Quantitative Techniques for Business.
Quantitative Techniques for Business
A time series is a set of values that have been recorded over a period of time which can then be represented using a Time Plot. Time Series Forecasting does not explain data to a company but is useful for describing what is happening to the data or creating predictions for what will happen in the future e.g. Sales forecasts. It is also beneficial to the Human Resources Department as it can be used as an aid for them to plan the future resource requirements of the organisation.
Time Series forecasting is relatively simple to carry out. It has three main components: a random element (freak fluctuations), a trend (raw data) and seasonal components (fluctuations in business activity during the year).
The HR Department of Dewhurst Plc uses Time Series Forecasting to gain a better understanding of the general attitude of its employees towards their position of employment. It helps to illustrate trends and changes in the overall attendance of the employees of the company. Dewhurst monitor (with the help of time series forecasting) the rate at which employees are leaving and joining the company by taking quarterly recordings of the labour turnover, per year.
Below are Dewhurst's figures for the period of 1998-2001. The British operation employs a total number of 520 staff. From initially assessing the data, it is apparent that there are some fluctuations throughout the years however, it remains fairly stable.
Year
Quarter
Labour Turnover
998
518
2
516
3
520
4
511
999
513
2
498
3
513
4
505
2000
519
2
517
3
517
4
508
2001
500
2
512
3
519
4
516
Moving Averages
Moving averages focuses on the average values of the data provided in order to calculate the forecast for a certain time period in the future. This method calculates the 'mean' of the data provided. However, it should not be used if the data contains values that are slightly abstract in comparison to the other values in the set, as it can distort the average figures, making the forecast unreliable.
Once the mean has been calculated, using a mean square error, you are able to identify which period would be best to use for the forecast to be most accurate. This method should only be used on data that has no obvious trend as with upward and downward trends, it can under estimate or over estimate the forecasts.
Trend Analysis
When it is possible to represent the data pictorially, specifically in the form of a line graph or in a curve, then Trend Analysis is one of the most useful methods to use. As the graph shows, you are able to predict from past results what the future figures for Dewhurst's staff turnover will be for the next year. As the figures have not fluctuated greatly over the given period, it looks as though it will continue to remain fairly steady. However, it is important to remember that this is only a forecast therefore this may not necessarily be how the figures will turn out.
Exponential Smoothing
This technique is unique as it allocates different weightings to various parts of time series data from which the forecast will be calculated. The weightings are decided by the time period of which the data has been extracted from i.e. greater weighting is placed upon the most recent data
provided whereas older data is given the least weighting. The weights are determined by selecting a value of smoothing constant which in known as alpha.
This forecast was created using the exponential smoothing method. This shows that for the seventeenth period, the ...
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Exponential Smoothing
This technique is unique as it allocates different weightings to various parts of time series data from which the forecast will be calculated. The weightings are decided by the time period of which the data has been extracted from i.e. greater weighting is placed upon the most recent data
provided whereas older data is given the least weighting. The weights are determined by selecting a value of smoothing constant which in known as alpha.
This forecast was created using the exponential smoothing method. This shows that for the seventeenth period, the forecast has estimated that 515 employees will be the minimum figure for the mean square error. From analysing the results presented in the graph, it would appear that in the seventeenth period, which will be the next quarterly period of 2002, the labour turnover will remain the same as the sixteenth period.
Additive Model
To create a forecast, the additive model uses the formula:
Raw data = trend + seasonal variation + residual variation
When the raw data is divided into four quarters which also display fluctuations within each period, the moving average method can be used to produce values that create the trend. After the trend has been generated, the values are then placed at mid points of the existing data's quarterly intervals. Once the values for the trend have been established, they are then subtracted from the corresponding raw data values which can then be analysed in order to identify the seasonal variations or any other changes that may become apparent. The last step is a subtraction which will give the final values for residual variation.
The advantage of this model is that it shows how the data has changed over a period of time in comparison to the raw data figures-within the same graph.
This Additive composition graph shows that in the seventeenth period, the forecast predicts that there will be a very slight upward trend in Dewhurst's employee figures. More specifically, the unadjusted forecasted figure is 511.9392 but is marginally higher for the adjusted figure-514.3678.
Multiplicative Model
The Multiplicative model is exactly the same as the Additive model which uses moving averages. It is analysed in the same way however the only difference is that their total must be equal to the number of values used to calculate each trend value. Then by dividing the given figures, it gives you values for the residual and seasonal variations within the forecasted data.
The Multiplicative graph shows that there appears to be an upward trend forming in the first quarter of the next year. The unadjusted figure for the given period is 511.9661 and the adjusted forecasted figure is 514.3838.
After looking at the various methods of forecasting available, I have decided that Exponential Smoothing would be the best method of forecasting for Dewhurst Plc's Labour Turnover. There were other methods which were nearly as useful however, I chose Exponential Smoothing as it takes into account the age of the data presented and apportions it wisely. With regards to Labour turnover, there are many factors that can change the figures such as recession or an increase in business which can require more staff. This method places more importance on the more recent data n less on the 'older' data therefore if there were significant changes within the past years, it will not have much of an effect on the forecast making it more reliable.
This data can benefit Dewhurst by giving them an idea of how many of their employees are joining or leaving their company on an annual basis. Dewhurst has a low Labour Turnover which is a good thing for a company as it means that their employees are happy within their work and so are staying for longer periods. This also benefits a company as many of them spend a lot of their budget on training for their employees, but if their workforces are consistently leaving the company, they will never see the benefit of the training.
