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How can we use simple modeling methods to forecast for a longer horizon?

October 2, 2013 • Featured, How to, Modeling

How can we use simple modeling methods, such as Moving Averages and Exponential smoothing, to forecast for a longer horizon? I note that these methods are good only for forecasting one period ahead. what do we do if we need to forecast, say, twelve periods ahead, using three years of history?

Technically, you are right that we cannot forecast more than one period ahead. To forecast beyond that, we have to make an assumption, that is, sales will continue increasing or decreasing at the same rate. If, for example, sales in the last few months increased, on average, by 5% from one month to the next, we will assume that the same rate will continue in the next twelve months. This is what forecasting vendors do.

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