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Multivariate Forecasting in
Tableau with R
August 2, 2016
By Bora Beran

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(This article was first published on R Bora Beran, and kindly contributed to R-bloggers)

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Since version 8.0 it is very easy to generate forecasts in Tableau using

exponential smoothing. But in some cases you may want to enrich
your forecasts with external variables. For example you may have the
governments forecast for population growth, your own hiring plans,
upcoming holidays*, planned marketing activities which could all
have varying levels of impact on your forecasts. Or sometimes you
may just want to simulate different scenarios and ask what if
questions e.g. what would my sales look like if I hired 10 more sales
representatives? If interest rates went up by X percent, how would that
impact my profits?

Lets see how we can tackle both uses cases with the help of
Autoregressive Integrated Moving Average with eXogenous variables
(ARIMAX) models in Rs forecast package.
*In some cases seasonality may be sufficient to capture weekly cycles but not for
moving events like Easter, Chinese New Year, Ramadan, Thanksgiving, Labor day etc.

Handling special events

In the image below the observed/historical demand is shown in blue.

At the bottom you can see the holidays as green bars with height of 1
and non-holidays as bars of height 0. This representation is often
referred to as dummy encoding.

Our data contains 2 holidays that happened in the past and 1 upcoming
holiday. One can clearly see that the holidays are causing noticeable
spikes in demand. For a store owner who doesnt want to miss the next
holiday opportunity by running out of stock early, it is very valuable to
incorporate this important piece of information in the demand forecast.

The formula for the forecast shown with the red line (which doesnt
take holidays into account) looks like the following:

SCRIPT_REAL("library(forecast);
append(.arg1[1:99],forecast(ts(.arg1[1:99], frequency=12), h=21)$mean)",

First 99 points cover the historical data while last 21 are whats being
predicted. The data follows a 12 period cycle. Second line of R code
appends the predicted values to the reported values to generate the full
series.
The formula for the forecast shown with the green line (which
incorporates the holidays) looks like the following:

SCRIPT_REAL("library(forecast);
data <- data.frame(demand=.arg1,holiday=.arg2);
training <-data[1:99,];
model<-auto.arima(training[,1],xreg=training[,2]);
append(training[,1],forecast(model,xreg=.arg2[100:120])$mean)",

In this script, exogenous regressors are passed to the function using the
xreg argument. It can be clearly seen that both the spike due to holiday
and the regular seasonality in demand are represented by this model. If
there are multiple events with potentially different effects (positive vs.
negative, different magnitudes etc.), they can be handled using the
same method if added as separate variables.

What-If Analysis

Now that we covered handling events as additional regressors, lets

talk about we can apply the same methodologies to do what if analysis.

Below you can see three time series; Sales and 2 economic indicators.
Assume that the two indicators contain the current best estimates of
behavior for next few days but Sales for the same period is unknown
however can be estimated using the two economic indicators.
What makes this visualization more interesting is that you can also
adjust the value of economic indicators and the time frame these
overrides apply. For example in the image below, indicator X has been
increased by 15 units (dark blue peak) for the period April 13th and
April 25th while indicatory Y has been reduced by 20 units (dark
orange dip) for the period April 20th and May 1st. The impact can be
clearly seen in the dark green portion of the line in the first chart. By
adjusting the parameters in the dashboard one can perform what-if
analysis and understand impact of likely future events, best/worst case
scenarios etc.

What if analysis with time series forecasting

Lets take a look at the R script that is used to create this view.

SCRIPT_REAL("library(forecast);
training <- ts(data.frame(sales=.arg1,indX=.arg2,indY=.arg3)[1:100,],frequency=7);
model<-auto.arima(training[,1],xreg=training[,-1]);
whatifdata <- data.frame(indX=.arg2,indY=.arg3)[101:120,];
whatifdata <- data.frame(indX=.arg2,indY=.arg3)[101:120,];
append(training[,1],forecast(model,xreg=whatifdata)$mean)",
AVG([Sales]),AVG([Economic Indicator X]),AVG([Economic Indicator Y]))

As you can see, the formula is very similar to earlier examples. In this
demo dataset, the first 100 rows are used for model fitting while the
last 20 contain the sales forecast as well as the inputs for the sales
forecast that are the what-if values defined in Economic indicator X
and Y fields as a function of parameter entries.

You can find all of these examples in the Tableau workbook published
HERE.

In the sample workbook, I also provided a sheet that compares the

ARIMAX result to multiple linear regression to give a better sense of
what youre getting out of applying this particular method.

Related

How To Forecast smooth package for

With Tableau And R R. es() function. Part I
How To Forecast With Good news, everyone!
Tableau And R smooth package is
July 1, 2015 now available on Forecasting:
In "R bloggers" CRAN. And it is time to Exponential Smoothing
look into what this Exercises (Part-3)
package 14,
October can 2016
do and April 17, 2017
In "R bloggers" In "R bloggers"

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R Bora Beran.

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