Forecasting
5. Advanced Forecasting
This is not covered in the Unit. However Makridakis et
al. contains some reading.
5.1 Box-Jenkins Models
Box-Jenkins ARIMA models provide a powerful approach
to time series analysis that pays especial attention to correlation between
observations. A detailed discussion is given in Makridakis et al.
The approach requires experience to use successfully
and with confidence. The interpretation of results using the Box-Jenkins
technique requires proper understanding of the stochastic processes used to
model the time series.
A large and careful study carried out by Makridakis
seems to show that very often, the simpler techniques described in this unit
are just as powerful. There is a good reason for this. The SES, LES and Holt-Winter's
Additive methods are equivalent to special (simple) cases of ARIMA models.
These simple models tend however to fit many data sets quite well.
5.2 Judgemental Forecasting
Many companies make use of judgemental forecasting
techniques which rely on the knowledge of experienced employees and
managers. Often this type of
forecasting is carried out within the framework of fairly formal and regularly
scheduled meetings. Judgemental forecasting can be augmented by the kind of
numerical techniques discussed in this unit, and this combined approach has
much to commend it.
5.3 Scenario Building
Long term, strategic forecasting moves us into the
area of scenario building. This can be useful in allowing a much more long term
view to be taken of an organisation's aims objectives. Scenario building thus
takes a much broader view than the numerical forecasting that has been the
focus of this unit.
The idea of the approach is to look at a number of
different scenarios, ranging from best case to worst case situations, and to
try to ensure that the actions and strategy of the organisation are
sufficiently flexible and resilient to be take advantage of the most likely
scenarios, whilst at the same time being able to cope or survive even the most
extreme of the scenarios. A good approach is to use the format of a SWOT
analysis for structuring and analysing the different scenarios.