Page 230 - DMGT404 RESEARCH_METHODOLOGY

Research Methodology

Notes Calculation of Seasonal Indices
Year I II III IV
1986 - - 97.4 104.2
1987 102.5 95.1 99.2 103.2
1988 102.4 96.4 97.7 100.5
1989 102.9 98.1 - -
Total 307.8 289.6 294.3 307.9
A 102.6 96.5 98.1 102.6
i
S. I. 102.7 96.5 98.1 102.7

Note that the Grand Average G =** = 99.95. Also check that the sum of indices is 400.

Merits and Demerits

This method assumes that all the four components of a time series are present and, therefore,
widely used for measuring seasonal variations. However, the seasonal variations are not
completely eliminated if the cycles of these variations are not of regular nature. Further, some
information is always lost at the ends of the time series.

10.6.4 Link Relatives Method

This method is based on the assumption that the trend is linear and cyclical variations are of
uniform pattern. As discussed in earlier unit, the link relatives are percentages of the current
period (quarter or month) as compared with previous period. With the computation of link
relatives and their average, the effect of cyclical and random component is minimised. Further,
the trend gets eliminated in the process of adjustment of chained relatives. The following steps
are involved in the computation of seasonal indices by this method:
1. Compute the link relative (L.R.) of each period by dividing the figure of that period with
the figure of previous period. For example, link relative of 3rd quarter

figure of 3rd quarter
=  100
figure of 2nd quarter
2. Obtain the average of link relatives of a given quarter (or month) of various years. A.M. or
M can be used for this purpose. Theoretically, the later is preferable because the former
d
gives undue importance to extreme items.
3. These averages are converted into chained relatives by assuming the chained relative of
the first quarter (or month) equal to 100. The chained relative (C.R.) for the current period
(quarter or month)

C.R. of the previous period × L.R. of the current period
=
100
4. Compute the C.R. of first quarter (or month) on the basis of the last quarter (or month).
This is given by

C.R. of last quarter (or month) × average L.R. of 1st quarter (or month)
=
100
This value, in general, be different from 100 due to long term trend in the data. The
chained relatives, obtained above, are to be adjusted for the effect of this trend. The
adjustment factor is

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