Forecasting
models are tried and tested tools that businesses use to easily predict
the outcomes in demand and supply, sales, consumer behavior, and more.
With a highly competitive market and variation in customer behavior
along with much uncertainty in the current times, it becomes difficult
to predict any outcomes. To find a solution to this problem, businesses
use it; though it is not a hundred percent accurate, it is an idea about
the future. Today companies use these tools to access varying degrees
of information, and businesses use mechanisms depending on the expected
outcomes.
There
are several ways to forecast business outcomes, but companies popularly
use the four forecasting models to predict future actions. This
includes the time series model, the econometric model, the judgmental,
and the Delphi method. The forecasting model comprises factors like
frequency of use, forecast method, relevant data, and availability. The
factors that are generally forecasted are marketing cost and market
share. Different options may be available, but businesses need to select
wisely the model that will be practical for their business.
Popular Forecasting Models
Time series model –
Companies analyze previous data to predict future outcomes by using the
time series forecasting model. It also provides businesses a glimpse
into the direction in which data are trending. To use the time series
model, businesses must have accurate data from the past and be assured
that the data will represent future events. Businesses can use the time
series model only with quantitative data measured over time.
Econometric Model -
It is a tool that discloses relationships between economic variables to
forecast future developments. This model tries to quantify the
relationship between the dependent variables and several factors that
affect the dependent variable. This forecasting model is majorly used to
forecast macro series of interrelated economic data like consumption,
income, and capital spending and hence is less effective for business
forecasts. This model has indirect benefits and can be used to predict
the extent and direction of change in economic activity or any of its
components.
The judgmental model involves
intuitive judgment, opinions, and subjective probability estimates. The
judgmental model is generally used when there is a complete lack of
historical data; hence statistical methods cannot be applied, and
judgmental forecasting remains the only possibility. This model is also
applicable in completely new and unique market conditions. With a
well-structured and efficient approach, the quality of judgment
forecasting is improving over the years, and now this model is
recognized as a science.
Delphi Method –
It is a structured communication method that was originally developed
as a systematic and interactive forecasting method that was initially
the collective opinions of a group of experts. The prime objective of
this forecasting model was to arrive at a group consensus. This method
relies on experts having extensive knowledge of a specific topic that
help them forecast future outcomes, predict event likelihood, and reach a
common consensus.
Forecasting
is essential for businesses, as it helps them take the necessary steps
to achieve a specific goal. Companies use forecasting models to enhance
their business practices and improve user experience. However,
businesses can choose the suitable model based on their experts’
opinions, or they can conduct focus group surveys to predict the
intentions of potential customers.