DSIMGTS NOTES

CHAPTER 1: THE NATURE OF MANAGEMENT SCIENCE

Management Science
- Management science is a discipline that attempts to aid managerial decision
making by applying a scientific approach to managerial problems that involve
quantitative factors.
- Management science is a whole body of knowledge and techniques that are based
on scientific foundation.
- Institute for Operations Research and the Management Sciences (INFORMS) – A
major international professional society for the management science discipline as
well as for business analytics.

Management Scientist
- Must receive substantial training – This training also is in a whole body of
knowledge and techniques that are based on the scientific foundations of the
discipline.
- Must diagnose a managerial problem and then choose the appropriate
management science techniques to apply in analyzing the problem.
- Must make the final decision as to which conclusions from this analysis to accept.

History
- The rapid development of the discipline began in the 1940s and 1950s.
- Initial impetus came early in World War II when large numbers of scientists were
called upon to apply a scientific approach to the management of the war effort for
the allies.
- Discovery in 1947 by George Dantzig of the simplex method for solving linear
programming problems.
- Another factor that gave great impetus to the growth of the discipline ever since
that time was the onslaught of the computer revolution.
- Operations Research (OR) – The traditional name given to management science
(and the one that still is widely used today outside of business schools)
This name was applied because the teams of scientists in World War II were
doing research on how to manage military operations.
Analytics
- Attempts to aid managerial decision-making but with particular emphasis on three
types of analysis:
1. Descriptive Analytics – The use of data to analyze trends.
2. Predictive Analytics – The use of data to predict what will happen in the future. Commented [IC1]: Makes use of forecasting techniques.
3. Prescriptive Analytics – The use of data to prescribe the best course of action. Commented [IC2]: Makes use of optimization techniques.

Management Science Aids Managerial Decision Making

- Management Science Study – Only provides an analysis and recommendations,
based on the quantitative factors involved in the problem, as input to cognizant
managers.
- Management Science Teams
Are normally used for larger studies.
A management science team often is entirely in-house.
Part of all of the team may instead be consultants who have been hired for
just the one study.

Management Science Uses a Scientific Approach

- Management science is based strongly on some scientific fields, which include:
Mathematics • Computer Science
Statistics • Social Sciences (Economics)
- A management science team will attempt to use the scientific method in conducting
its study.
- The team will emphasize conducting a systematic investigation, which includes:
Careful data gathering
Developing and testing hypotheses about the problem (usually via
mathematical model).
Applying sound logic in the subsequent analysis.

Conducting a Systematic Investigation

1. Define the problem and gather data.
The team consults with management to clearly identify the problem of
concern and ascertain the appropriate objectives for the study.
Some key data are either very rough or completely unavailable.
 Another common problem is that there may be too much data available to
be easily analyzed.
Corporate IT now is often able to provide the computational resources and
databases as well as any helpful data mining.

2. Formulate a model (typically a mathematical model) to represent the problem.

Model – Approximate representation of something
Mathematical Model – Approximate representations but instead expressed
in terms of mathematical symbols and expressions.
Spreadsheet Models – Approximate representation that is laid out on a
spreadsheet in a way that facilitates analysis of the problem. These are now
widely used to analyze managerial problems.
The modeling process also is typically an evolutionary process that begins
with a simple “verbal model” to define the essence of the problem and then
gradually evolves into increasingly more complete mathematical models.

3. Develop a computer-based procedure for deriving solutions to the problem from

the model.
A well-designed mathematical model enables the use of mathematical
procedures to find good solutions to the problem.
Such procedures are usually run on a computer.

4. Test the model and refine it as needed.

Have all the relevant factors and interrelationships in the problem been
accurately incorporated into the model?
Does the model seem to provide reasonable solutions?
When it is applied to a past situation, does the solution improve upon what
was actually done?
When assumptions about costs and revenues are changed, do the solutions
change in a plausible manner?

