Forecasting is making projections about a future event based on past data. It may be either quantitative or qualitative.
For long-term time series forecasting, techniques must be carefully selected, considering the forecasting context, the availability and relevance of historical data, and the degree of accuracy desired.
Time Series Analysis
Time series analysis is a specific way of analyzing a sequence of data points collected over time. It differs from cross-sectional studies, where the data is recorded randomly or intermittently, and spatial analysis, where the observations are related to geographical locations.
It is a powerful tool for observing how an asset, security, or economic variable of interest changes over time. For example, a stock’s price may fluctuate based on the movement of the market and the economy at large.
This kind of analysis requires many data points to ensure consistency and reliability. Analysts can cut through noisy data and determine trends and cyclic behavior. It also helps to account for seasonal variation.
Causal Models
When there is enough historical data and analysis to spell out explicitly the relationships between a particular factor and other factors, forecasters often construct a causal model. These models can improve study designs and provide rules for deciding which independent variables must be included or controlled to answer specific questions.
For example, if you are trying to forecast sales for a new product, including all the sales history data points related to that new product is essential. This includes sales orders, inventory, and other factors that may influence the demand for a product.
This information is critical for determining the best long-term time series forecasting method. For example, using this information, you can determine when the growth rate in sales changes.
Delphi Method
The Delphi Method is a qualitative forecasting technique that pools experts’ opinions. It is a great way to predict the future of your business or any other important subject for your organization.
The method was initially developed in the 1950s by mathematicians Norman Dalkey and Olaf Helmer, who worked for a public policy think tank called the Rand Corporation. They were using it to forecast technological advances and their effect on the world around the time of the Cold War.
The Delphi methodology consists of a repeated cycle of questionnaires presented to a panel of experts, with their independent answers being forwarded to a facilitator for systematic analysis and summarization. It is a very structured and controlled method, avoiding the problems that arise from face-to-face group discussions, such as personality or eminence bias.
Forecasting Tools
Long-term time series forecasting is vital to any business as it enables management to plan for future events and ensures the necessary resources are available. It also helps to prepare for any financial emergencies that might occur in the future.
Different companies use several methods of long-term time series forecasting. Some are linear approximations, best fits, and exponential smoothing.
The best method for long-term time series forecasting depends on the type of business and the goals being achieved. It is also dependent on the amount of time and resources that are available.
A good sales forecasting tool should offer a comprehensive view of your pipeline so you can make informed decisions about the future. It should also allow you to easily track team performance and ensure all team members are on the same page.
