When a company uses more than one forecasting method to come up with predictions of the company's future. Analysts often work together and can use multiple methods to increase accuracy.
Mixed Forecasting Details
A company may decide to use more than one forecasting method to get predictions of its performance. Companies do this to come up with a projection from different views or sources, increasing the reliability of the data they're collecting. Using only one forecasting method may be misleading since other factors can influence results. Companies avoid getting misleading predictions by increasing the number of methods used to forecast.
The use of different forecasting methods can be done by one or more analysts. While a company may use its past data to make predictions, forecasting methods based on that information aren't usually as accurate in predicting the company's future because of uncertainty and inflation. Instead, companies should use the information available in their current stage to know how to take actionable steps like setting prices for current goods.
Example of Mixed Forecasting
Caster is a company that wants to predict its future events and use the information to plan for the company's current direction. There are many methods of coming up with a forecast, but Caster has to choose the ones that are best suit for the company. Initially, Caster used only one forecasting method but has released that using one method comes with many disadvantages.
One of the disadvantages that Caster faced was using one method is risky. Caster decided to use mixed forecasting to diversify the risk. The company decides to pick a quantitative method and a judgmental method. Caster uses a single exponential smooth approach as the quantitative method. The company chose this option since it uses past numerical data, and that was readily available.
Caster also decided to use Cooke's method as a judgmental method to diversify the risk. Any company can use this method to forecast since it doesn't need any previous data. This approach of mixed forecasting gave them more diverse perspectives and insights into how their business was performing.
Types of Forecasting
There are different types of forecasting methods that a company can use to come up with mixed forecasts. Here are a few of the more popular options:
- Qualitative methods. These methods are usually used when there is no past data. It mainly relies on the customers' and experts' feedback. An example of a qualitative approach is the Delphi method.
- Quantitative methods. These methods are usually used when there is past numerical data. It is usually assumed that the patterns of the company will remain the same. An example of a quantitative method is the single exponential smooth approach.
- Naïve approach. This type of forecasting method uses the last period's data to come up with a forecast. This method is considered to be cost-effective.
- Time-series methods. This forecasting method uses data from some of the recent records. Different methods under time series methods use data from different times. Some use records for the last period, and some use an average for the most recent records. Examples of time series methods include the simple mean method, simple moving average, and weighted moving average.
- Judgmental methods. These methods are better for when there is a lack of historical data, and new companies can use it. An example of a judgmental method is Cooke's method.
Advantages of Mixed Forecasting
Mixed forecasting provides an option for diversification. Sometimes one method cannot apply to an organization, so it has to use others. If a company isn't set on using one way over another, it can use any method that's best for the current stage. For example, it would be impossible for a new organization with no historical data to use the weighted moving average approach.
Mixed forecasting increases the chances of accuracy. A company that wants to predict its future revenue when it sets its goods and services at certain prices can try using more than one method of forecasting. It's no secret that statistical reports can be easily skewed or misinterpreted. But when you have multiple data sets to back up your information, it's a lot easier to identify clear patterns in your firm's financials. Companies that use mixed forecasting often end with better predictions than when only one method is used.