5. Apply the model to analyze the problem and develop recommendations for
management.
The resulting recommendations then are presented to the managers who
must make the decisions about how to deal with the problem.
Decision Support System
If the model is to be applied repeatedly to help guide decisions on an
ongoing basis, a decision support system is developed.
An interactive computer-based system that aids managerial decision
making.
 6. Help to implement the team’s recommendations that are adopted by management.
The management science team normally is asked to help oversee the
implementation of the new procedures.
Includes providing information to the operating management and personnel
involved.
Ensuring that the new operating system is consistent with its
recommendations.
The team monitors the initial experience with the system and seeks to
identify any modifications that should be made in the future.

Management Science Considers Quantitative Factors

- Many managerial problems revolve around such quantitative factors:
Production quantities • Costs
Revenues • Amounts available of needed resources
- By incorporating quantitative factors into a mathematical model and then applying
mathematical procedures to solve the model, management science provides a
uniquely powerful way of analyzing managerial problems.

Review Questions
1. When did the rapid development of the management science discipline begin?
Answer: 1940s and 1950s

2. What is the traditional name given to this discipline that still is widely used outside
of business schools?
Answer: Operations Research

3. What does a management science study to provide to managers to aid their

decision making?
Answer: Analysis and recommendations based on quantitative factors

4. Upon which scientific fields and social sciences is management science especially
based?
Answer: Mathematics, Statistics, Computer Science, and Economics

5. What is a decision support system?

Answer: Interactive computer-based system that aids managerial decision making

6. What are some common quantitative factors around which many managerial
problems revolve?
Answer: Production quantities, revenues, costs, and amounts available of needed
resources
DSIMGTS NOTES
CHAPTER : NET OR OPTIMI ATION PRO EMS

Network
- A system with a number of components where there are direct connections
between various pairs of components.
- May be actual physical connections, such as wires in an electrical network.
- Might be a diagram that depicts the locations of the components of the system.
- Network representations are also widely used for problems in areas such as:
Production • Facilities ocation
Distribution • Resource Management
Project Planning • Financial Planning
- Network representation provides such a powerful visual and conceptual aid for
portraying the relationships between the components of systems.
- All of these networks are designed to provide flow of some type from certain points
of origin along various permissible routes to certain destinations.
- One of the most exciting developments in management science in recent decades
has been the unusually rapid advance in both the methodology and application of
network optimization problems.
- Both transportation problems and assignment problems are simple types of
network optimization problems.
- ike transportation problems and assignment problems, many other network
optimization problems are also special types of linear programming problems.

Minimum Cost Flow Pro lems

- The objective is to minimize the total shipping cost through the distribution network.
- The model for any minimum-cost flow problem is represented by a network with
flow passing through it.
- Any minimum-cost flow problem needs net floe constraints.
- Nodes
The circles in the network.
A junction point of a network, shown as a labeled circle.
- Supply Node
A node where the net amount of flow generated (outflow minus inflow) is a
fixed positive number.
A supply node has net flow going out.
- Demand Node
A node where the net amount of flow generated is a fixed negative number.
A demand node has net flow coming in.
- Transshipment Node
A node where the amount of flow out equals the amount of flow in.
- Conservation of Flow
Having the amount of flow out of a node equal the amount of flow into that
node.
- Arcs
A channel through which flow may occur from one node to another, shown
as an arrow between the nodes pointing in the direction which flow is
allowed.
The arrows in the network.
- Capacity
The maximum amount of flow allowed through the arc.
- Feasible Solutions Property
Under this assumption, a minimum-cost flow problem will have feasible
solutions if and only if the sum of the supplies from its supply nodes equals
the sum of the demands at its demand nodes.
To be a feasible solution, the amount of flow through each arc cannot
exceed the capacity of that arc and the net amount of flow generated at
each node must equal the specified amount for that node.
- Integer Solutions Property
As long as all its supplies, demands, and arc capacities have integer values,
any minimum-cost flow problem with feasible solutions is guaranteed to
have an optimal solution with integer values for all its flow quantities.
- Net Work Simplex Method
A streamlined version of the simplex method for solving minimum-cost flow
problems very efficiently.
The network simplex method can solve much larger minimum-cost flow
problems than can the simplex method used by solver.
Not only finds an optimal solution but can also be a valuable aid to
managers in conducting the kinds of what-if analyses.
- Graphical Interfaces
These interfaces make the design of the model and the interpretation of the
output of the network simplex method completely visual and intuitive with
no mathematics involved.
This is very helpful for managerial decision making.
- Transshipment Problem
A special type of minimum-cost flow problem where there are no capacity
constraints on the arcs.
Has unlimited capacities for all its arcs.
Might also pass through intermediate transfer points such as distribution
centers.
 - Assumptions (Minimum-Cost Flow) Commented [IC1]: ince the arro hea on an arc
1. At least one of the nodes is a supply node, so each one specifies its own fixed in icates the irection in hich f o is a o e a pair of
arcs pointing in opposite irections is use if f o can occur
positive number for the net amount of flow generated there. in oth irections.

