Simulation: Applying Time Series Methodologies

Simulation: Applying Time Series Methodologies

Miguel E. Barnett

RES/342

July 13, 2010

Curtis Griffin

In today’s economy making good business and accurate forecasting decisions is vital to the success of most businesses. One specific area of business where accuracy is most important is when the company’s executives are forecasting the cost of doing business for the next fiscal year. This is called forecasting the budget for the next year. Today, due to things such as competition, need to grow market share and the volatile nature of the economy, the need for accurate budget forecasting is imperative. This has become more of a science than it was in years past. Businesses today hire people to study historic data gathered on both, their own company and that of their competitors. Then these people, known as Market Analyst, use this data to help build models that in turn help the company’s executives make better, more sound and educated forecasting decisions.

I was recently hired by a denim manufacturing company, Blues Inc. as a market analyst to help them decide what their advertising budget should be for their next year’s budget. They were able to provide me all pertinent historical data, dating back to their first year in business. This included actual sales figures, past advertising budgets, past advertising budgets of their competitors, and the retail coverage percentage numbers of the last 12 years.

With this data and available tools provided by statistics, such as linear regression and time series methodologies, I was able to develop the models needed to accurately forecast the sales figures and therefore the production levels needed to meet the demands of the next fiscal year and come up with an accurate advertising budget for that same period.

After analyzing this data I found Blues Inc. to be a strong competitor in the Denim industry, enjoying a 6% market share of a $45 billion dollar industry. This is an industry that has shown an increase of...