What are the common approaches used for forecasting?

Forecasting is significant component of planning both for business organizations and for governments (Arsham, 2009). In business, forecasting could also be used in such activities as scheduling personnel, production, and transportation of raw materials to the sites they are required. Forecasting approaches are framed on either of two main concepts:

(a) the explanatory method where the future value estimates are informed by the analysis of factors that are likely to influence such future values,

(b) extrapolation method where the general behavior of data in past periods is extended to the future periods to generate the values for these future periods (Arsham, 2009). Regression and time series models are some of the tools used to make predictions for the future in the forecasting process (Arsham, 2009).

Reference

Arsham, H. (2009). Time-critical decision making for business administration. Retrieved June 14, 2010 from http://home.ubalt.edu/ntsbarsh/stat-data/forecast.htm#rintroductionf

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