This article looks at the ARIMAX Forecasting method of analysis and how it can be used for business analysis.

What is ARIMAX Forecasting?

An Autoregressive Integrated Moving Average with Explanatory Variable (ARIMAX) model can be viewed as a multiple regression model with one or more autoregressive (AR) terms and/or one or more moving average (MA) terms. This method is suitable for forecasting when data is stationary/non stationary, and multivariate with any type of data pattern, i.e., level/trend /seasonality/cyclicity.

For more information about data trend and pattern analysis techniques, read our article entitled, ‘ What Are Data Trends and Patterns, and How Do They Impact Business Decisions?’

ARIMAX is related to the ARIMA technique but, while ARIMA is suitable for datasets that are univariate (see the article, entitled’ What is ARIMA Forecasting and How Can it Be Used for Enterprise Analysis?’). ARIMAX is suitable for analysis where there are additional explanatory variables (multivariate) in categorical and/or numeric format.

To understand ARIMAX Forecasting, let’s look at an example of annual GDP values in India. As shown in the figure below, the plot of these data points suggests that this is non stationary data with an upward trend. This dataset is suitable for the ARIMAX algorithm because there is more than one variable affecting the GDP – in other words, the dataset is multivariate.

arimax forecasting example

How Can ARIMAX Forecasting Be Used for Enterprise Analysis?

Let’s look at a business use case to illustrate the benefit of the ARIMAX Forecasting method.

Business Problem: A company wants to forecast its product line growth for the new couple of years, based on data from the past thirty (30) years. The predictor variables for this use case would be yearly consumer inflation rate, yearly GDP data and yearly population growth rate.

Business Benefit: By analyzing the various combinations of predictor variables, the business can forecast product growth, trends, patterns and seasonality, if any. The enterprise can also identify any gap between the targeted and estimated growth and develop an appropriate strategy to reduce this gap in order to achieve targets and results.

The ARIMAX forecasting method is suitable for forecasting when the enterprise wishes to forecast data that is stationary/non stationary, and multivariate with any type of data pattern, i.e., level/trend /seasonality/cyclicity.

ARIMAX provides forecasted values of the target variables for user-specified time periods to clearly illustrate results for planning, production, sales and other factors.

About Smarten

The Smarten approach to business intelligence and business analytics focuses on the business user and provides Advanced Data Discovery so users can perform early prototyping and test hypotheses without the skills of a data scientist. Smarten Augmented Analytics tools include assisted predictive modelingsmart data visualizationself-serve data preparation and clickless analytics with natural language processing (NLP) for search analytics. All of these tools are designed for business users with average skills and require no special skills or knowledge of statistical analysis or support from IT or data scientists.

The Smarten approach to data discovery is powered by ElegantJ BI Business Intelligence Solutions, a representative vendor in multiple Gartner reports including the Gartner Research Market Guide to Self-Service Data Preparation, as a Niche BI and Analytics Vendor in the Gartner Report, Competitive Landscape in the BI Platforms and Analytics Software, Asia/Pacific, as a Representative Vendor in the Gartner Market Guide for Enterprise-Reporting-Based Platforms, and a Listed Vendor in the Other Vendors to Consider for Modern BI and Analytics, Gartner Report.

Original Post: What is ARIMAX Forecasting and How is it Used for Enterprise Analysis?

Share Facebooktwitterlinkedin