What Can and Cannot Be Forecast

Three requirements

1. History — at least two full seasonal cycles, ideally three years
2. Stability — the patterns that held must still hold
3. Volume — forecasting five orders a month is not forecasting

If two of those three are missing, the honest answer is that no technique will produce a forecast you should act on. That answer is worth giving.

Where it works

Use the right tool

For numerical forecasting, established statistical methods outperform language models substantially and cost a fraction. Seasonal decomposition and time series methods are mature and well understood.

Language models help with explaining a forecast in plain English and incorporating unstructured signals, not with producing the numbers.

Present ranges, not points

• A range with a stated confidence level, not a single figure
• The same model's accuracy on recent history, so trust is calibrated
• The assumptions stated explicitly
• What would invalidate the forecast

A single number invites false confidence. A range invites planning, which is what a forecast is for.

Be clear about the limits

Forecasting extrapolates observed patterns. It does not anticipate breaks in them, which is precisely when people most want a forecast.

Used for reordering, staffing and cash planning it saves real money. Used for strategy it produces spurious precision.

Frequently asked questions