2. At least one of the other nodes is a demand node, so each one specifies its he o ecti e is to minimize the tota cost of supp ing the
eman no es.
own fixed negative number for the net amount of flow generated there.

3. All the remaining nodes are transshipment nodes, so each one specifies a fixed
value of zero for the net amount of flow generated there.

4. Flow through an arc is only allowed in the direction indicated by the arrowhead,
where the maximum amount of flow is given by the capacity of that arc. (If flow
can occur in both directions, this would be represented by a pair of arcs pointing
in opposite directions.)

5. The network has enough arcs with sufficient capacity to enable all the flow
generated at the supply nodes to reach all the demand nodes.

6. The cost of the flow through each arc is proportional to the amount of that flow,
where the cost per unit flow is known.

7. The objective is to minimize the total cost of sending the available supply
through the network to satisfy the given demand. (An alternative objective us
to maximize the total profit from doing this.)

Ma imum Flow Pro lems

- A problem of maximizing the flow of materials from one point to another.
- Objective now is to find a flow plan that maximizes the amount flowing through the
network.
- Source
The node for a maximum flow problem at which all flow through the network
originates.
The one node where all the flow through the network originates.
Generates flow like supply nodes.
- Sink
The node for a maximum flow problem at which all flow through the network
terminates.
Absorbs flow like demand nodes.
- Maximum flow problems have only a single source and a single sink, but there are
variants with multiple sources and sinks which can also be solved as well.
 - Assumptions (Maximum Flow) Commented [IC2]: he o ecti e is to fin a f o p an
1. All flow through the network originates at one node, called the source, and that ma imizes the f o from the source to the sink.

terminates at one other node, called the sink.

2. All the remaining nodes are transshipment nodes.

3. Flow through an arc is only allowed in the direction indicated by the arrowhead,
where the maximum amount of flow is given by the capacity of that arc. At the
source, all arcs point away from the node. At the sink, all arcs point into the
node.

4. The objective is to maximize the total amount of flow from the source to the
sink. This amount is measured in either of the two equivalent ways, namely,
either the amount leaving the source or the amount entering the sink

Shortest Path Pro lems

- The most common application is finding the shortest path between two points.
- Objective is to find the shortest path from the origin to the destination.
- ink
A channel through which flow may occur in either direction between a pair
of nodes, shown as a line between the nodes.
Travel (flow) can go in any direction between the nodes.
- Origin
The node at which travel through the network is assumed to start for a
shortest path problem.
The path to be chosen must start at the origin.
- Destination
The node at which travel through the network is assumed to end for a
shortest path problem.
Th path to be chosen should end at the destination.
- ength (of a link or arc)
The number (distance, cost, time, etc.) associated with including the link or
arc in he selected path for a shortest pat problem.
- Dummy Destination
A fictitious destination introduced into the formulation of a shortest path
problem with multiple possible termination points to satisfy the requirement
that there be just a single destination.

