33:799:301 Lecture 5: Week 3 - 02_06_2019
Document Summary
Imposing a best fit line across the demand of an entire time series. Basis for forecasting is extending line beyond present data while maintaining slope of the line. Advantage is can provide an accurate forecast into future even if there is random variation. Disadvantage is seasonal and cyclical variations are softened, making this method more useful for annual forecasts than monthly forecasts. Uses the historical data to calculate independent variable in demand. Cause and effect - simple linear regression. Attempts to model relationship between a single independent variable and a dependent variable by fitting a linear equation. Ex: demand is dependent on amount of money put into advertising. Cause and effect - multiple linear regression. Model relationship between two or more independent variables and a dependent variable by fitting a linear equation. Ex: demand is dependent on amount of money put into advertising and the selling price of product/service. Must be willing to recognize and adapt to changing conditions.