Navigating the Future: A Guide to Forecasting Techniques

Written by Coursera Staff • Updated on

Discover what business forecasting is, how it helps the future of companies, different techniques to choose from, and what you need to know if you want to pursue a career in business forecasting.

[Featured Image] A man in front of a screen uses forecasting techniques to explain where he thinks the company is headed and why.

When navigating the future success of your business, forecasting techniques are useful methods to incorporate substantiated predictions based on logic. Using data, analytics, and past experiences from managers, business leaders can use the information to help make informed decisions about your company's future. In addition to collected data, technology is sometimes used to create more accurate outcomes. While it’s not a guaranteed way to predict the growth or success of your business, proactively looking ahead can prepare you for some of the challenges your company may face.  

Types of forecasting techniques

The two most common forecasting techniques are called the qualitative and quantitative methods. These two types of forecasting are beneficial in helping to predict your company’s future in different ways. You can choose one method or combine both, depending on the information you seek. When choosing the forecasting method to use for your business, begin by determining the purpose of the forecast. Companies use forecasting to determine the likely outcome of a specific situation, considering fluctuations in the industry or market. This makes them better at anticipating potential customer demands and puts them on track for company growth. 

To choose a forecasting method, the manager and a forecaster work together to determine the data available to inform the necessary decisions. 

Qualitative forecasting methods

Qualitative techniques combine human judgment with rating strategies to make decisions. If historical data is unavailable, qualitative forecasting is the best method because it’s based on extrapolation from data generated from market research and your team’s experience. It forecasts outcomes that are far into the future. 

Some common qualitative methods include:

  • The Delphi method: Experts have a panel discussion to offer their projections. 

  • Internal polling: Employees share experiences they have had with customers.

  • Market research: Customers give their opinions and answer relevant questions.

Quantitative forecasting methods

This method relies substantially on exact numbers and other concrete data to make measurable business predictions. If you have data available that allows you to measure the company’s current performance against its past performance, quantitative forecasting can help you determine how your business may perform in the short term. Useful quantitative forecasting measures include:

  • Naive method: Forecasters use past data to predict future performance.

  • Straight-line method: Experts assume a company’s growth rate will remain steady. They multiply the previous year’s revenue by the company’s growth rate to forecast future revenue. 

  • Seasonal index: Businesses determine how seasons may affect the data by reviewing past data patterns correlated to seasonal changes.

  • Moving average method: Forecasters look at averages over a long period of time to establish any trends.

What is forecasting used for?

Forecasting is a method of predicting possible future expenses for companies to help them make informed decisions on prioritizing resources. With business forecasting, companies rely on current and past data to give them an idea of what they can do today to help their business stay ahead of the curve and keep growing toward success. This process helps identify risks in different departments and ensures the use of company resources aligns with the company’s long-term goals. Some of the ways forecasting can shape the future of your business’s growth include:

  • Helping to make decisions: Business forecasting provides companies with information that will help them to be proactive. Forecasting discovers potential issues by looking at the past.

  • Allocation of funds and resources: By predicting metrics that reoccur on a regular basis, such as how much material to purchase or the proper budget for each department, management can save money when deciding which products or services to make a priority.

  • Encouraging collaboration: Because each department helps the overall business run efficiently, department managers and other pertinent employees should work together to gather and interpret all data. 

Who uses forecasting techniques?

Forecasting is a useful tool in many industries, especially when combined with technological advances in analytics and machine learning. Industries taking advantage of intelligent forecasting include consumer and retail, energy, health care and life sciences, financial services, technology, and telecommunications. Many well-known, successful companies use demand forecasting to help them stay current on the latest trends. For example, Coca-Cola has used different forecasting techniques for years with successful results. The forecasts determine the direction of the company’s distribution and production departments so its products are always available, keeping Coca-Cola ahead of the competition. 

Pros and cons of using forecasting techniques

Accurate forecasting can help businesses be proactive by making informed decisions, gaining important insights, determining future profits and losses, and foreseeing how market trends may affect them. Forecasting is both an art and a science; the predictions aren’t 100 percent accurate. While forecasting can be a valuable tool for your business, it has potential downsides. 

Forecasting can help you enhance your strategic planning, allowing your business to prioritize different departments. Financial forecasting is useful for planning your business’s financial future. You can align your financial planning forecasting data. Being proactive in this way is helpful when managing risks, which forecasting can help you prepare for.

While it has many benefits, forecasting has some limitations. For example, qualitative forecasting relies on human judgment, so it may contain elements of bias. Quantitative forecasting relies on numbers, so forecasters need sufficient past data to make an informed prediction. Forecasting can also be expensive and time-consuming. Changes may have occurred since the data was originally gathered, so new industry developments may render the original data irrelevant. 

How to get started in forecasting

A career in forecasting starts with knowing how to collect, understand, and explain data. You need to know how to use the data in ways that help create realistic models. Business acumen and technical knowledge can help you understand which data is relevant and how to use it. A valuable skill in this field is communication. You’ll need this skill during every step of the process, from gathering data to translating the results to management. 

Forecasting is a quickly evolving industry. Stay on top of recent trends and the newest tools and techniques available. Graduates with strong analytical and communication skills may be successful in a forecasting career. Consider a certification program to help you stand out from the competition.

Getting started with forecasting techniques on Coursera

Business forecasting techniques are key to helping companies cultivate a future-forward mindset. Gain skills to help you stand out from the competition in the field of forecasting techniques by taking a course or earning a Professional Certificate on Coursera. Check out Forecasting Skills: See the Future Before it Happens, part of the Futures Thinking Specialization from the Institute for the Future. 

Updated on
Written by:
Coursera Staff

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