- Assumptions (Shortest Path) Commented [IC ]: he o ecti e is to fin the shortest

1. ou need to choose a path through the network that starts at a certain node, path from the origin to the estination.

called the origin, and ends at another certain node, called the destination.
 2. The lines connecting certain parts of nodes commonly are links (which allow
travel in either direction), although arcs (which only permit travel in one
direction) are also allowed.

3. Associated with each link (or arc) is a nonnegative number called its length.
(Be aware that the drawing of each link in the network typically makes no effort
to show its true length other than giving the correct number next to the link).

4. The objective is to find the shortest path (the path with the minimum total length)
from the origin to the destination.

Review Questions
1. Name and describe the three kinds of nodes in a minimum-cost flow problem.
Answer:
(1) Supply Node – A node where the net amount of flow generated is a fixed
positive number.
(2) Demand Node – A node where the net amount of flow generated is a fixed
negative number.
(3) Transshipment Node – A node where the net amount of flow generated is fixed
at zero.

2. What is meant by the capacity of an arc?

Answer: Maximum amount of flow allowed through an arc.

3. What is the usual objective for a minimum-cost flow problem?

Answer: Minimize the total shipping cost through the distribution network.

4. What property is necessary for a minimum-cost flow problem to have a feasible

solution?
Answer: Feasible Solutions Property

5. What is the integer solutions property for minimum-cost flow problems?

Answer: When all supplies, demands, and arc capacities have integer values, any
minimum-cost flow problem with feasible solutions is guaranteed to have an
optimal solution with integer values for all its flow quantities.

6. What is the name of the streamlined version of the simplex method that is designed
to solve minimum-cost flow problems?
Answer: Network Simplex Method
7. What are a few typical kinds of applications of minimum-cost flow problems?
Answer: Operation of a distribution network, solid waste management, operation
of a supply network, coordinating product mixes at plants, and cash flow
management.

. Name five important categories of network optimization problems that turn out to
be special types of minimum-cost flow problems.
Answer:
(1) Transportation Problems
(2) Assignment Problems
(3) Transshipment Problems
(4) Maximum Flow Problems
(5) Shortest Path Problems

9. How does the objective of a maximum flow problem differ from that for a minimum-
cost flow problem?
Answer: The objective of a maximum flow problem is to find a flow plan that
maximizes the amount flowing through the network whereas a minimum-cost flow
problem aims to minimize the cost of the flow.

10. What are the source and the sink for a maximum flow problem? For each, in what
direction do all their arcs point?
Answer: The source is the point where all flow through the network originates, in
which all of its arcs point outward. The sink on the other hand is the node at which
all flow through the network terminates, wherein the arcs are directed toward it.

11. What are the two equivalent ways in which the total amount of flow from the source
to the sink can be measured?
Answer:
(1) The amount leaving the source.
(2) The amount entering the sink.

12. The source and sink of a maximum flow problem are different from the supply
nodes and demand nodes of a minimum-cost flow problem in what two ways?
Answer:
(1) The source and the sink do not have fixed values as opposed to demand and
supply nodes having fixed amounts. Commented [IC ]: he reason for this is that the
(2) Whereas the number of supply nodes and demand nodes in a minimum-cost o ecti e is to ma imize the f o ea ing the source an
entering the sink rather than fi ing an amount.
flow problem may be more than one, there can only be one source and only
one sink in a maximum flow problem.
13. What are a few typical kinds of applications of maximum flow problems?
Answer:
(1) Maximize the flow through a distribution network.
(2) Maximize the flow through a company’s supply network from its vendors to its
processing facilities.
(3) Maximize the flow of oil through a system of pipelines.
(4) Maximize the flow of water through a system of aqueducts.
(5) Maximize the flow of vehicles through a transportation network.

