The S-curve as a forecasting tool

Logistics growth formula. You are here: areppim > Glossary of terms > S-Curve or Logistic Function. S-Curve Most things come in stocks. Earth itself is a set of stocks : one of land, another of water, still another of air. Thus, a wide range of phenomena can be viewed as processes of stock depletion: an epidemic spreading through a stock of healthy, infectable population; economies extracting oil, copper or phosphat from finite stocks of minable resources; adoption of a technology by a market made up of a stock of enterprises or consumers. Although stocks may increase, they are not limitless, unless feeding inflows persistently exceed the outflows that cause stocks to shrink. This is unfortunately neither the case of the earth, nor of the savings account of the common person. Furthermore, some stocks evolve naturally only on a geological time-scale – such as is the case for oil. Limited stocks place a ceiling on growth, a phenomenon that we can observe in numerous areas. Our planet cannot accommodate ever-growing billions of people. An epidemic will stop spreading and will recede once its potential victims have succumbed or become immune. Selling cars, mobile phones, watches, computers, or what have you will eventually slow down and reach a plateau after potential buyers have bought what they wanted and only get new stuff to replace the old. We cannot pump oil or freshwater from the ground forever – some day wells will dry out. Important questions are then : how fast does a stock deplete over time? Can one forecast how much is left of a stock? Such growth (or alternatively, stock depletion) processes cannot be mathematically represented by a constant growth or linear function – commonly used in econometric models. Instead, they require a varying or non-linear growth function; the logistic (or sigmoid or S-curve) function has been found to be well-adapted to describe such phenomena. The typical example of a mold that initially spreads in a culture at a rate of 100% (i.e. it doubles in size each period of time) would, in a constant growth model, cover its environment in 7 periods. The S-curve shows that it will do so only at the 15th period. The logistic function shows an initial exponential growth until the inflection point, and an exponential decay from then on until reaching the upper asymptote (i.e. exhausting the stock). Hence the typical S-shaped pattern which gave the curve its popular name. Obviously, the S-curve tool is not a crystal ball, it neither foretells the future, nor is it a fully dependable representation of reality — non linearity does not always yield to the elegance of the simple logistic function. It is however a practical help in understanding how things might develop, how possible futures may look like. S-curve calculator : 1 parameter estimate The solution of the simple logistic curve is given by the formula : The parameters are: upper asymptote M (i.e. maximum stock, saturation, carrying capacity), coefficient of growth c , lower asymptote n₀ (i.e. initial stock, initial value), and time t . Only one parameter estimation — the saturation value M — is required, because t and n₀ are provided by the known data, and the calculator itself computes c by the ordinary least squares method — try areppim's S-Curve Calculator. Example After you saw a TV ad for a magnificent deep blue water lily with large floating leaves capable of multiplying very rapidly, you decided to have a pond built in your garden to grow water lilies. You started with 2 plants, which became 6 by the end of 8 days. Each lily spreads on average to 60 cm, thus covering an area (Pi*r²) of 2,827 cm². The pond being 4m x 3m (12 m² or 120,000 cm²) it can carry 42 lilies (120,000 ÷ 2827 = 42). To determine when you should invite your friends to admire the wondrous pond, enter the following in areppim's S-Curve calculator: The calculator produces the S-Curve values that are represented graphically by the chart : Lilies reproduce exponentially at 17% per day until day 19, when they reach the midpoint, then slow down until reaching the limit (carrying capacity). The view of the pond will dazzle your guests after only 3 weeks, provided of course that such water lilies exist. S-curve calculator : 3 parameter estimates The 1-parameter simple logistics solution is fast and easy, but it suffers from the limitations inherent to the fitting of a nonlinear function by the ordinary least squares method so useful for linear models. The procedure produces a mediocre fit of the calculated to the observed data, leaving a wide dispersion of residuals. In the case of the S-curve, it rises the risk of overestimating the saturation value, and of misplacing the inflection point of the series. To mitigate the risk, we can scale the saturation down to, say 90%, and estimate the time to grow from 10% to 90%. The solution is given by :