Part 2. MM4XL Tools > 1. Strategic Tools > Forecast Manager > 3. Technicalities > Forecasting? Never heard of it.

Forecast Manager

Forecasting? Never heard of it.

A forecast is a probabilistic statement concerning future events. Forecasting methods split in qualitative, quantitative, and hybrid techniques. Bails and Peppers (1993) mention in the first category (also called sometimes judgmental, non-statistical, or non-scientific methods) Delphi method, marketing research, panel consensus, historical analogy, nave extrapolation, sales force composite forecasting, and the jury of executive opinion. Forecast Manager focuses on the second category of methods: the quantitative ones (the statistical approach). Although the former kind is invaluable, these methods are the result of years of experience in the field and can be hardly reproduced with a standard layout. Most expert forecasters have indeed started with quantitative models and developed over time qualitative models to supplement the portion of inadequate quantitative fit. It is the combined modeling of figures and soft knowledge that leaded the development of what we call hybrid models, which equipped with simulation technologies may become potent tools for projecting into the long term.

The quantitative techniques can be further divided in autoregressive and regression models. Forecast Manager applies both, with emphasis on the former. The latter models, also called causal models, require a set of independent variables (cause) to be used in order to fit a dependent variable (effect). Autoregressive models embrace a long list of methods, which can be actually split in moving averages, smoothing techniques, adaptive filtering, time series decomposition, trend extrapolation, and Box-Jenkins.

We do not advocate one method being better that the other. It depends on the characteristics of the time series one works with. This is the reason why we recommend using tools such as Forecast Manager that automatically try several models so to find the best fitting curve.

Most nave regression models can be run with the Analysis Toolpak available in Excel. Check under Tools AddIns if your copy has already been installed. You can open it from Tools Data Analysis.

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