Forecasting

Forecasting is the process of making predictions of the future based on past and present data and analysis of trends.

A common place example might be estimation of some variable of interest at some specified future date. Prediction is a similar, but more general term.

Both might refer to formal statistical methods employing time series, cross-sectional or longitudinal data, or alternatively to less formal judgmental methods.

Usage can differ between areas of application: for example, in hydrology, the terms “forecast” and “forecasting” are sometimes reserved for estimates of values at certain specific future times, while the term “prediction” is used for more general estimates, such as the number of times floods will occur over a long period.

A market forecast is a core component of a market analysis. It projects the future numbers, characteristics, and trends in your target market. A standard analysis shows the projected number of potential customers divided into segments.

This example of a simple market forecast defines two target market segments and projects the potential customers in each of those segments by years.

Primary forecasting techniques help organizations plan for the future. Some are based on subjective criteria and often amount to little more than wild guesses or wishful thinking.

Others are based on measurable, historical quantitative data and are given more credence by outside parties, such as analysts and potential investors.

While no forecasting tool can predict the future with complete certainty, they remain essential in estimating an organization’s forward prospects.