Dewhurst is the market leader in keypad technology and is a leading world-wide supplier of high quality lift components. Therefore as it is a technological supplier, quantitative techniques is an important aspect of how the company functions on a daily basis. With the introduction of Time Series Forecasting within the company, it has proved to be a very useful piece of software for various areas within the company as it deals with a vast range of information that helps with the future planning and current project analysis.
Appendix 1
All calculations for each method were done using QM for Windows. Below are all the figures and tables for each forecast.
Moving averages
Trend Analysis
Exponential Smoothing
Additive Model
Multiplicative Model
Organisations and Behaviour- Integrated Assignment 2
After carrying out a number of time series forecasting methods and deciding which method was the most 'useful', I have concluded that Dewhurst would benefit from training their existing employees because they have a fairly constant but low labour Turnover. This will mean that Dewhurst are maximising the returns on all capital, time, as well as other resources that have been allocated to the training and development of employees already at Dewhurst PLC.
As a huge majority of Dewhurst's employees tend to remain in their place of employment, the company does not have big expenditures on recruitment and selection and all the processes associated with it e.g. Advertising, drawing up policies, interviewing, personality tests etc. This should then influence Dewhurst to train existing employees. By training their current workforce, they will be able to ensure their employees posses the required knowledge and skills that are relevant to the operational tasks of which the company wishes them to carry out. This way, Dewhurst can then have total control over which skills their employees receive training in and it will also save the time consuming task of searching for new staff that already have these desired skills.
Once existing employees have undergone training at Dewhurst, they are then able to comprehend what is expected of them from their employers. If Dewhurst can keep these employees at the firm, as they develop and progress through the ranks of the company in some cases, maybe becoming managers or supervisors, these employees will have a real sense of belonging within the organisation as they would have seen the company develop with the help of their input.
The fact that Dewhurst has low labour turnover is a bonus with regards to motivation as high labour turnover can often cause de-motivation within a workforce, but as Dewhurst's is low, this will not be a problem for them. However recruiting new employees typically involves high costs, consumes vast amounts of time and it is never certain that the company will recruit the correct person who will not only fill the vacancy, but also work well with the rest of the team.
Training within Dewhurst is mainly done internally with some day release courses open to employees approved of by Dewhurst. When taking into consideration the identification of needs for training, planning the training and delivering the training, there is a model known as the 'Training Cycle'. This could be referred to in order to help achieve an effective training process. Dewhurst recognise this however they have made a few alterations in order to make it unique to the company in a way that will accelerate achieving its own training goals and in turn business objectives.
There are six stages to the training cycle, which are as follows;
. Training Policy
This was added to the cycle by Dewhurst. This is a short document which all managers or personnel who train the employees, should be familiar with and must read before training is implemented. This policy is regularly reviewed in order to make sure that they are using the right and most up-to-date methods.
2. Establishing Training Organisation
This stage is where decisions are made by Training Managers regarding the priorities of training. At Dewhurst these are categorised in order, and are as follows:
. Job Required- this is done to ensure adequate performance in current assignments is at a satisfactory level which may include refresher training.
2. Job Related- This is to increase the proficiency or improve performance above normal rates that are expected of a certain role.
3. Career Related- This is designed to develop the career potential and provide opportunities for self-development.
3. Identifying Training Needs
A company will be successful with its training methods if it first tries to understand how individuals as well as groups learn. Dewhurst place an emphasis on all their managers continually reviewing the performance of their subordinates in order to identify possible areas which require improvements. Training needs are not just the concern of managers as all employees are encouraged to identify their own needs with regards to training and development.
4. Plan Training
This includes:
* When and where should the training be implemented i.e. Internal or External
* Which techniques should be used.
* Planning the actual structure of the program.
If possible or where appropriate Dewhurst try to agree and draw up a training and development plan for each individual employee. Once completed, a budget for the training programme can then start to take form.
The main training methods that Dewhurst tend to use and find most effective amongst their employees are- Group discussions, role plays, projects, computer training courses and at times external lecturers are used in order for employees to have lectures regarding specific topics, but generally most of their training is done internally.
5. Carry Out Training
Notification is given out to all levels of staff i.e. those who are being trained as well as Mangers, well in advance via a letter or the internal intranet system. In order for the training to be successful, if possible the training provider should have previous experience in training employees as if not executed in the correct manner, it could turn out to be waste of time for all involved costing Dewhurst a lot of money, unnecessarily. It is likely that most employees at Dewhurst will be responsible for showing someone what to do in a job at some point. However, specialised HR officers and managers are usually responsible for the training.
6. Evaluate Training
All training should be evaluated to establish its effectiveness. Reviewing a companies practice is always an important exercise however if a company does not evaluate how successful the training was, then they would not know how successful the course was. Evaluation should be done at several intervals-not just at the end. This would help reduce wastage in unnecessary training costs. One way in which Dewhurst attempt to get feed back from their employees is for everyone who attends internal courses to fill out an evaluation form after each session. The trainers can then use the data accumulated to continuously improve their courses.
Dewhurst do not only evaluate internal training but they also request evaluation forms to be completed by employees returning from external courses. These are obviously monitored for the same reasons that the internal programmes are. However after employees have had training whether internal or external, Dewhurst look to see what impact it has had, once they return to work. This just illustrates how far training evaluation carries on, without doing so Dewhurst would learn little from their training methods and be wasting a lot of valuable time and money.