ITPEC FE Morning October 2019 Question 76
Which of the following is an appropriate method to forecast the amount of revenue during an upcoming promotion at a store, based on historical data?
Explanation
Regression analysis — it fits a relationship between revenue and its factors in past data and uses it to predict a value.
From historical records of past promotions, regression analysis estimates an equation such as y = ax + b, where y is revenue and x a factor like promotion budget or number of customers. Putting the planned value of x for the upcoming promotion into the equation gives the forecast revenue, a number derived from the data.
Answer (d)
Why not others:
- •(a) — cluster analysis groups similar data, for example customers into segments; it classifies rather than predicting a quantity
- •(b) — the Delphi method forecasts by repeatedly surveying experts and feeding back their answers until opinions converge; it relies on judgement, not historical data
- •(c) — Pareto analysis ranks items by size with a cumulative line to find the few that matter most; it does not predict future values
Key rule: To predict a numeric value from past data use regression; to group data, cluster analysis; to gather expert judgement where data is lacking, Delphi; to prioritize, Pareto.
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