The Fundamentals of Business Forecasting and Trend Analysis
Let's say you are taking a road trip. You will probably check the weather, the traffic reports, and perhaps even check to see if there is a concert taking place that may alter your potential route. Why did you do this? You want to preemptively identify what is happening, and plan for it. Effectively, that is what business forecasting and trend analysis is all about – using data to understand what will happen in the future and plan ahead of time.
Business forecasting can be described as being able to predict outcomes that impact the businesses you are interested in. The process of forecasting doesn't only happen in the business world, and there are a variety of industries that forecast outcomes based on subtleties of past or present information. The idea of forecasting incorporates data analysis of historical information to estimate future conditions and trends. This could do anything from estimating businesses sales growth, estimating changes to the market in general or specifically estimating performance changes for your direct product or service. Understanding the forecasting better informs how a business may plan for the future, utilize their resources, and set realistic goals and objectives.
Trend analysis involves a statistical approach that observes data over a period of time in order to discover, or spot changes and ultimately determine trends. Trend analysis can be helpful in predicting, trending market changes, trends in customer behaviour or whatever business dynamics are important to measure or study. Most companies appreciate looking at trends in sales for example, but through trend analysis a company can also identify changing behaviours in customers and other important company metrics. Ultimately, the job of trend analysis is to inform decision-making.
Forecasting presents you with a sneak peek into what the future holds, while trend analysis demonstrates how you got to that point. Think about forecasting as your destination, trend analysis is your map. Combining forecasting with trend analysis will make it easier for businesses to navigate the winding roads of the market.
In today's fast-moving business world, it has become imperative to stay ahead of the curve. Using forecasting and trend analysis, businesses can:
Identify expansions and declines in markets: Recognize emerging trends prior to them becoming mainstream.
Optimize operational planning: Make decisions around resources and strategies in connection with the predicted outcome for improved performance.
Make data driven decisions: Measure with data rather than gut feel.
If you're just beginning to incorporate forecasting and trend analysis into your planning, start with:
The collection of historical data: Collect all relevant information from past performance.
2. The identification of patterns: Look for recurring trends or patterns that stand out or anomalies that seem out of sync with the data.
3. The selection of relevant tool(s): Take advantage of software or methodologies, whatever suits your business.
4. Making sure these are updated moving forward: You need to constantly monitor forecasts, or new data that can shift the original data sets.
In conclusion, while business forecasting and trend analysis are useful on their own, when used in combination they can provide clarity in an ever-changing world. By understanding and executing forecasting and trend analysis, a business can make informed decisions that will inform their success.
Sources:
https://www.investopedia.com/articles/financial-theory/11/basics-business-forcasting.asp
https://www.netsuite.com/portal/resource/articles/business-strategy/trend-analysis.shtml