Extrapolation

that's our session on extrapolation so when we have marketing data we need to interpret this marketing data we might use correlation we might use confidence intervals or we might use extrapolation which is what we're going to look at here so extrapolation is simply using historical trends past trends to help forecast future trends so there's two types of or examples of extrapolation here firstly we've got this chart so we've got years and profit it is 2020 and we have the dates of 2018 2019 and for 20 to 24 the profits and we put those in those

black dots there we've chopped them up and we put a lot of best fit through in blue now used extrapolation we can see there is kind of growth on year on year in profit so maybe that would continue in the future and we would do a lot of best fit with our red line and then put the green marks in and that shows what the Futurist trends could be that's just the predictions of forecast that's one way of doing it revelation another way is the example over there where you are a business and your sales

have increased ten percent year-on-year for several years and we can see it's you know the 17 know 100 million and then they increase by 10 percent to 110 2018-2019 to 121 million and in 20 to 22 113 3.1 million so they're increasing by 10 percent each year so then it might be that you think will they will increase by 10 percent again this year and if they did so then in 2021 they would be 146 point 4 1 million so you just use an extrapolation there to predict the future using historical trends now the general

pros of extrapolation what was a useful method to help predict the future as we see and it's going to be more effective if you have more years of data and also the trend itself is stable and consistent there's an example of a perfectly stable and consistent trend so you may well be prudent in your decision-making to use extrapolation and see that in 2021 your sales would increase to 146 million I'm thinking think about it clearly aids decision-making so you could predict what you may need to do in the future because if your sales are increasing

by 10 percent then your production may need to increase by 10 percent so you can help give other departments ideas so you can use it to aid your decision-making however there's always limitations and the cons here is you must be thinking about those external factors when you're doing extrapolations because other things can happen that could ruin this trend you could be thinking about rivals rivals could be entering a market or they could be leaving the market maybe the trend is actually even steeper also the economy the economy could be in a business cycle it could

be a boom it could be a recession there could be a health crisis and any fourth uncertainty you can also exist and also fashions and fats can change it could be that actually this product here yes the profits are going up each year but if we were to chart this back against a product life cycle we'd see that now it looks like we're starting to enter the maturity stage or even the decline stage and we would actually predict that there's going to be a a more a flatter curve in the future in terms of those

profits or in this case in terms of both sounds so I hope that helps with trap elation and I'll see you at the next session [Music]