1. Review of Simple Forecast Using Slope-Origin O = r x I Ted Mitchell

2. Forecasting with a single Performance for calibration You observe An output Q = 12,000 pies sold An input Advertising Budget, A = $2,000 You set the Two-Factor Machine as 12,000 pies = (conversion rate, r) x $2,000 advertising Calibrate the conversion rate r = Q/A = 12,000/$2,000 = 6 pies per dollar You forecast using the calibrated Two-Factor machine with a proposed input of $2,800 and the conversion rate of 6 pies per advertising dollar Forecasted pies, Q* = (6 pies per dollar) x $2,800 Forecasted pies, Q* = 16,800 pies

3. Tabular Representation of a Pie Selling Machine Performance 1 Input: Advertising Dollars, A A1 = $2,000 Output: Sales of Pies, Q Q1 = 12,000 pies

4. Tabular Representation of a Pie Selling Machine Calculate the conversion rate Performance 1 Input: Advertising Dollars, A A1 = $2,000 Calculate the conversion rate Pies per dollar of advertising, r = Q/A Q/A= r1= 12,000/$2,000 = 6 pies per dollar of advertising Output: Sales of Pies, Q Q1 = 12,000 pies

5. Tabular Representation of a Pie Selling Machine Using the calculated conversion rate to forecast Performance 1Forecasted performance Input: Advertising Dollars, A A1 = $2,000Proposed Input A2 = $2,800 Calculate the conversion rate Pies per dollar of advertising, r = Q/A Q/A= r1= 12,000/$2,000 = 6 pies per dollar of advertising Use the calculated conversion rate 6 pies per dollar Output: Sales of Pies, Q Q1 = 12,000 piesForecasted output Q = 6 pies per dollar x $2,800 = 16,800 pies

6. Slope-Origin Forecast Calibrated From Single Observation Calibrate Conversion rate r = 12,000/$2,000 = 6 pies per dollar Calibrate Conversion rate r = 12,000/$2,000 = 6 pies per dollar Perfrmance #1 ($2,000, 12,000) Input Factor Advertising Output Pies Sold 0, 0 $2,000 16,800 pies X 12,000 pies $2,800 13,200 pies X Week#2 predicted Point ($2,800. 16,800)

7. Actual Pie Sales in Performance 2 Performance 1Forecasted performance Actual Period 2 Input: Advertising Dollars, A A1 = $2,000Proposed Input A2 = $2,800 Calculate the conversion rate Pies per dollar of advertising, r = Q/A Q/A= r1= 12,000/$2,000 = 6 pies per dollar of advertising Use the calculated conversion rate 6 pies per dollar Output: Sales of Pies, Q Q1 = 12,000 piesForecasted output Q = 6 pies per dollar x $2,800 = 16,800 pies Actual Sales Q2 = 13,200 pies

8. Calculate the actual conversion rate, r, in period 2 = Q2/A2 Performance 1Forecasted performance Actual Period 2 Input: Advertising Dollars, A A1 = $2,000Proposed Input A2 = $2,800 Calculate the conversion rate Pies per dollar of advertising, r = Q/A Q/A= r1= 12,000/$2,000 = 6 pies per dollar of advertising Use the calculated conversion rate 6 pies per dollar Calculate the actual conversion rate, r2 = 13,200/$2,800 = 4.7 pies per dollar Output: Sales of Pies, Q Q1 = 12,000 piesForecasted output Q = 6 pies per dollar x $2,800 = 16,800 pies Actual Sales Q2 = 13,200 pies

9. Two Performance Observations Week #1 ($2,000, 12,000) Input Factor Advertising Output Pies Sold 0, 0 $2,000 16,800 pies X 12,000 pies $2,800 13,200 pies X Week#2 Forecasted Point ($2,800. 16,800) X Actual Week #2 ($2,800, 13,200)

10. Average 0f Two Performance Observations Week #1 ($2,000, 12,000) Input Factor Advertising Output Pies Sold 0, 0 $2,000 16,800 pies X 12,000 pies $2,800 13,200 pies X Actual Week #2 ($2,800, 13,200) Average of Two performance