3.3 Forecasting Horizons and Their Applications

The selection of an appropriate forecasting horizon is crucial for effective decision-making within an organization. Forecasting horizons can be broadly categorized into three distinct temporal scopes: long-term, medium-term, and short-term.

Long-Term Forecasting (LT)

Long-term forecasting, typically encompassing a timeframe exceeding two years, is often undertaken at the strategic level of an organization. Due to the inherent high degree of uncertainty associated with such extended timeframes, this approach necessitates a deep understanding of the target products and markets. Long-term forecasts are particularly relevant for strategic decisions concerning new product launches, implementing emerging technologies, and establishing new facilities. Notably, the absence of historical data often presents a significant challenge in long-term forecasting, requiring a greater reliance on expert judgment and scenario planning techniques.

Medium-Term Forecasting (MT)

Medium-term forecasting, also referred to as intermediate-term forecasting, typically spans from several months to two years into the future. This timeframe allows for the utilization of both quantitative and qualitative forecasting methodologies. Medium-term forecasts are instrumental in tactical decision-making, informing strategic initiatives and operational planning.

Short-Term Forecasting (ST)

Short-term forecasting focuses on a timeframe ranging from daily to a few months. These forecasts are primarily employed for operational decision-making processes, such as inventory management, production scheduling, and workforce allocation. Quantitative methods, particularly time series analysis, are prominently used in short-term forecasting due to their effectiveness in analyzing and extrapolating from historical data.

“3.3 Forecasting Horizons and Their Applications” from Fundamentals of Operations Management by Azim Abbas and Seyed Goosheh is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.