Forecasting: principles and practice

Wel­come to our new online text­book on fore­cast­ing. This book is intended as a replace­ment for Makri­dakis, Wheel­wright and Hyn­d­man (Wiley 1998).

The entire book is avail­able online and free-of-charge. Of course, we won’t make much money doing this, but text­books never make much money any­way — the pub­lish­ers make all the money. We’d rather cre­ate some­thing that is widely used and use­ful, than have large pub­lish­ers profit from our efforts.

Even­tu­ally a print ver­sion of the book will be avail­able to pur­chase on Ama­zon, but not until a few more chap­ters are written.

This text­book is intended to pro­vide a com­pre­hen­sive intro­duc­tion to fore­cast­ing meth­ods and present enough infor­ma­tion about each method for read­ers to use them sen­si­bly. We don’t attempt to give a thor­ough dis­cus­sion of the the­o­ret­i­cal details behind each method, although the ref­er­ences at the end of each chap­ter will fill in many of those details.

The book is writ­ten for three audi­ences: (1) people find­ing them­selves doing fore­cast­ing in busi­ness when they may not have had any for­mal train­ing in the area; (2) undergraduate stu­dents study­ing busi­ness; (3) MBA stu­dents doing a fore­cast­ing elec­tive. We use it our­selves for a second-year sub­ject for stu­dents under­tak­ing a Bach­e­lor of Com­merce degree at Monash Uni­ver­sity, Australia.

For most sec­tions, we only assume that read­ers are famil­iar with alge­bra, and high school math­e­mat­ics should be suf­fi­cient back­ground. Read­ers who have com­pleted an intro­duc­tory course in sta­tis­tics will prob­a­bly want so skip some of Chap­ters 2 and 4. There are a cou­ple of sec­tions requir­ing knowl­edge of matri­ces, but these are flagged.

We use R through­out the book and we intend stu­dents to learn how to fore­cast with R. R is free and avail­able on almost every oper­at­ing sys­tem. It is a won­der­ful tool for all sta­tis­ti­cal analy­sis, not just for fore­cast­ing. See Using R for instruc­tions on installing and using R.

The book is dif­fer­ent from other fore­cast­ing text­books in sev­eral ways.

• It is free and online, mak­ing it acces­si­ble to a wide audience.
• It is con­tin­u­ously updated. You don’t have to wait until the next edi­tion for errors to be removed or new meth­ods to be dis­cussed. We will update the book frequently.
• There are dozens of real data exam­ples taken from our own con­sult­ing prac­tice. We have worked with hun­dreds of busi­nesses and orga­ni­za­tions help­ing them with fore­cast­ing issues, and this expe­ri­ence has con­tributed directly to many of the exam­ples given here, as well as guid­ing our gen­eral phi­los­o­phy of forecasting.
• We empha­sise graph­i­cal meth­ods more than most fore­cast­ers. We use graphs to explore the data, analyse the valid­ity of the mod­els fit­ted and present the fore­cast­ing results.

Use the table of con­tents on the right to browse the book. If you have any com­ments or sug­ges­tions on what is here so far, feel free to add them below.

Happy fore­cast­ing!

Rob J Hyn­d­man
George Athana­sopou­los
March 2012.

Pro­ceed to Chap­ter 1