = a  x + b  x2-------(ii)
Putting the value (i) and (ii)
623 = 7a –b ------------(iii)
-21 = -a +35b -------------(iv)
Multiplying eq. (iv) by 7 + (iii), we get b= 1.95 and putting the value of b in eq. (iii)
623 = 7a – 1.95
 a=89.28
Hence Yc = 89.28 + 1.95x is the equation of the straight line
When x= -4, then Yc =89.28 + 1.95x = 89.28 -1.95 × 4 = 81.48
When x= -2, then Yc = 89.28 + 1.95x = 89.28 -1.95 × 2 = 85.38
When x= -1, then Yc =89.28 + 1.95x = 89.28 -1.95 × 1 = 87.33
When x= 0, then Yc = 89.28 + 1.95x = 89.28 -1.95 × 0 = 89.28
When x= 1, then Yc = 89.28 + 1.95x = 89.28 + 1.95 × 1 = 91.23
When x= 2, then Yc = 89.28 + 1.95x = 89.28 +1.95 × 2 = 93.18
When x= 3, then Yc = 89.28 + 1.95x = 89.28 + 1.95 × 3 = 95.13
ii) After eliminating the trend we are left with seasonal, cyclical and irregular variations.
b 1.95
iii) Monthly increase in the production of cement shall be given by = = 0.1625.
12 12

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5. Math 2:- Time series given below shows the number of tables sold by a small
company since it started.
Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Tables 42 50 61 75 92 111 120 127 140 138
sold
Find the linear equation that describes the trend in the number of tables sold. Also
estimate the sales of tables in 2015.
Solution: (i) Fitting the straight line Trend
Tables sold Deviation Multiplying xy X2 Trend
y friom 2007.5 deviations by Values
2 Yc
x
2003 42 -4.5 -9 -378 81 41.69
2004 50 -3.5 -7 -350 49 53.67
2005 61 -2.5 -5 -305 25 65.65
2006 75 -1.5 -3 -225 9 77.63
2007 92 -0.5 -1 -92 1 89.61
2008 111 +0.5 +1 +111 1 101.59
2009 120 +1.5 +3 +360 9 113.57
2010 127 2.5 +5 +635 25 125.55
2011 140 3.5 +7 +980 49 137.53
2012 138 4.5 +9 +1242 81 149.51
N= 10  y=956  x= 0  x= 0  xy=  x2=330
1978
We know, The equation of the straight line is: Yc = a + bx
 y 956  xy 1978
Where, a= = = 95.6; b= = = 5.99
N 10  x2 330
Hence the equation of the straight line is: Yc = 95.6+ 5.99x
When x= -9, then Yc = 95.6+ 5.99 ×(-9)= 41.69
When x= -7, then Yc = 95.6+ 5.99 ×(-7)= 53.67
When x= -5, then Yc = 95.6+ 5.99 ×(-5)= 65.65
When x= -3, then Yc = 95.6+ 5.99 ×(-3)= 77.63
When x= -1, then Yc = 95.6+ 5.99 ×(-1)= 89.61
When x= 1, then Yc = 95.6+ 5.99 ×1= 101.59
When x= 3, then Yc = 95.6+ 5.99 ×3= 113.57
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When x= 5, then Yc = 95.6+ 5.99 ×5= 125.55
When x= 7, then Yc = 95.6+ 5.99 ×7= 137.53
When x= 9, then Yc = 95.6+ 5.99 ×9= 149.51
ii) Estimated sales for 2015:
For 2015 x will be (2015 –2007.5) = 7×2=15
When x= 15, then Yc = 95.6+ 5.99 ×15= 185.45
Hence the expected number of tables that would be sold in 2015 shall be 185.45.
6. 2012: The followings are annual profits ( in thousand Taka) in a tea stall:-
Year 2006 2007 2008 2009 2010 2011 2012
profit 80 90 92 83 94 99 92
i) Use the method of least square to fit a straight line to the above data. 4
ii) Estimate likely profit in 2015. 2
iii) Plot the above figures and draw the line. 4

