The Advantages of Regression Analysis & Forecasting

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Managers keenly go through regression analysis results to establish relationships between variables.
Managers keenly go through regression analysis results to establish relationships between variables. (Image: Photos.com/Photos.com/Getty Images)

Managers need information to evaluate what is going on in the external and the internal environments of an organization. Regression analysis is one of the quantitative models that managers use to study the behavior of semi-variable costs and separate the fixed and the variable elements. Managers prefer the regression analysis technique to other models such as the high-low and scatter graph methods because of the overall superiority of the results.

Accuracy of Results

Regression analysis allows managers to establish objective measures of relationships between the independent and the dependent variables, rather than purely using personal judgment. This generally results in accurate information that is more reliable for decision-making, and other parties can empirically test the results using the same or separate data without resulting to personal opinions.

Assessment Tools

When the management obtains the results of the regression models electronically, most of the computers they use have software packages that provide a few statistics, such as the R-square and the student t-value statistics. The two statistics help managers determine the accuracy of the predictions, and thus the level of reliability of the results that they have obtained using the regression equations.

Use of Multi-Variables

The multiple regression analysis models allow managers to test for several independent variables that may explain different things about the dependent variable. Though complex, the manager can test for all the factors that he thinks have an effect on a given depended variable. This is unlike other inferior models that allow for only one independent variable. With the use of several variables, the accuracy of prediction is also improved.

Input for New Management Trends

Regression analysis provides needed input for activity-based cost and management techniques. These techniques are based on knowing what activities or transactions cause the acquisition and use of resources. The theory of constraints encourages managers to look at throughput per scarce resource as part of dealing with a dynamic environment of changing constraints. Regression analysis allows managers to establish objective.

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References

  • “Advanced Management Accounting”; Hirsch Maurice L; 1993
  • “Managerial Accounting”; Smith Jack L. et al; 1988
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