Forecasting Is the Process of Using Data Essay

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Forecasting is the process of using data from previous intervals to determine future data. Meteorologists use data from previous weather events to predict future weather patterns. In a similar way, sales can help to predict future inventory stocking needs by accumulated data from previous years. The first step in the process is to create an index for each month by dividing the current month by the index (or first) month. For example, month one of the first year is equal to 55,200. Month one of the second year is equal to 39,800. Dividing the second year by the first year gives an index result of 0.721014. An index number smaller than one indicates a decrease in the number from the first year to the second, and an index number greater than one shows an increase from one year to the next. The following chart shows the resulting index for each month.

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Index Year 2 Index Year 3 Index Year

January

February

March

April

May 1 .836449

June

July

August

September 1.407643 1.378545 1.268657

October 0.771455 1.378545 1.268657

November 0.552885 0.723558 0.81851

December 0.573388 0.757202 0.838134

The next step in the forecasting process is to plot each of the monthly indices onto a scatter plot and to use the trend line to determine the function for finding the next month's indices. By using linear regression, the plot yields a solvable slope intercept formula to determine future inventory needs.

The resulting formula, y = 0.203x + 0.403,….....

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