The horizon nobody chose
Most forecasts run to a horizon inherited from whatever the previous system produced, or from the financial calendar. Neither has much to do with whether the number is still meaningful at that distance.
The consequence is quiet waste: a twelve-month forecast where only the first six weeks change a decision, reviewed monthly by people who know the back half is fiction.
Two questions decide it
The useful horizon sits at the intersection of two things: how long before a decision becomes irreversible, and how far out your forecast still beats a naive baseline.
- Work out your true lead time - supplier lead time plus internal processing plus any review cycle. That is the minimum horizon worth forecasting.
- Measure accuracy decay: backtest at one week, four weeks, twelve weeks and so on, and see where the model stops beating a seasonal naive baseline.
- If the decay point is shorter than the lead time, the honest conclusion is that you cannot forecast far enough ahead to drive that decision, and the answer is buffer stock or a shorter lead time rather than a better model.
What to do beyond the useful horizon
Business planning needs numbers further out than the forecast can support. That is legitimate - it just needs a different label.
Beyond the point where the model adds nothing, use a planning assumption: last year plus agreed growth, or a capacity envelope. Calling it an assumption rather than a forecast changes how people treat it, and stops anyone building an order on it.
| Distance | What it is | What it should drive |
|---|---|---|
| Within lead time | Forecast, monitored for accuracy | Orders, rosters, allocations |
| Just beyond lead time | Forecast, wider range | Provisional plans, supplier warnings |
| Beyond decay point | Planning assumption | Budgets, capacity, headcount |
Reviewing more often beats forecasting further
Where a long horizon is genuinely needed, the better investment is usually a shorter review cycle rather than a more distant forecast. A twelve-week forecast refreshed weekly is far more useful than one refreshed quarterly, even if the single-shot accuracy is identical.
This is often an organisational change rather than a technical one, and it tends to be the cheaper half of the project.
If the forecast cannot see as far as your lead time, the problem is the lead time.