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An Overview of Forecasting Methods

By Anthony Cerminaro

"There are several assumptions about forecasting:

1. There is no way to state what the future will be with complete certainty. Regardless of the methods that we use there will always be an element of uncertainty until the forecast horizon has come to pass.

2. There will always be blind spots in forecasts. We cannot, for example, forecast completely new technologies for which there are no existing paradigms.

3. Providing forecasts to policy-makers will help them formulate social policy. The new social policy, in turn, will affect the future, thus changing the accuracy of the forecast.

Many scholars have proposed a variety of ways to categorize forecasting methodologies. The following classification is a modification of the schema developed by Gordon over two decades ago:

Genius forecasting - This method is based on a combination of intuition, insight, and luck...

Trend extrapolation - These methods examine trends and cycles in historical data, and then use mathematical techniques to extrapolate to the future...

Consensus methods...

Simulation methods - Simulation methods involve using analogs to model complex systems...

Cross-impact matrix method...recognizes that the occurrence of an event can, in turn, affect the likelihoods of other events...

Scenario - The scenario is a narrative forecast that describes a potential course of events...

Decision trees..."

Read more in this comprehensive and fascinating article by David S. Walonick.

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Full post as published by Bizz Bang Buzz Blawg on January 05, 2010 (boomark / email).