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  • Forecasting: Causal Models Using Bayesian Belief Networks

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    Siddharth Shekhar
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    This document discusses forecasting methods using Bayesian belief networks and causal models. It describes using factors like rainfall, soil conditions, subsidies and their states to determine probabilities and predict demand. However, it notes the complexity increases with additional factors and isolating each factor's influence requires extensive statistical analysis and data. Time series methods and selecting the best forecasting approach depends on available data, costs and the nature of the products or services. Computer software can help with forecasting but accuracy relies on how complete the causal model represents all relevant factors.

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    14.Forecasting 2

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    This document discusses forecasting methods using Bayesian belief networks and causal models. It describes using factors like rainfall, soil conditions, subsidies and their states to determine probabilities and predict demand. However, it notes the complexity increases with additional factors and isolating each factor's influence requires extensive statistical analysis and data. Time series methods and selecting the best forecasting approach depends on available data, costs and the nature of the products or services. Computer software can help with forecasting but accuracy relies on how complete the causal model represents all relevant factors.

    Copyright:

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    Download as ppt, pdf, or txt
    13 views12 pages

    Forecasting: Causal Models Using Bayesian Belief Networks

    Uploaded by

    Siddharth Shekhar
    This document discusses forecasting methods using Bayesian belief networks and causal models. It describes using factors like rainfall, soil conditions, subsidies and their states to determine probabilities and predict demand. However, it notes the complexity increases with additional factors and isolating each factor's influence requires extensive statistical analysis and data. Time series methods and selecting the best forecasting approach depends on available data, costs and the nature of the products or services. Computer software can help with forecasting but accuracy relies on how complete the causal model represents all relevant factors.

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    of 12

    Forecasting

    Causal Models using


    Bayesian Belief Networks
    Bayesian Belief Networks

    Factor A Factor B

    Factor C Factor D

    Demand
    A B

    C D

    States
    Factor Factor ID
    1 2
    Rain fall A Good Poor
    Soil condition B Good Poor
    Growth Condition C Good Poor
    Subsidy D High Low
    Demand E High Low
    A B Expert Opinion / Historical
    Data / Forecast
    Marginal probabilities
    P (A1) 0.6
    C D P (A2) 0.4
    P (B1) 0.5
    P (B2) 0.5
    P (D1) 0.3
    P (D2) 0.7
    E

    Expert Opinion / Historical Data

    A B P(C=1) P(C=2)
    1 1 0.8 0.2
    1 2 0.5 0.5
    2 1 0.5 0.5
    2 2 0.2 0.8
    A B
    Marginal probabilities
    P (A1) 0.6
    C D P (A2) 0.4
    P (B1) 0.5
    P (B2) 0.5
    P (D1) 0.3
    P (D2) 0.7
    E

    Conditional probabilities i=1 i=2


    P [Ci | (A1 & B1)] 0.8 0.2
    P [Ci | (A1 & B2)] 0.5 0.5
    P [Ci | (A2 & B1)] 0.5 0.5
    P [Ci | (A2 & B2)] 0.2 0.8
    P [Ei | (C1 & D1)] 1.0 0.0
    P [Ei | (C1 & D2)] 0.4 0.6
    P [Ei | (C2 & D1)] 0.5 0.6
    P [Ei | (C2 & D2)] 0.0 1.0
    P (C1) = P [C1 | (A1 & B1)] P (A1 & B1) +
    P [C1 | (A1 & B2)] P (A1 & B2) +
    P [C1 | (A2 & B1)] P (A2 & B1) +
    P [C1 | (A2 & B2)] P (A2 & B2)
    = 0.53

    P (C2) = P [C2 | (A1 & B1)] P (A1 & B1) +


    P [C2 | (A1 & B2)] P (A1 & B2) +
    P [C2 | (A2 & B1)] P (A2 & B1) +
    P [C2 | (A2 & B2)] P (A2 & B2)
    = 0.47
    P (Good demand) = P [E1 | (C1 & D1)] P (C1 & D1) +
    P [E1 | (C1 & D2)] P (C1 & D2) +
    P [E1 | (C2 & D1)] P (C2 & D1) +
    P [E1 | (C2 & D2)] P (C2 & D2)
    = 0.378

    P (Poor demand) = P [E2 | (C1 & D1)] P (C1 & D1) +


    P [E2 | (C1 & D2)] P (C1 & D2) +
    P [E2 | (C2 & D1)] P (C2 & D1) +
    P [E2 | (C2 & D2)] P (C2 & D2)
    = 0.622
    Drawbacks

    Complexity increases with the number of factors.

    Isolating the influence of each factor on demand is a


    complex statistical process involving expert
    intervention and use of computers.

    Forecast accuracy depends on the completeness of the


    model.
    Even if a model is constructed, at best it tells us what
    the demand is likely to be in a given set of
    circumstances but there is no certainty that those set of
    circumstances will prevail at the time considered for the
    forecast as they in turn have to be forecast.

    While the underlying principle of using causative factors


    to predict demand is logical, its application is not only
    complex but requires elaborate data for the past which is
    rarely available.
    Time Series Based Forecasting Methods

     Simple Moving Average


     Weighted Moving Average
     Exponential Smoothing
     Exponential Smoothing with Trend
    Criteria for Selecting
    a Forecasting Method

     Cost
     Accuracy
     Data available
     Time span
     Nature of products and services
     Impulse response and noise dampening
    Computer Software for Forecasting
    Examples of computer software with forecasting
    capabilities

     Forecast Pro
     Autobox Primarily for
    forecasting
     SmartForecasts for Windows
     SAS
     SPSS Have
     SAP Forecasting
     POM Software Libary modules

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