TRENDS When a series of measurements of a process is treated as a time series, trend estimation is the application of statistical techniques to make

and justify statements about trends in the data. Assuming the underlying process is a physical system that is incompletely understood, one may thereby construct a model, independent of anything known about the physics of the process, to explain the behavior of the measurement. In particular, one may wish to know if the measurements exhibit an increasing or decreasing trend, that can be statistically distinguished from random behavior. For example, take daily average temperatures at a given location, from winter to summer; or the global temperature series over the last 100 years. Particularly in that latter case, issues of homogeneity (is the series equally reliable throughout its length?) are important. For the moment we shall simplify the discussion and neglect those points. This article does not attempt a full mathematical treatment, merely an exposition. http://mediafuturesarchive.org/forecasting.htm Data as trend plus noise To analyze a (time) series of data, we assume that it may be represented as trend plus noise: where a and b are (usually unknown) constants and the e's are independent randomly distributed "errors". Unless something special is known about the e's, they will be assumed to have a normal distribution. It is simplest if the e's all have the same distribution, but if not (if some have higher variance, meaning that those data points are effectively less certain) then this can be taken into account during the least squares fitting, by weighting each point by the inverse of the variance of that point. In most cases, where only a single time series exists to be analyzed, the variance of the e's is estimated by fitting a trend, thus allowing at + b to be removed and leaving the e's as residuals, and calculating the variance of the e's from the residuals this is often the only way of estimating the variance of the e's. One particular special case of great interest, the (global) temperature time series, is known not to be homogeneous in time: apart from anything else, the number of weather observations has (generally) increased with time, and thus the error associated with estimating the global temperature from a limited set of observations has decreased with time. In fitting a trend to this data, this can be taken into account, as described above. Once we know the "noise" of the series, we can then assess the significance of the trend by making the null hypothesis that the trend, a, is not significantly different from 0. From the above discussion of trends in random data with known variance, we know the distribution of trends to be expected from random (trendless) data. If the calculated trend, a, is larger than the value, V, then the trend is deemed significantly differentiable from zero at significance level S. Forecasting is a probabilistic, reasonably definite statement about the future, based upon an evaluation of alternative possibilities.

Forecasting is the process of estimation in unknown situations. Prediction is a similar, but more general term. Both can refer to estimation of time series, cross-sectional or longitudinal data. Usage can differ between areas of application: for example in hydrology, the terms "forecast" and "forecasting" are sometimes reserved for estimates of values at certain specific future times, while the term "prediction" is used for more general estimates, such as the number of times floods will occur over a long period. Risk and uncertainty are central to forecasting and prediction. Forecasting is used in the practice of Customer Demand Planning in every day business forecasting for manufacturing companies. The discipline of demand planning, also sometimes referred to as supply chain forecasting, embraces both statistical forecasting and a consensus process. Forecasting is commonly used in discussion of time-series data.

Time series methods: Time series methods use historical data as the basis of estimating future outcomes.

Moving average Exponential smoothing Extrapolation Linear prediction Trend estimation Growth curve

Causal / econometric methods Judgmental methods

Judgmental forecasting methods incorporate intuitive judgments, opinions and probability estimates.

Composite forecasts Surveys Delphi method (The Delphi method is a systematic, interactive forecasting method which relies on a panel of independent experts. The carefully selected experts answer questionnaires in two or more rounds. After each round, a facilitator provides an anonymous summary of the experts forecasts from the previous round as well as the reasons they provided for their judgments. Thus, participants are encouraged to revise their earlier answers in light of the replies of other members of the group.) Scenario building (Scenario analysis is a process of analyzing possible future events by considering alternative possible outcomes (scenarios). The analysis is designed to allow improved decision-making by allowing more complete consideration of outcomes and their implications.) Technology forecasting Forecast by analogy

Other methods

Simulation Prediction market Probabilistic forecasting and Ensemble forecasting Reference class forecasting