When you have past data to call on, use it. Always compare your forecast to past results. Look to the past as a reality check. Understand what's changing and why, and what may remain the same. A forecast-to-past comparison is quick, practical, and very powerful. Every professional analyst knows to look first at real past results before projecting into the future.
The illustration below shows furniture unit sales for 1998 and 1999, as actual past results.
Prior Year Sales by Month
Now compare the two hypothetical next-year forecasts below. Each of them shows projected future unit sales compared to monthly unit sales from the recent past. Ask yourself which is a better forecast.
Sales Forecast by Month - Sample 1
In Sample 1, the forecast for unit sales in Year 2000 seems unrealistic. Why are sales so high early in the year, when they haven't been like that in the past? Why would sales go down toward the end of the year? You would want to ask the forecaster what causes these radical changes.
Sales Forecast by Month - Sample 2
Sample 2, the Year 2000 forecast, seems immediately more logical. Notice how closely it follows the previous years' results. This is an obvious application of common sense in forecasting.
Use past history where possible to help you forecast your future sales. But don't let the lack of history keep you from making your best estimate.
