Forecasting Strategy

Forecast Requirements

The right strategy begins with a solid grasp of forecast requirements.


First, write down what you need and why you need it. This is a key step, and will drive all of the other work. People that have a passing interest in what the stock market might do next year have very different needs from a full-time trader. Maybe you need to forecast unit sales for a product in order to develop a production plan. Maybe you need a rough idea of overhead expenses as part of a pro forma. Describe what it is and why you need it.


Second, if there are key inputs that you want to manage, write those down. Maybe you want to be able to make rational decisions about the number of sales people you have based on a certain sales or profitability target. If so, we'll want to include that in the forecasting model. Write it down.


Third, determine how accurate you need to be on the forecast, and how far out. Suppose you need to be within 5% one month out but only need to be within 50% a year out. Try to put a number on it but it doesn't have to be too precise for our purposes.

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