This technical bulletin describes a time series-based approach to forecasting food prices that includes prediction intervals to communicate uncertainty. A key function for planning operations and production in companies is to estimate demand by forecasting sales. This feature is especially important for small businesses because losses due to unsold inventory can jeopardize the company's survival. Forecasting reduces uncertainty, but replaces it with the risk of excess inventory, reduced profits, or other specific risks.
Data and the use of models can reduce the risk of forecasting sales if they are based on successful forecasts from the past. Adding current data to review forecasts also reduces risk. Business forecasting consists of tools and techniques used to predict business changes, such as sales, expenses, profits, and losses. The goal of business forecasting is to develop better strategies based on these informed predictions, which helps to eliminate potential failures or losses before they occur.
A risk is any uncertain event or condition that could affect your project. Some events (such as finding an easier way to do an activity) or conditions (such as lower prices for certain materials) may help your project. When this happens, we call it an opportunity, but it's still managed as a risk. Dynamic sales forecasting must be accompanied by flexible production planning and resource allocation, which reduces the risk in forecasting sales and, at the same time, increasing uncertainty in production.
Rather, emphasis is placed on how service providers, including the National Meteorological and Hydrological Services (NMHS), can use information about the uncertainty of forecasts, including the best ways to communicate this information for the benefit of users. Service providers are encouraged to use this information as a guide on how best to communicate the uncertainty of forecasts and make it a routine and effective part of their service. It helps users to make better decisions and helps service providers to manage user expectations for accurate forecasts. Users who understand that forecasts may have a certain degree of uncertainty and can adapt their decision-making to the uncertain information provided by the service provider are much more likely to retain confidence in the service.
Another example of an effective graphic presentation of uncertainty is the representation of the expected trajectory of the tropical cyclone in the shape of a cone, as published by the National Forecast Center of Cuba and the National Hurricane Center of the United States. Many providers of forecasting services are developing strategies to communicate the uncertainty of forecasts. Finally, uncertainty can occur when the user receives and interprets the forecast, who does not always understand the terminology or intent of the forecast. There are several reasons why communicating the uncertainty of forecasts is useful, both for users of the forecast and for providers.
Forecasters can adjust these figures to detect reliable deviations, such as inflation, and the resulting forecasts have little risk. Uncertainty is inherent in the predictions of numerical prediction models, and it is appropriate that this uncertainty be taken into account in the forecast and alert services that are provided. Therefore, when they receive a forecast that describes a high-impact event as an average probability, users tend to assign a lower threat level because they believe that the forecast provider exaggerated. Emphasis has been placed on how service providers can incorporate information about uncertainty into their weather forecasting services, including the best ways to communicate this information for the benefit of users.
On the other hand, in four European cities, where probabilistic forecasting is not used, most users incorrectly interpreted the forecast as meaning that rain would fall 30 percent of the time or more than 30 percent of the area. Forecasters are familiar with the issue of uncertainty and predictability and must address it every time a forecast is prepared. .
