Time Series Components:

This is supposed that demand experienced in a given period is the consequence of four interacting factors (called time series components). These components are :

1. Trend,

2. Business cycle influence,

3. Seasonal fluctuations, and

4. Random or Irregular Residue.

The Trend Component T

The trend is the long-term growth or decline in the average level of demand.

The Business Cycle Component C

It is the large deviation of actual demand values from those expected on the basis of a trend. This represents the combined effect of social, economic, technological, and other environmental forces.

Historical data illustrates that business cycles do not have repeatable patterns in terms of amplitude or duration. They can extend from one to several years. It is not possible to control them, and equally impossible to predict them. Our interest in forecasting lies in only developing an awareness of what phase of business cycle we are in, so that our plans can be adjusted accordingly.

The Seasonal Component S

It is the annually repetitive demand fluctuations that can be caused by tradition, weather, or other factors.

The Random Component R

This refers to the irregular or random difference that can exist between the actual demand in a given period and the expected demand based on the understanding of the underlying trend, the current phase of the business cycle, and the prevailing seasonal pattern. This is generally attributed to the uncertainty of the environment.