14. What is the distinction between an arc and a link?

Answer: A link between a pair of nodes allows travel in either direction, whereas
an arc allows travel in only the direction indicated by an arrowhead.

15. What are the supply node and the demand node when a shortest path problem is
interpreted as a minimum-cost flow problem? With what supply and demand?
Answer: The supply node is considered to be the origin while the demand node is
considered to be the destination. A supply of 1 is provided to represent the start of
the trip. In the same way, a demand of 1 is also provided to represent the
completion of the trip.

16. What are the three measures of length of a link (or arc) that lead to three categories
of applications of shortest path problems?
Answer:
(1) Distance (Minimize the total distance traveled)
(2) Cost (Minimize the total cost of a sequence of activities)
(3) Time (Minimize the total time of a sequence of activities)

17. When does a dummy destination need to be added to the formulation of a shortest
path problem?
Answer: When real travel through a network can end at more than one node.
DSIMGTS NOTES
CHAPTER : USING INAR INTEGER PROGRAMMING TO DEA ITH ES OR
NO DECISIONS

es or no Decision
- Arises when a particular option is being considered and the only possible choices
are yes, go ahead with this option, or no, decline this opion.

inary aria les

- The natural choice of a decision
- ariables whose only possible values are 0 and 1.

inary Decision aria le

- When representing a yes-or-no decision, a binary decision variable is assigned a
value of 1 for choosing yes and a value of 0 for choosing no.

inary Integer Programming

- Models that fit linear programming except that they use binary decision variables.
- Abbreviation: BIP Programming

Pure IP Model Commented [IC1]: mo e can e consi ere to e

a specia t pe of integer programming mo e .
- A model where all the variables are binary variables.
- Involve yes-or-no decisions instead of how-much decisions. mo e further restricts integer a ues to e on or
.

Mi ed IP Model
- A model where only some of the variables are binary variables.
- Involve both yes-or-no and how-much decisions.

Mutually E clusive Alternatives

- A group of alternatives where choosing any one alternative excludes choosing any
of the others.
 - Groups of two or more mutually exclusive alternatives arise commonly in BIP
problems.
- With a group of mutually exclusive alternatives, only one of the corresponding
binary decision variables can equal 1.

Conditional Contingent Decision

- A yes-or-no decision is a contingent decision if it can be yes only if a certain other
yes-or-no decision is yes.
- The mathematical constraint expressing this relationship requires that the binary
variable for the former decision must be less than or equal to the binary variable
for the latter decision.

Co Re uisite Constraint
- Either select both or none of the decisions.

Set Covering Constraint

- A constraint that requires the sum of certain binary variables to be greater than or
equal to 1.

Set Covering Pro lem

- A type of BIP model where the objective is to minimize some quantity such as total
cost, and all the functional constraints are set covering constraints.
E AMP E 1
A company has 5 projects available to choose from where i 1, 2, 3, 4, 5
xi 1 if project I is selected
xi 0 otherwise

x1 1 if project 1 is selected 0 if not selected

x2 1 if project 1 is selected 0 if not selected
x3 1 if project 1 is selected 0 if not selected
x4 1 if project 1 is selected 0 if not selected
x5 1 if project 1 is selected 0 if not selected

Re uirements
1. If project 3 is selected, project 5 cannot be selected. Commented [IC2]: s ong as an cannot e se ecte
x3 x5 1 (Mutually Exclusive Constraint) at the same time the con ition is satisfie .

2. Exactly one of projects 2 and 3 must be selected. Commented [IC ]: ither pro ect or pro ect can on
x2 x3 1 (Multiple Choice Constraint) e se ecte . e ecting oth or neither is not a o e .

3. If project 4 is selected, then project 2 must also be selected. Commented [IC ]: ou cannot take pro ect on . ro ect
x4 x2 x4 – x2 0 or x2 x4 x2 – x4 0 (Conditional Contingent Constraint) shou e se ecte a ong ith it.

