Naïve Forecasting with Regression

Abstract

In some circumstances, managers want to estimate the trend, or stable level of growth in performance, in order to produce a longer term forecast. Regression allows estimation of trend, using the time period as the independent variable. Forecasting based on trend is naïve, because the focus is not on understanding why performance varies across time periods, but only on forecasting what future performance would look like if the future performance resembled past performance.

Naïve forecasting based on trend is quick and easy and provides a view of the future, under the status quo. In Chap. 11, more sophisticated forecasting, which includes explanation of variation across time periods, will be introduced.