How to Make Better Decisions by Forecasting
Forecasts rely on historical data and other variables to predict future events or trends. Accurate forecasts can save us from making costly mistakes, which is why forecasting is important both in life, and in business.
Forecasting helps you to make decisions easier and with confidence. A weather forecast can help you decide if you need to take an umbrella to work, while a sales forecast can help you decide how much to spend on advertising in Q2. No matter what you’re deciding, a forecast helps you plan based on what’s most likely to happen.
In this article we’ll explore running a predictive forecasting on a time series chart. This type of forecasting is available to everyone using SAP Analytics Cloud. However, if you have planning enabled on your system you can also run a predictive forecast on a table or grid.
Forecasting on a time-series chart
When setting up your predictive forecast on a time-series chart you’ll choose either a Quick Forecast or an Advanced Forecast.
Quick Forecasts will only use historical data to predict future values. The number of forecasted periods will depend on the number of past periods in your chart. The resulting forecast shows predicted future values as well as an upper and lower confidence bounds.
Below is an example of a Quick Forecast projecting future revenue values based only on historical data.
Advanced Forecasts also rely on historical data, but they can also consider additional future data that may influence the outcome. For example, a four-month forecast for sales revenue can also consider future product discounts.
As you can see, the upper and lower confidence bounds are smaller in the Advanced Forecast. This increased accuracy is because the Advanced Forecast considers future values (discount) that have historically influenced revenue.