Solution: (i) Fitting the straight line Trend

Years Production (in Deviation from xy X2 Trend
thousand taka) middle year (x) Values Yc
y
2006 80 -3 -240 9 84
2007 90 -2 -180 4 86
2008 92 -1 -92 1 88
2009 83 0 0 0 90
2010 94 +1 +94 1 92
2011 99 +2 +198 4 94
2012 92 +3 +276 9 96
N= 7  y=630  x= 0  xy=56  x2=28

We know, The equation of the straight line is: Yc = a + bx

 y 630  xy 56
Where, a= = = 90; b= = =2
N 7  x 2 28
Hence the equation of the straight line is: Yc = 90 + 2x
When x= -3, then Yc = 90 + 2(-3) = 84
When x= -2, then Yc = 90 + 2(-2) = 86
When x= -1, then Yc =90 + 2(-1) = 88
When x= 0, then Yc = 90 + 2(0) = 90
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When x= 1, then Yc = 90 + 2(1) = 92
When x= 2, then Yc = 90 + 2(2) = 94
When x= 3, then Yc = 90 + 2(3) = 96
ii) Estimated profit for 2015:
For 2015 x will be (2015 – 2009) = 6
When x= 6, then Yc = 90 + 2(6) = 102
Hence the likely profit for 2015 is 102 thousand taka.
iii) The graph of the above data is given below:

7. Math-(2011 H): From the following data, calculate trend values using 3-yearly
moving average:
Year 1981 1982 1983 1984 1985 1986 1987
Production 412 438 446 454 470 483 490
Solution: Calculation of 3- Yearly Moving Averages
Years Price (Tk) Y 3- Yearly moving 3- Yearly Moving
totals Averages
1981 412 - -
1982 438 1296 432
1983 446 1338 446
1984 454 1370 456.67
1985 470 1407 469
1986 483 1443 481
1987 490 - -

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8. 2013: Below are given the figures of production (in million tones) of a cement
factory:-
Year : 2004 2006 2007 2008 2009 2010 2013
Production (in m. 77 88 94 85 91 98 90
tones):
(i) Fit a straight line trend by the least squares method and tabulate the
trend values.
(ii) Eliminate the trend. What components of the time series are thus left
over?
(iii) What is monthly increase in the production of cement?
Solution: (i) Fitting the straight line Trend
Years Production (in Deviation from xy X2 Trend
thousand tones) middle 2008 (x) Values Yc
y
2004 77 -4 -308 16 83.28
2006 88 -2 -176 4 86.04
2007 94 -1 -94 1 87.42
2008 85 0 0 0 88.80
2009 91 +1 +91 1 90.18
2010 98 +2 +196 4 91.56
2013 90 +5 +450 25 95.70
N= 7  y=623  x= +1  xy=159  x =512

We know, The equation of the straight line is: Yc = a + bx. Since  x is not zero,
we will solve the two normal equations.
 y = Na + b  x ------------(i)
 xy = a  x + b  x2-------(ii)
Putting the value (i) and (ii)
623 = 7a +b ------------(iii)
159 = a +51b -------------(iv)
Multiplying eq. (iv) by 7 - (iii), we get b= 1.38 and putting the value of b in eq.
(iii)
623 = 7a + 1.38
 a=88.80
Hence Yc = 88.80 + 1.38x is the equation of the straight line
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 When x= -4, then Yc =88.80 + 1.38x = 88.80 + 1.38×(- 4) = 83.28
When x= -2, then Yc = 88.80 + 1.38x = 88.80 + 1.38×(- 2)=86.04
When x= -1, then Yc =88.80 + 1.38x = 88.80 + 1.38×(- 1)=87.42
When x= 0, then Yc = 88.80 + 1.38x = 88.80 + 1.38×(0)=88.80
When x= 1, then Yc = 88.80 + 1.38x = 88.80 + 1.38× 1=90.18
When x= 2, then Yc = 88.80 + 1.38x = 88.80 + 1.38×2=91.56
When x= 5, then Yc = 88.80 + 1.38x = 88.80 + 1.38×5=95.70
ii) After eliminating the trend we are left with seasonal, cyclical and irregular variations.
b 1.38
iii) Monthly increase in the production of cement shall be given by = = 0.115
12 12
9. 2015: Given the following information:-
Year 2010 2011 2012 2013 2014 2015
Sales 10 12 15 16 18 19
(i) Fit a straight line trend to the above figures by the method of least square and
also calculate the trend values. 5
(ii) Find the slope of the straight line trend. 1
(iii) Do the figures show a rising trend or a falling trend? 1
(iv) Draw the trend line. 1
(v) Estimate the trend value for 2018. 2
Solution: (i) Fitting the straight line Trend
Year Sales Deviation Multiplying xy X2 Trend
y from 2012.5 deviations by Values
2 Yc
x
2010 10 -2.5 -5 -50 25 10.45
2011 12 -1.5 -3 -36 9 12.27
2012 15 -0.5 -1 -15 1 14.09
2013 16 0.5 1 16 1 15.91
2014 18 1.5 3 54 9 17.73
2015 19 2.5 5 95 25 19.55
N= 6  y=90  x= 0  x= 0  xy=  x =70
2

