MANAGERIAL DECISION MAKING

II. Decision Making Tools and Techniques

A.  Forecasting

1.  Time-series models

Examine a single variable over time

a.  Decomposing time series

• Trends
  
  
• Business cycles
  
  
• Seasonal variations
  
  
• Random fluctuations

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b.  Trend fitting

(1)  Linear trend

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(2)  Quadratic trend

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(3)  Exponential trend

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c.  Autoregressive models

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d.  Seasonality

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2.  Barometric models

• Leading indicators - variables that change in advance of business or economic activity

Index of Leading Economic Indicators

• Not always accurate
  
  
• Timing is inconsistent
  
  
• Magnitude of future changes not indicated

3.  Econometric models

• Models based on sets of equations

Ex. -

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• Links between economic variables established
  
  
• Provides a complete and consistent description
  
  
• Interdependence of variables captured