Seasonal Index

The seasonal index may either be used analytically or synthetically. Analytically a seasonal index is employed to adjust the original data in order to yield the unseasonalized data that allow the study of short-run fluctuations of a series not associated with seasonal variations. The process of adjusting data for seasonal variations is a simple one. It includes merely the division of each of the original observations by the appropriate seasonal index for that month

TCI = TSCI / S

Synthetically a seasonal index might be used for the economic forecasting and managerial control. The Management usually benefits from examining the seasonal patterns of its own business patterns which directly influence its employment production, sales, purchase and inventory policies. For e.g., if a firm expects to sell $3, 60, 00,000 worth of goods during the forthcoming year, the average monthly sales of $ 30, 00,000 are anticipated. If however the volume of sales is subject to seasonal fluctuation, the actual monthly values will deviate significantly, then this average must be the seasonal index of may be 120. The firm can expect sales of $ 36, 00,000 during that month; in comparison to an index of 90. For December it would lead them to anticipate sales of only $ 27, 00,000. The possible solutions for seasonality available to individual firms are numerous. By special price and advertising policies a producer confronted with a strong seasonal demand for his product may try to stabilize sales by encouraging off- season consumption.

The most promising solution for the seasonality is diversification. Its merits are not only the firm but also the society at large. Whenever the diversification is possible, real costs of seasonal variations can be reduced or even removed. The Diversification includes the development of production lines having complementary seasonal movements. Whereas some expends seasonally others contract. Consequently labor and facilities can be transferred from one line to another as the seasonal changes take place. However diversification is possible only in those lines of production that have approximately the similar labored and equipment needs.

While making use of seasonal indices in the business and economic problems the following precautions and limitations in their applicator must be kept in mind:

1. No technique can measure the seasonal variations precisely. The different techniques of measuring seasonal variations are based on rather unrealistic assumption that the season are changing in some regular and systematic pattern.

2. In developing seasonal index we obtain a series of measures for January and for February and so forth- each of which normally differs from 10. However we must keep in mind these measures are only rough estimation. Hence if we obtain a seasonal index in which the values are 102, 99, 103, 98 etc, it may be that no real monthly seasonal variation exists in the series and that the small differences from 100 are only due to the random influences or imperfect measurements.

3. Even if the computed index of seasonal variation shows a pronounced pattern, it may have significance for a particular year. It must be redeem average pattern during g a number of years. If the pattern of seasonal variation in the series is not stable an average pattern may be a poor representation of the actual seasonal variation taking place during a given year.