Forecasting is important in many circumstances to be able to do effective and efficient planning.
The future electricity needs forecast vital to planning building more power stations; scheduling employees in a call centre next week requires forecasts of call volume; just imaging how much forecasting the planners behind London 2012 Olympic Games must have done. Forecasts can be needed months or years in advance, or only a few minutes beforehand. Whatever the situations or time horizons involved, accurate forecasts are vital part of preparation and planning.
A key step in forecasting is knowing if something can be forecast accurately, or if it is better just tossing a coin. Good forecasts capture the authentic patterns and relationships which exist in the historical data, but do not replicate events from the past that will not happen again.
In all businesses where data are collected and employees make use of the data the capability to forecast may be required. It doesn’t really matter if it is sales figures, expenses, man-hours, growth, market shares etc. to create a budget you need to forecast.
Excel offer a lot of tools to do accurate forecasts based on historical data and analysis tools as the What If Analysis tools to help predict the future.
Some of the useful forecasting tools in Excel are:
- For trend analysis you can use the Trend function and to visualize and calculate trends, Excel charts can show trends and the equation for the trend. You can calculate the accuracy of the trend or Excel can provide you with this information in a chart. The Trend function will only return a accurate result if you work with linear data.
- For forecasting of linear data you can use the Forecast function. The Forecast function can forecast any number of periods into the future.
- If you work with exponential data you can use the Growth function to forecast and an exponential trends can also be visualized in a Excel chart.
- the Solver tool in Excel can be a huge help if you want to forecast seasonal data.
- The Analysis Toolpak provide us with Exponential Smoothing, Moving Average and Regression which are all tools we need for creating the right forecast model.
- The Scenario Manager and the Goal Seek tools can be a great help to get a accurate forecast.
- Excel also has all the options and functions to measure the accuracy of our forecast to make it possible to continuously develop our forecast model to get a very precise forecast.
In Excel 2016 Microsoft has made it much easier to forecast. Microsoft has added the Forecast Sheet tool to Excel. This tool can give you a forecast in few seconds.
In Excel 2016, select your two corresponding sets of data and go to “Data>Forecast>Forecast Sheet”. In “Create Forecast Worksheet” box, choose either a line chart or column chart, pick an end date, and then click “Create”.
For more advanced options click “Options” in “Create Forecast Worksheet”. Here you can set “Confidence Interval” and set how you want Excel to handle seasonality in your data. You can include statistics in your forecast worksheet and change the input range if needed.
In the “Fill Missing Points Using” list, you can tell Excel how to handle missing data. “Interpolation” will calculate missing data.
In the “Aggregate Duplicates Using” list, select how you want Excel to calculate duplicate entries.
Best STL offer a Forecasting & Data analysis course where all the different methods & models are explored
Excel is an amazing tool also when you need to forecast.