64
We know, The equation of the straight line is: Yc = a + bx
 y 90  xy 64
Where, a= = = 15; b= = = 0.91
N 6  x 2 70
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Hence the equation of the straight line is: Yc = 15+ 0.91x
When x= -5, then Yc = 15+ 0.91 ×(-5)= 10.45
When x= -3, then Yc = 15+ 0.91 ×(-3)= 12.27
When x= -1, then Yc = 15+ 0.91 ×(-1)= 14.09
When x= 1, then Yc = 15+ 0.91 ×1=15.91
When x= 3, then Yc = 15+ 0.91 ×3= 17.73
When x= 5, then Yc = 15+ 0.91 ×5= 19.55
ii) From the graph we can see that the slope of the straight line trend is upward.
iii) Yes, the figures show a upward rising trend.
ii) Estimated sales for 2018:
For 2018 x will be (2018 –2012.5) = 5.5×2=11
When x= 11, then Yc = 15+ 0.91 ×11= 25.01
Hence the trend value in 2018 is 25.01.
10. (2016):- The following are annual profits (in thousands Taka) in a business firm:-
Years 2011 2012 2013 2014 2015 2016
Profits 70 75 65 80 85 90
(i) Use the method of least squares to fit a straight line to the above data. 2
(ii) Plot the above figures and draw the line. 2
(iii) Also make an estimate of the profits for the year 2008. 2
Solution: (i) Fitting the straight line Trend
Year Profits Deviation Multiplying xy X2 Trend
y from 2013.5 deviations by Values
2 Yc
x
2011 70 -2.5 -5 -350 25 67.15
2012 75 -1.5 -3 -225 9 71.29
2013 65 -0.5 -1 -65 1 75.43
2014 80 0.5 1 80 1 79.57
2015 85 1.5 3 255 9 83.71
2016 90 2.5 5 450 25 87.85
N= 6  y=465  x= 0  x= 0  xy=  x2=70
145
We know, The equation of the straight line is: Yc = a + bx
 y 465  xy 145
Where, a= = = 77.5; b= = = 2.07
N 6  x2 70

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 Hence the equation of the straight line is: Yc = 77.5+ 2.07x
When x= -5, then Yc = 77.5+ 2.07 ×(-5)= 67.15
When x= -3, then Yc = 77.5+ 2.07 ×(-3)= 71.29
When x= -1, then Yc = 77.5+ 2.07 ×(-1)= 75.43
When x= 1, then Yc = 77.5+ 2.07 ×1=79.57
When x= 3, then Yc = 77.5+ 2.07 ×3= 83.71
When x= 5, then Yc = 77.5+ 2.07 ×5= 87.85
ii) Plot the above figures and draw the line

iii) Estimated sales for 2008:

For 2018 x will be (2008 –2013.5) = -5.5×2=-11
When x= -11, then Yc = 77.5+ 2.07 ×(-11)= 54.73
Hence the trend value in 2008 was 54.73.

Ok-12.12.17

17

Mizan sir 01911-971203