Selecting The Appropriate Forecasting Method

SELECTING THE APPROPRIATE FORECASTING METHOD Today, most companies seem to use simple methods that are easy to comprehend and mostly those that involve judgment by company employees. On the other hand, most forecast practitioners generally use forecasting methods that their decision makers feel comfortable with, even though these methods may not be the most effective ones. One method widely used results in goal-setting rather than forecasting. Here companies begin their planning process with a corporate goal to increase sales by some percentage. This target often comes down directly from senior management as an edict. Everyone then proceeds to back into their targets based on what each business unit manager thinks they can deliver. If they don’t meet their prospective targeted goal when totaled, senior management either assigns individual targets to each business unit, or puts a financial plug in place hoping someone will over-deliver. UNDERLYING METHODOLOGY ASSUMPTION The basic assumption underlying the application of any forecasting method (statistical or judgmental) is that the actual outcome observed will follow some pattern associated with seasonality, trend, and/or causal ...