Forecasting refers to the prediction of the future with the highest possibility of accuracy given that each and every information is provided, this including any historical data and any information involving future events that may ultimately influence the forecasts. (Hyndman, 2009). Expounding further, forecasting may refer to the process where an event in the future is estimated through forward past data casting, where the data is combined systematically in a manner that is predetermined in order to obtain the future estimate. Furthermore, prediction may refer to the estimating process of a future event where instead of relying on just past data, subjective considerations are also factored in which should not be necessarily …show more content…
The general steps applied during the process of forecasting is listed down below. First, the general need for the forecast is identified. Two, the forecast time horizon or period is then selected. Three, the forecast model to be applied is then selected where knowledge is required or different types of forecasting models and the scenarios where they mostly applicable, the type of data needed and the reliability of each one of them. From considering this, the selection of a single or multiple models is wholly dependent on the situation at hand. Four, collection of data where reference is given to various indicators that had been identified and the data needs to be collected from reliable sources and which has compatibility with the selected models. Five, is the preparation of the forecast where the model is applied using the collected data and calculation of the forecast value is done. Six and final step is the evaluation of the forecast value in relation to the confidence interval where in general the forecast models that are considered good have ways of calculating the upper and lower value where the particular forecast is expected to maintain the probability level that was specified. Evaluation of the forecast value can also be from a logical view point or evaluated against a phenomenon or variable that is related.
2.1 Techniques used for forecasting
Business forecasting techniques can be classified into two namely the qualitative forecasting method and quantitative forecasting method. The different types of forecasting methods are shown in the figure below. Figure 1: Different Forecasting Methods