Forecasting Techniques: Your Guide to Navigating the Future

Key takeaways

When navigating your business's future success, forecasting techniques help by providing substantiated predictions grounded in logic. 

• Qualitative forecasting methods use data from market research and your team’s experience, while quantitative forecasting methods rely on exact numbers and other concrete data to make measurable business predictions.

• Forecasting techniques guide strategic business decisions, determine appropriate resource allocation, and encourage collaboration among stakeholders. 

• You can use data, analytics, and managers' past experiences to inform decisions about your company's future. 

Learn more about the different types of forecasting techniques, who uses them, and how to get started. Or, begin learning with the Google Data Analytics Professional Certificate. In as little as six months, you can gain an immersive understanding of the practices and processes used by a junior or associate data analyst in their day-to-day job. Plus, upon completion, earn a shareable certificate to add to your professional profile.

What are the techniques of forecasting? Main types to know

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 are the four types of forecasting? 

The four types of forecasting extend beyond qualitative and quantitative methods to include time-series and causal forecasting methods. Causal models use careful study design to determine cause-and-effect relationships between variables, while time-series analysis examines information you collect at different time points, allowing you to identify ongoing trends.

Learn more: Predictive Analysis: Why It Matters 

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 recur 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 and 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.

No fluff help for launching your next career step

Interested in learning more about emerging industries? Explore career trends and topics with a free subscription to our LinkedIn newsletter, Career Chat. Or check out the following resources to keep learning:

• Explore industries: Project Management Is Everywhere—But What Does It Mean? 

• Watch on YouTube: Data Analyst vs. Business Analyst: Which Career Path Is Right for You? 

• Learn from peers: Meet the Data Analyst Using His Creativity to Tell Visual Stories

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