Estimating or predicting future events or conditions is never going to be easy. Forecasts may be long-term or short-term. The techniques used may be quantitative (often making use of computers) or qualitative. Quantitative forecasting models may be classified into (a) causal models in which independent variables are used to forecast dependent variables, and (b) time series models, which produce forecasts by extrapolating the historical values of the variables of interest by, eg, moving averages.
- Moving average
- Exponential smoothing
- Extrapolation
- Linear prediction
- Trend estimation
- Growth curve
Causal / econometric methods: Some forecasting methods use the assumption that it is possible to identify the underlying factors that might influence the variable that is being forecasted. For example, sales of umbrellas might be associated with weather conditions. If the causes are understood, projections of the influencing variables can be made and used in the forecast.
- Regression analysis using linear regression or non-linear regression
- Autoregressive moving average (ARMA)
- Autoregressive integrated moving average (ARIMA)
e.g. Box-Jenkins - Econometrics
Judgemental methods: Judgemental forecasting methods incorporate intuitive judgements, opinions and probability estimates.
- Composite forecasts
- Surveys
- Delphi method
- Scenario building
- Technology forecasting
- Forecast by analogy
Other methods:
- Simulation
- Prediction market
- Probabilistic forecasting and Ensemble forecasting
Forecasting accuracy: The forecast error is the difference betweent the forecast value and the actual value for the corresponding period.
Measures of aggregate error:
- Mean Absolute Error (MAE)
- Mean Absolute Percentage Error (MAPE)
- Mean squared error (MSE)
- Root Mean squared error (RMSE)
Application of forecasting: Forecasting has application in many situations. A few of them are as follows:
- Weather forecasting and Metereology
- Transport planning and Transportation forecasting
- Economic forecasting
- Technology forecasting
- Earthquake prediction
- Land use forecasting
- Product forecasting
