Forecasting Strategies

Businesses rely on forecasts of sales to plan production, justify marketing decisions, and guide research. A very efficient method of forecasting one variable is to find a related variable that leads it by one or more time intervals. The closer the relationship and the longer the lead time, the better this strategy becomes. The trick is to find a suitable lead variable. An Australian example is the Building Approvals time series published by the Australian Bureau of Statistics. This provides valuable information on the likely demand over the next few months for all sectors of the building industry. A variation on the strategy of seeking a leading variable is to find a variable that is associated with the variable we need to forecast and easier to predict.