Question

3. Describe the six steps in a typical forecasting process

Please explain in full detail.

Answer 1

Six steps in a typical forecasting process:

1. Determine the purpose of the forecast                     
2. Establish a time horizon
3. Obtain, clean, and analyze appropriate data
4. Select a forecasting technique
5. Make a forecast
6. Monitor the forecast for errors

Identify the intent of the forecast. The expense (time, cash, employees) that can be dedicated to the forecast and to the type of forecast system to be used is dictated by factors such as how and when the forecast is used, its accuracy and the level of detail required.

Set a horizon of time. This happens when the intent of the forecast has been decided. For longer-term forecasts, longer time horizons are required and vice versa. Precision is another factor.

Choose a method for forecasting. The chosen technique depends on the intent of the prediction, the desired time horizon and the permitted value.

Data collection and analysis. The volume and type of data required is determined by the intent of the forecast, the chosen forecasting technique and costs.

Make the estimate.

Test the projection. Assess the predicted quality and, if necessary, change it.

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