Forecasting involves the generation of a number, set of numbers, or scenario that corresponds to a future occurrence. It is absolutely essential to short-range and long-range planning. By definition, a forecast is based on past data, as opposed to a prediction, which is more subjective and based on instinct, gut feel, or guess. For example, the evening news gives the weather "forecast" not the weather "prediction." Regardless, the terms forecast and prediction are often used inter-changeably. For example, definitions of regression—a technique sometimes used in forecasting—generally state that its purpose is to explain or "predict."

Forecasting is based on a number of assumptions:

1. The past will repeat itself. In other words, what has happened in the past will happen again in the future.
2. As the forecast horizon shortens, forecast accuracy increases. For instance, a forecast for tomorrow will be more accurate than a forecast for next...