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What are the Different Forecasting Methods?

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  • Written By: Alan Rankin
  • Edited By: Melissa Wiley
  • Last Modified Date: 27 November 2016
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Forecasting is the predicting of events, situations, and outcomes. This is a scientific process and should not be confused with psychic prediction or prophecy, which is disregarded by most scientific authorities. Forecasting methods include comparison with similar situations in the past, observation of current trends, and statistical analysis; often, educated guesswork is also involved. Most forecasting involves a degree of uncertainty due to variables that cannot be predicted. Meteorology, technology, and politics are all fields that employ some form of forecasting.

The science of meteorology, or weather forecasting, is the most common type of forecasting in everyday life. Forecasting methods employed by meteorologists include satellite photography; analysis of geographic, temperature, and atmospheric data; and comparison with previous conditions in the same geographic area. This science has progressed to a point that it can make reasonably accurate predictions of weather conditions five to seven days in the future. Beyond this, however, variables increase so much that the accuracy of predictions begins to break down. Weather forecasts are readily available through a variety of media and allow people to plan for sudden changes in their local environment.

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In finance and economics, forecasting methods are used to predict trends in stock markets, trade, and the value of goods. Speculation on future profits and trade makes up a major part of stock market activity. The predicted effects of events such as wars or disasters can have a greater effect on stock markets than the actual effects that do eventually occur. Successful forecasting methods can have such a pronounced effect on financial markets that some are regulated by law. Insider trading, for example, occurs when a person buys or sells stock based on inside knowledge that is not available to the public at large; this is illegal in the U.S. and many other countries.

Advances in technology can be successfully predicted by forecasting methods. Moore’s law famously predicts that technology gets smaller, smarter, and cheaper at regular intervals that can be predicted with a great degree of accuracy. This allows devices to be developed based on technology that does not exist yet but will within a matter of months or years. Other sciences have their own methods of prediction, often a calculation of the probability of an event occurring. Astronomers, for example, can predict the movement of comets and meteors based on the gravitational fields of nearby planets, moons, and stars.

Political science is another field that successfully employs forecasting methods. In this case, news organizations and political parties wish to know the outcome of an election before all the votes have been cast. They accomplish this with exit polls and analysis of early voting results. This is particularly simple in the United States, which generally has only two political parties on most ballots. As with other forecasting methods, this is a measure of probability, not an exact prediction; poll reporting often mentions the margin of error that applies to the predicted results.

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