AIMS 3770 - Dr. Leon June 27, 2012
PROJECT 1: FORECASTING
Woodrow, Ltd. has invented a new type of racquetball. The high-quality ball has more bounce, but slightly less durability, than their currently popular high-quality ball.
Marketing research shows that better players prefer more lively balls. The primary advantage of the new ball though is that it can be manufactured much more inexpensively than the existing ball. Current estimates are that the variable costs for the new ball will be $0.72 per ball as compared to $0.95 for the existing ball. This new ball would replace their existing ball on the market. The process needed to make the new ball however will require that Woodrow lease manufacturing capacity from another firm at a cost of $4.0 million per year. Woodrow estimates that the other operational overhead expenses will result in the company having an annual fixed cost of $1.25 million for each of the next five years.
The attached table on the next page shows the number of old Woodrow raquetballs sold each quarter for the last ten years. The marketing research shows that consumers view the two balls as being very similar and will readily substitute old ball purchases with new ball purchases. Based on that assumption, Woodrow has hired you to determine a forecast for sales each quarter in 2013.
In order to help Woodrow, Ltd., you will need to perform the following activities:
1.
Plot the quarterly time series in a line graph and decompose behaviors in the time series to identify a forecasting model that you think will provide Woodrow with a reasonably accurate forecast for the 2013 year. Calculate at least one quarterly measure of performance (e.g. MAD or MAPD) to describe how accurate your selected forecasting approach is.
2.
Using your recommended forecasting approach, forecast racquetball sales for each quarter in 2013. Provide a graph that depicts how your forecasts (historical or future) compare to the actual patterns observed in the time series. Deposit the spreadsheet model that shows the recommended forecasting approach, next year’s forecasts, your graphs and the performance calculations for that approach in
MyLMUConnect’s assignment section. There should be at least three graphs in your file: two graphs that are used in part 1 to identify demand behaviors and one graph that plots forecasts using your recommended approach in comparison to the historical data.
3.
Answer the three questions on the next page and turn in a printout of the sheet in class. You must type these answers.

YEAR QUARTER
2005
2006
2003
2004
2007
Winter
Spring
Summer
Fall
Winter
Spring
Summer
Fall
Winter
Spring
Summer
Fall
Winter
Spring
Summer
Fall
Winter
Spring
Summer
Fall
Balls Sold (in millions)
2.6495
1.135
1.2889
1.7902
2.8422
1.2369
1.2632
2.0527
2.3688
1.474
1.4212
2.1319
2.4672
1.3915
1.2336
2.6316
2.146
1.9893
1.6309
2.3176
YEAR
2010
2011
2008
2009
2012
QUARTER
Winter
Spring
Summer
Fall
Winter
Spring
Summer
Fall
Winter
Spring
Summer
Fall
Winter
Spring
Summer
Fall
Winter
Spring
Summer
Fall
Balls Sold (in millions)
2.6175
1.3954
1.7149
2.798
3.132
2.2523
1.7083
1.8982
2.894
1.958
1.5993
2.6106
2.8255
2.1258
2.093
2.1009
3.053
2.241
1.7569
2.0537

PROJECT 1 FORECASTING QUESTIONS
NAME: ________________________________
1.
Describe the demand behaviors for this time series by answering the following: a.
Trend: i.
How would you describe the trend in this time series (e.g. flat, upward, downward, steady, tapering?): ii.
Explain which graph(s) you looked at and how you came to your conclusion based upon the graph(s). What other information from the project description or news events today did you consider in your analysis of this behavior? iii.
Do you think the trend you described will continue next year?
Explain why or why not. b.
Seasonality: i.
How would you describe the seasonality in this time series (e.g. not present, high and low periods?): ii.
Explain which graph(s) you looked at and how you came to your conclusion based upon the graph(s). c.
Random Movement: i.
How would you describe the amount of random variation in this time series (e.g. minimal, extremely volatile?): ii.
Explain which graph(s) you looked at and how you came to your conclusion based upon the graph(s).

2.
What forecasting approach did you select to model this time series? If you selected a seasonal method, describe clearly what other time-series models you used to implement this approach. State your 2013 quarterly forecasts and describe how these four forecasts anticipate the behaviors you described in part 1.
You should interpret your graph and your calculated measure of performance when providing this description. Interpret your measure of performance in a managerial context and be sure to include the units assumed for your measures (e.g. %, $) .
3.
If Woodrow plans to sell the new ball for $1.35 per ball, the same retail price as the existing ball, will Woodrow break even next year? Show your calculations.
(Refer to the Break Even Point in Units handout posted in the Assignment section for this project.) Do you think the investment in the new product line and manufacturing plant is a good idea given your break even assessment for next year and the demand behaviors you observed that are associated with the racquetball forecast?