Carl Anners, Analytics Consultant at Swisscom AG, set out to replace judgmental forecasting with statistical methods applied to time series data.
Statistical forecasting is an alternative to forecasting based on judgement. It is thought to be more reliable and to enhance the possibility of planning for the future, and this leads to cost savings. Judgemental forecasting is based on the forecaster’s skill at judging former behavior, his or her own previous experience, and other relevant elements, without the benefit of statistical modeling. While judgemental forecasting can be effective, it has several disadvantages. In the first place, it does not lend itself to outsiders’ being able to determine the cause of systematic forecasting errors. Next, the forecasts are subjective, and personnel changes can cause sweeping changes in systematic errors and performance.
Forecasting based on statistical modeling corrects some of the shortcomings of judgemental forecasting. The models used in statistical forecasting are not a complex system with hidden internal workings. Because this is the case, external forecasters are able to explore systematic errors and can usually apply successful models to the affected areas. This type of forecasting can also offer a statement about the range of forecasts provided based on a theory of probability – for example, the probability of lower sales figures than for the previous year being ten percent.
Statistical forecasting is largely preferable and is a better and more efficient approach. However, judgemental forecasting is required in certain situations, like when no historical data is available and when historical data have become irrelevant due to changing conditions.
eCornell offers several Data Science courses including one in Business Statistics. This course covers seven modules, Statistical Forecasting being one of them. If you would like to move into an analyst role or if you are seeking to maximize your statistical or analytic skills, eCornell’s Business Statistics course is the one for you.
eCornell courses are approved by SkillsFuture Singapore for SkillsFuture Credit as well as by HRDF Malaysia under its SBL Scheme.