4. If project 1 is selected, project 5 must also be, and vice versa. Commented [IC ]: ither se ect oth of them or neither
x1 x5 or x1 – x5 0 (Co-requisite constraint)

5. No more than 3 projects in total may be selected.

x1 x2 x3 x4 x5 3

6. At least 2 of the first 3 projects must be selected.

x1 x2 x2 2

7. Project 4 must be selected.

x4 1

8. Select project 3 or 5, or both.

x3 x5 1
9. If project 4 is not selected, then project 2 must also not be selected.
x2 x4

10. Projects 3 and 4 must be selected together.

x3 x4

11. Project 3 or 4 must be selected but not both.

x2 x3 1

12. If project 1 is selected, then projects 2 and 3 must also be selected. Commented [IC ]: Simply combine x1 x2 with x1
2x1 x2 x3 x3

13. If project 1 is selected, then projects 2 or 3 must also be selected.

x1 x2 x3

14. Project 1 cannot be selected if both projects 2 and 3 are selected.

x1 x2 x3 2

15. If projects 2 and 3 are selected, then project 1 must be selected.

x1 1 x2 x3
E AMP E FROM CAN AS
Merx Investments is a venture capital firm that is currently evaluating six different
investment opportunities. There is not sufficient capital to invest in all of these, but more
than one will be selected. A binary (0–1) integer programming model is planned to help
determine which of the six opportunities (let s call them A, B, C, D, E and F) to choose.

1. At least three of these choices are to be selected.

A B C D E F 3

2. Either investment A or investment D can be undertaken.

A D 1 Commented [IC ]:

3. If investment D is selected, then investment F must also be selected.

D F

4. Investments D, E, and F must be selected.

D E F 3

5. Investment E must be selected if both investments B and C are also selected.

E 1 B C

6. Investment E cannot be selected unless both investments B and C are also

selected.
2E B C

7. A or B must be selected.
A B 1
DSIMGTS NOTES
CHAPTER : DECISION ANA SIS

Decision Analysis
- Method for reducing uncertainty in the decision-making process through data
analysis.

Decision Maker
- The individual or group responsible for making the decision (or sequence of
decisions) under consideration.
o The decision maker generally will have some information about the relative
likelihood of the possible states of nature. This information may be in the
form of just subjective estimates based on experience or intuition.
o May also involve a degree of hard evidence.
o
Alternatives
- The options for the decision to be made by the decision maker.
- Course of action or strategy that may be chosen by the decision maker.

State of Nature
- The possible outcomes of the random factors that affect the payoff that would be
obtained from a decision alternative.
- Occurrence or situation over which the decision maker has little o no control.

Prior Pro a ilities

- The estimated probabilities of the states of nature prior to obtaining additional
information through a test or survey.

Payoffs
- A quantitative measure of outcome from a decision alternative and a state of
nature.
- In most cases, the payoff is expressed a s a monetary value, such as the profit.
- uantitative result for each alternative and outcome combination
Payoff Ta le
- A table giving the payoff for each combination of a decision alternative and a state
of nature.

Utility
- The utility of an outcome measures the intrinsic value to the decision maker of that
outcome.

Decision Criteria
- There is no single decision criterion that is best for every situation.

Ma ima Criterion
- A very optimistic decision criterion that does not use prior probabilities and simply
chooses the decision alternative that could give the largest possible payoff.
- The decision criterion for the eternal optimist.
- It says to focus only on the best that can happen.

Ma imin Criterion
- A very pessimistic decision criterion that does not use prior probabilities and simply
chooses the decision alterative that provides the best guarantee for its minimum
possible payoff.
- Criterion for the total pessimist.
- It says to focus only on the worst that can happen.

Decision Making Environments

- Decision-Making Under Certainty
o Consequences of each alternative is known.

