Slides project sales or production levels

Project Sales Or Production Levels Using The Rolling Average Principles of Cost Analysis and Management... Rolling Average Calculation... Rolling Average Calculation3mo... Rolling Averag

Project Sales Or Production Levels Using The Rolling

Average

Principles of Cost Analysis and Management

What if?

You planned

for 10 but…

Terminal Learning Objective

handouts, and awareness of Operational Environment (OE)/Contemporary

Operational Environment (COE) variables and actors

Predicting the Future

• 5 6 7 8 9 10 ? Or

• 16 15 14 13 12 11 ?

about the future

What is Trend Projection?

Regression Analysis

n(Σx2) - (Σx)2

n(Σx2) - (Σx)2

Regression Results

• The ascending series is y = x + 4 and we can predict that the 7th period would need 11 burgers

• The descending series is y = -x + 17 and we can predict that the 7th period would need 10

Regression Exercise

first six demands were:

• 8 10 9 12 13 15

Enter the values in the spreadsheet

to predict demand Per 8 demand = 17

Regression Analysis

components

Total cost = VC $/unit * # units + Fixed Cost

is a linear equation just like

y = mx + b

• in a time-s

6can plot linear trends over time

Example: Using Regression to Estimate Fixed and Variable Costs

Variable cost is 2.2 per unit

Total cost is 13.7 + 2.2*units

Fixed cost is 13.7

Variable cost is 2.2 per unit

Total cost is 13.7 + 2.2*units

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Periods

Regression Strengths and Weaknesses

Check on Learning

Rolling Average

• Example: Average of Periods 2, 3 & 4 will equal average of periods 1, 2 & 3

Rolling Average Calculation

Rolling Average Calculation

Per1 + Per2 + Per3

3

Per2 + Per3 + Per4

3

Rolling Average Calculation

3mo Avg.

Period

1 not enough data

2 not enough data

Rolling Average Calculation

2 not enough data

Rolling Average Calculation

3mo Avg X X 6.0 5.0

Period

2 not enough data

Rolling Average Calculation

2 not enough data

Rolling Average Calculation

3mo Avg X X 6.0 5.0 4.7 5.0 6.0 6.3 5.7 5.7 4.3 5.0

Period

2 not enough data

Graph of Rolling Average

This is a time series X-axis represents sequential time periods

Graph of Rolling Average

Rolling Average vs Regression

This is a time series X-axis represents sequential time periods

Using Rolling Average to Project Future Demand

(Per11 + Per12 + Per13)/3 = 5

3mo Avg X X 6.0 5.0 4.7 5.0 6.0 6.3 5.7 5.7 4.3 5.0

Using Rolling Average to Project Future Demand

(Per11 + Per12 + Per13)/3 = 5

(4 + 5 + Per13)/3 = 5

9 + Per13 = 15Per13 = 6

Using Rolling Average to Project Future Demand

(Per11 + Per12 + Per13)/3 = 5

(4 + 5 + Per13)/3 = 5

9 + Per13 = 15Per13 = 6

What would regression analysis project?

Which is “right”?

What would regression analysis project?

Which is “right”?

Rolling Average vs Regression

3 month rolling average suggests an inflection point

has changed the trend

3 month rolling average suggests an inflection point

has changed the trend

Regression picks up the long term downward trend,

predicting another decrease

Regression picks up the long term downward trend,

predicting another decrease

Rolling Average Strengths and Weaknesses

• But may be precisely wrong

• This helps decision makers avoid knee jerk responses to changes in demand that may not be

significant

• Decision makers are often looking for inflection points

• An inflection point in a six month rolling average carries a lot of weight

Check on Learning

demand?

Planning Factors

deploys

ratio) of sessions per soldier as “a”

deploy as

Planning Factor Example

planning factor relating sessions and

Planning Factor Example

planning factor relating sessions and

Leading Indicators

• Changes in consumer confidence index may foreshadow an increase in sales at the post exchange

• There is a period of time before the effect is seen (i.e that’s why they are called

leading indicators)

Check on Learning

Practical Exercise