Why Do We Forecast?

Written in collaboration with Dr. Ralph Finos

We forecast in order to discern what is most likely to happen in the future, which enables us to do something about it.  While the future is impossible to control (and very hard to predict), good forecasting allows us to see into dark corners. We gain insight into what could happen next. This insight allows users of the forecast to take action and influence the vision of the future offered by the forecaster.

Market Forecasters answer questions like:

• What are the likely sales in my market over the next 6 months?
• What are the likely sales in my market over the next 5 years?
• What is the growth potential in segment X of my market vs. segment Y in 5 years
• What is the potential to create a market where there are no products yet?
• What is the growth potential of my market if the basic product features and functions are different from what’s offered today?

Depending on the purpose, the forecaster can be in the business of prediction or explanation or both.  Consistently getting the answer right (regardless of the “how”) is a great benefit.  Understanding why the result occurred, gives you power to influence the future – which is a greater benefit. Be sure you are clear about which one you’re doing.

For the purpose of clarity, we’ll call the focus on prediction “near term forecasting” and the focus on prediction and explanation combined “long-term forecasting”.  “Near” and “long” are relative terms – consumer products may have short life cycles in real-time (perhaps the duration of the December holiday season). This type of product is certainly a candidate for a near term forecast.  On the other hand, the life cycle of a large-scale technology product such as data center sized storage products, are likely to require a long term forecast.

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