- Decision-making Under Uncertainty

o The probability of state of nature occurring is not known.
Maximax (optimistic)
Maximizes the maximum outcome for every alternative.
 Maximin (Pessimistic)
Maximizes the minimum outcome for every alternative.

Equally ikely ( aplace)

Finds the alternative with the highest average outcome.

- Decision-making Under Risk

o The probability of state of nature occurring is known.
o Decision making when we know the probabilities associated with each
possible states of nature.
o Chooses the alternative with the highest expected monetary value (EM ).

E pected alue of Perfect Information E PI

- Places an upper bound on what you should pay for additional information.
- Formula: E wPI – Maximum EM

E pected alue with Perfect Information E wPI

- ong-run average return if we have perfect information before a decision is made.
DSIMGTS NOTES
A ERAGING TECHNIQUES

Quantitative Approaches
Time-Series Models
o Na ve Approach
o Moving Averages
o Exponential Smoothing
o Trend Projection
Associative Models
o inear Regression
o Multiple Regression

Moving Average Method MA

MA is a series of arithmetic means.
Used if little or no trend.
Used often for smoothing.
MA Summation (demand in previous n periods) n where n no. of periods

eighted Moving Average MA

Used when some trend might be present.
Older data usually is less important.
Weights based on experience and intuition.
WMA Summation ((Weight for period n) (Demand in period n)) Summation
(Weights)

E ponential Smoothing
Form of weighted moving average
o Weights decline exponentially.
o Most recent data is weighted most.
Requires smoothing constant ( )
o Ranges from 0 to 1.
o Subjectively chosen.
Involves little record keeping of past data.
 New Forecast Previous period’s forecast (Previous Period’s Actual Demand
– Previous Period’s Forecast)
Ft Ft-1 (At-1 – Ft-1) Where: smoothing (or weighting) constant (0
1)

Measures of Forecast Accuracy

Compare forecast values with actual values.
In choosing , select the one with the lowest forecast error.
o Forecast Error Actual alue – Forecast alue
Measure of Accuracy
o Mean Absolute Deviation (MAD)
o MAD Summation Forecast Error divided by n n no. of periods

Multiplicative Seasonal Method

How to calculate:
1. The GRAND A E (i.e. average of data set)
2. The A ERAGE seasonal demand
3. Calculate the SEASONA INDE (S.I.) up to 3 decimals.
S.I. = AVERAGE DEMAND / GRAND AVE
4. To forecast the demand for each season, divide the E PECTED DEMAND by
the number of seasons, then multiply by the seasonal index:
Seasonal Forecast = Expected Demand / No. of Seasons x S.I.
DSIMGTS NOTES
TREND PRO ECTION AND ASSOCIATI E FORECASTING

Trend Pro ection

A time-series forecasting method that fits a trend line to a series of historical data
points.
Projects medium to long term forecasts.
inear Trend Equation
o y a bx
where y computed value of the variable to be predicted (dependent
variable)
a y-axis intercept
b slope of the regression lie
x time period
CONDITION: There is a linear trend in the data.

Associative Forecasting
Used when changes in one ore more independent variables can be used to predict
the changes in the dependent variable.
Most common technique is linear regression analysis.
If scatterplot travels to the upper-right side, the correlation is POSITI E.
o Independent ariable Increases Decreases
o Dependent ariable Increases Decreases
If scatterplot travels to the lower-right side, the correlation is NEGATI E.
o Independent ariable Increases Decreases
o Dependent ariable Decreases Increases
If scatterplot points are widely dispersed, there is NO CORRE ATION.
Interpretation of values of r (coefficient of correlation)
alue Correlation
0.70 to 1.00 ery Strong Correlation
0.40 to 0.69 Strong Correlation
0.30 to 0.39 Moderate Correlation
0.20 to 0.29 Weak Correlation
0.01 to 0.19 No or Negligible Correlation