The ABC’s of Forecasting
The ABC’s of Forecasting

The ABC’s of Forecasting

  • What is forecasting? It is the art and science of prediction.
  • How can you predict? When you understand the patterns.
  • What are patterns? How humans or things react in certain conditions.

What are the kinds of forecasting?

Different people use different terminologies to understand or practice forecasting. Few call them Structured, Quantitative, Casual and Simple. Few use the terms Autoregression, Differencing and moving averages. Few use straight-line, moving-average, simple linear regression and multiple linear regression.

What ever the terminology is, the end result is going to be the same, give you a forecasting model. However, not all methods are suited for all the business models. So, one has to work on identifying which models work for them and come up with their own framework.

How to forecast?

Step 1: Define the problem.

For curating a good forecasting model, you need to understand what you want to forecast. For instance, if you a SaaS company, you will need to define how many users are going to come to your site and when? For instance, if you are a software for managing POS sales, then probably weekdays, public holidays and during festive season, you might have increased footfalls. So, you to gather data from similar applications to understand the load on your software.

Step 2: Gather as much data as you can

Gathering data is a complex activity. Engage analysts who have done this kind of work before and tap into their expertise.

Step 3: Do the preliminary analysis

With the data gathered, use techniques to predict sales of your product. Start using this as a base and start your sales. See how that is working. If need be, then make adjustments to your algorithm to predict the results.

Step 4: Experiment with models

Once you get the results, see how they are mapping up with your sales. If its close to what you are experiencing in terms of sales, continue the model, else try another model.

Step 5: Structure the forecasting model which works for you

As you keep doing this, one day you will get to a point the prediction model which works for you. Keep refining this model until you can absolutely base your sales.

Defining and designing a forecasting model is a long process, you need to be patient and also involve people who are experienced in modelling.

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