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Seasonal Variations & Deseasonalisation 🌤️

Seasonal Variations are regular, short-term fluctuations that occur within a year (e.g., quarterly or monthly). Measuring them helps businesses plan inventory, staffing, and sales strategies.

Measuring Seasonality: Simple Average Method ➗

This is the simplest method. It assumes that there is no trend (or trend is negligible).

Steps:

  1. Arrange Data: By months or quarters for all years.
  2. Calculate Totals: Sum of each month/quarter across all years.
  3. Calculate Averages: Divide totals by number of years to get Monthly/Quarterly Averages.
  4. Grand Average: Calculate the average of these averages.
  5. Seasonal Index: 
    Seasonal Index = (Monthly Average / Grand Average) * 100

Example (Quarterly Data)

Data (Sales):

YearQ1Q2Q3Q4
201030403550
201134423852
201240454258
Total104127115160

Step 1: Calculate Quarter Averages (Total / 3)

  • Q1 Avg: 104 / 3 = 34.67
  • Q2 Avg: 127 / 3 = 42.33
  • Q3 Avg: 115 / 3 = 38.33
  • Q4 Avg: 160 / 3 = 53.33

Step 2: Grand Average (34.67 + 42.33 + 38.33 + 53.33) / 4 = 168.66 / 4 = 42.17

Step 3: Seasonal Indices

  • Q1 Index: (34.67 / 42.17) * 100 = 82.21
  • Q2 Index: (42.33 / 42.17) * 100 = 100.38
  • Q3 Index: (38.33 / 42.17) * 100 = 90.90
  • Q4 Index: (53.33 / 42.17) * 100 = 126.46

(Interpretation: Q4 sales are 26.46% higher than average).

Deseasonalisation 🧹

Deseasonalisation is the process of removing the seasonal effect from the time series data. This leaves us with the Trend, Cyclical, and Irregular components (TCI).

Why Deseasonalise?

  1. To see the true underlying trend.
  2. To compare performance of different months/quarters accurately (e.g., Is Q4 really better, or is it just the holiday season?).

Formula

For Multiplicative Model (Y = T * S * C * I):

Deseasonalised Value = (Original Value / Seasonal Index) * 100
  • If in Q4 2010, Sales = 50 and SI = 126.46.
  • Deseasonalised Sales = (50 / 126.46) * 100 = 39.53.

Summary

  • Seasonal Index > 100: Season is above average.
  • Seasonal Index < 100: Season is below average.
  • Deseasonalisation: Removing the seasonal component to analyze the "real" growth.

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