Guest Post: A Tip on Teaching How to Convert Quarterly Trends to Annual Trends
At the recent POMS conference I asked the audience: “If the quarterly trend is an increase of 100 units, then what is the annual trend?” The answer I received was, “It is so obviously 400 units year that this must be a trick question.” This is the same answer my students typically give when I ask the question.
You can easily see that the annual increases are 1600 since each of the 4 quarters increases by 400 from year to year. Thus, the annual trend is 16 times the quarterly trend.
While the data above is contrived, the analysis holds for “real” data. The spreadsheet below shows the revenue at Coca-Cola (after all, the conference was in Atlanta) from 2008 to 2013.
The quarterly trend is an increase of 242 as shown in the graph, the annual trend using Excel’s SLOPE function is an increase of 3916 per year, and the ratio of the annual trend to the quarterly trend is just above 16 for this “real” data. Typically, I have my students use data from their own companies and more often than not, the ratio is near 16 for quarterly data or 144 for monthly data.
Other ideas on teaching forecasting can be found in “Let’s Put the Seasonality and Trend in Decomposition”, R. L. Nydick and H. J. Weiss.