How to Improve Your Forecasts by Modeling the Impact of Promotions, Business Interruptions and Events

Presented by Eric Stellwagen Vice President & Cofounder Business Forecast Systems, Inc. estellwagen@forecastpro.com

Business Forecast Systems, Inc. 68 Leonard Street Belmont, MA 02478 USA (617) 484-5050 www.forecastpro.com

Eric Stellwagen
Vice President, & Cofounder of Business Forecast Systems, Inc.
Coauthor of Forecast Pro product line.

Over 28 years in forecasting.

Currently serving on the board of directors of the International Institute of Forecasters and on the practitioner advisory board of Foresight: The International Journal of Applied Forecasting.

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What Well Cover

Introductions Evolution of Forecasting Process What are Events? Forecasting Event-Driven Data Examples

Summary
Q&A
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Evolution of Forecasting Process

Phase 1 Phase 2 Phase 3

Judgment & Spreadsheets

Automatic Time Series Approaches

Customized Approaches

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Customized Forecasting Methods

Customized approaches can take many forms including:
Event-index models Hierarchical approaches (e.g., top-down or other allocation schemes) Dynamic regression New product models etc.

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Common Events
Product promotions Moveable holidays (e.g., Easter, Rosh Hashanah, Ramadan)

Catastrophes (e.g., earthquakes, hurricanes, 9/11)

Labor strikes Acquisitions New legislation or regulations
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Forecasting Event-Driven Data

Judgmentally adjust history to remove impact.
Separate base demand from event-driven demand. Use a time series extension model (e.g., event-index model, ARIMA intervention model, etc.). Use a multivariate model (e.g., regression).
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What is an Event-Index Model?

An extension of exponential smoothing.
An index-based approach.

The model introduces an additional smoothing weight and updating equation.

The model requires an event schedule.

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Event Schedule

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Building an Event-Index Model

You need to decide how many event types are needed.
Each event type needs to have occurred historically. The schedule needs to include both the history and forecast periods.

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Examples

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Weekly Data
Weekly data presents many challenges
52 or 53 weeks per year More moveable holidays Lack of continuity between periods from year to year

Event-index models can be very useful when forecasting weekly data

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Conclusions
Time series methods do not perform well in the presence of events. An event-index model is an effective technique for forecasting event-driven data. The strengths of event-index models are accuracy, ease of application and adaptivity to changing dynamics. Event-index models are particularly useful when forecasting weekly data.
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Forecast Pro
Examples from todays Webinar used Forecast Pro. To learn more about Forecast Pro: Request a live WebEx demo for your team (submit your request as a question right now) Visit www.forecastpro.com Call us at 617-484-5050

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Forecast Training and Workshops

S

BFS offers forecasting webinars and product training workshops. On-site, and remote-based (via WebEx) classes are available.

Learn more at www.forecastpro.com

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Our Next Webinar

Identifying Problems in Your Data and Forecasts, October 24, 2013 1:30 p.m. EDT James Berry, Senior Consultant, Business Forecast Systems Learn how to improve your forecasting using outlier detection, exception reporting and ABC categorization (Pareto analysis). Visit www.forecastpro.com to sign up!

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Questions?

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Thank you for attending!

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