What is Trend Forecasting?
Trend forecasting is an essential tool for any company that wants to plan its future. It uses time series data which provides an insight into the current state of the company’s financial performance or progress towards particular goals. As a result, it pays to understand how trend forecasts are created so you can take advantage of this process when planning your own company’s future.
Types of Trend Forecasting
Monte Carlo: This method uses the most common and widely known method of trend forecasting. Monte Carlo can make it clear to all company leaders what financial milestones they should focus on and how the company’s performance is moving towards those milestones. Overall, this technique is one that describes trends over a specific range of future time periods. The shape of this distribution can be altered depending upon how many future periods into the future you plan to include with your forecast. The more future time periods, the higher the possible volume and lower chance for outlier values within those periods.
Delphi Method: Unlike Monte Carlo, the Delphi method relies on the opinions of experts. The experts are typically employees of the company that are in charge of advising which areas they think will be important to focus on.
Trend forecasting is essential for any business because it provides guidance in planning how much money should be allocated for particular activities. It also can show you which processes need to be improved so that the company has a greater chance of success. Trend forecasting is an important process that should be completed by every business to help them stay organized and focused on their goals.
Time Series and Forecasting
Time series analysis is useful for forecasting. It’s important to understand how the data within a time series are organized. Time Series are data that are organized by order of time. For example, if you have financial data from the past 5 years, then it will be organized by year and month/day/hour/etc.. Dates should always be specified when discussing time series so there is no confusion about which date is being referred to.
In a time series, each data point represents a single observation. In other words, at a given point in time, there is a single observation that can be used to measure a particular variable. This may sound confusing because it’s not the same as the data points from your financial reports. However, it is very important to understand because financial reports provide information about one specific point in time whereas the value of the variable you are attempting to forecast will be represented by multiple points in time. In order to estimate what trend will happen at any defined future date you can use statistical methods defined for logistic regression and linear regression that were actually developed for forecasting and not just for data mining.
Frequency refers to how often your data is collected. There are many ways of obtaining this frequency, but most commonly it’s by month, week, or day. The frequency of data affects the forecast accuracy because since you are forecasting, you can’t predict what will happen in any one particular time period. For example, weeks and as well as months contain much more data than a day and will make it easier to correctly predict an upcoming value for your future time periods; however, the prediction may be far off from the actual value by leaving small gaps in between your observed values which can affect accuracy.
Factors to Consider for Trend Forecasting
There are several different factors that can affect which method is right for your business. Many of these factors are the same regardless of the method you choose. Examples are:
Resource Availability
This is probably one of the most important factors to consider when deciding which type of trend forecasting process to use. Resources are very limited in some companies and will naturally limit job opportunities that can be achieved through trend forecasting. If this is your case, then it may be best to create reserves that will help you plan ahead more effectively. This reserve can consist of things like additional staff or extra equipment or more time allocated for planning instead forcing current employees to focus on developing the plan. In this case, it is often best to get help from an outside agency or consultant that can provide you with a realistic forecast that can be implemented within the parameters of your organization.
Decision Maker Availability
This factor doesn’t have as much to do with resources as it does with the decision maker. If you are a sole-proprietor or a very small business, then chances are you will be making all of the decisions about your company’s future. In this case, you will be able to choose which method is best for your company because of familiarity/experience with each method and the level of accuracy that each one provides. In this case, your outcome is going to be most accurate if you choose a method that makes use of mathematical modeling. Mathematical modeling will help provide decision makers with a forecast with the most flexibility and allow for a wide range of possibilities.
Timing of Authorized Decision Makers
The decision maker’s availability can also affect the outcome when choosing forecasting methods. If it takes an average of 10 months for you to get new ideas from your top decision makers, then you probably have a fairly slow system in place that will result in an unstable outcome. In these cases, it is customary to use different methods that are not dependent on decisions made by one individual, but rather on the trend data itself. In this case, trend data can be used to predict future trends and will result in a more stable process.
Data Availability
Data availability depends very much on what you are trying to predict. Some factors to consider include: budget, data storage costs, employee knowledge, public availability of information, etc. If your budget is very limited and you don’t have a good repository for storing all of the relevant information that would be needed for trend forecasting then it isn’t very likely that you will be able to utilize this option. The same goes if your employees lack specific knowledge about trends within your industry which could make it difficult for them to make accurate predictions as well as insufficiently trained work teams as well as limited frequency of data collection.
One of the most common factors to consider is the cost of using different methods. For some companies, their cost per trend forecast isn’t a huge factor because they have enough resources to properly implement each method. However, for many companies this is an issue because their resources are limited and it can be hard for them to justify the cost of implementing multiple methods. So if you are trying to decide between two different methods that both provide the same accuracy, then the one that requires more resources may not be as suitable for your company.
How Fintalent Can Help Your Business’ Trend Forecasting Needs
Trend forecasting has several purposes and there is no one method that works for all companies. Each company’s goal is specific; therefore your goal must be specific as well. With the abundance of freelance financial Investment managers with expertise in all forms of Technical and Portfolio Analysis your business Trend Forecasting needs and conclusions are sure to give your business a major boost as every decision is backed by in-depth and knowledge-based research.
