Quantitative Methods in Business: Forecasting

Posted: August 25th, 2021

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Quantitative Methods in Business: Forecasting

A Graph of the Time Series

In forecasting, the primary goal is to establish the trend of a certain variable and predict its nature in the future. For the case of the Master of Coin in the government of the Six Kingdoms, forecasting will enable the prediction of the number of coins in the treasury in the following fourth year. To do so, data for three previous years will be utilized. To precisely understand the trend before the forecasting, a time series graph for the historical data available is necessary. The following figure shows this trend.

From observation, gold coins in year 3 decreased when compared to both year 1 and year 2. Nonetheless, year two experienced the most stable amount of gold coins in the treasury at any month of the year.

Forecasts

In statistics, there are multiple ways through which future data and trend can be forecasted. Notably, forecasting is a technique in which predictions are made while using historical data (Chambers, et al.). The historical data allows the researcher to make educated guess amid the assumption that many factors are likely to remain constant. Nonetheless, the predicted values or trends are to some extent unreliable since they are generated through probabilities, and hence, relying on them to make an informed decision might be risky.

                        Simples regression is among the most used forecasting methods. The primary assumption in regression analysis is that every variable in a set of variables must have some causal relationship with another one or the rest (Bruce and Bruce). When such a correlation exists, it means that one variable can be predicted based on the behavior of the other or others.

Forecast Number of Gold Coins for Year 4

For the case of the Master of Coin in the government of the Six Kingdoms, the historical time series data has two sets of variables: gold coins and time. Using a regression analysis where the regressand was the forecasted variable, gold coins in year 4, and the predictor variables were the gold coins in year 3 and 2, the following output was obtained.

Gold coins in year 4= 205.6508+P0.380664

Where P is the gold coins in the previous year.

For the year 4 predictions, the historical data for year 3 were utilized based on the outlined model generated from regression analysis in excel.A time series graph for the historical and the predicted data is shown below.

                        From the above time series graph, four curves for four years are shown. From observation, only three curves appear to be visible. However, a closer look reveals that curves for the years 1 and 2 lie on each other with an almost unobservable difference. This suggests that the variation in the number of gold coins in these two years were almost identical. Year 3 experienced the lowest number of gold coin reserves. This is shown by the red curve which is below the rest. For forecasted data is shown by the yellow curve. It has slightly lower values when compared to those of both year 1 and 2. However, it positioned just above the red curve for year 3. This means that the number of gold coins will rise in the following year.

Recommendations Regarding the Future of the Six Kingdoms

There is a predicted increase in the reserve of the gold coins. This means that there will be future financial prosperity. Lord Bronn of Highgarden must ensure that economic variables that are likely to influence gold coin reserves are kept constant to achieve the forecasted results.    

Works Cited

Bruce, Andrew, and Peter Bruce. “Practical Statistics for Data Scientists.” O’Reilly | Safari, www.oreilly.com/library/view/practical-statistics-for/9781491952955/ch04.html. Accessed 3 June 2019.

Chambers, John C., et al. “How to Choose the Right Forecasting Technique.” Harvard Business Review, 1 July 1971, hbr.org/1971/07/how-to-choose-the-right-forecasting-technique. Accessed 3 June 2019.