Analytics Magazine Analytics Magazine, July/August 2014 | Page 74

FO RE CAST ING this group. In recent years, the number of products in the second category has been growing, as statistical software firms have been adding additional and more sophisticated forecasting methodologies to their lists of features and capabilities. However, some dedicated software manufacturers offer specific capabilities and features (e.g., transfer function, econometric models, etc.) that general statistical programs may not have. In both software categories, forecasting software varies when it comes to the degree to which the software can find the appropriate model and the optimal parameters of that model. For example, Winters’ method requires values for three smoothing constants and Box-Jenkins models have to be specified with various parameters, such as ARIMA(1,0,1) x(0,1,2). Forecasting software vary in their degree to find these parameters. For the purposes of this and previous surveys, the ability of the software to find the optimal model and parameters for the data is characterized. Software is labeled as automatic if it both recommends the appropriate model to use on a particular data set and finds the optimal parameters for that model. Automatic software typically asks the user to specify some parameter to minimize (e.g., Akaike Information Criterion (AIC), Schwarz Bayesian Information Criterion (SBIC), RMSE, 74 | A N A LY T I C S - M A G A Z I N E . O R G etc.) and recommends a forecast model for the data, gives the model’s optimal parameters, calculates forecasts for a user-specified number of future periods, and gives various summary statistics and graphs. The user can manually ove rrule the recommended model and choose another, and the software finds the optimal parameters, forecasts, etc., for that one. The second category is called semiautomatic. Such software asks the user to pick a forecasting model from a menu and some statistic to minimize, and the program then finds the optimal parameters for that model, the forecasts, and various graphs and statistics. The third category is called manual software. Here the user must specify both the model that should be used and the corresponding parameters. The software then finds the forecasts, summary statistics and charts. If you frequently need to make forecasts of different types of time series, using manual software could be a tedious choice. Unfortunately, that broad advice may not be apropos for some software. Some products fall into two categories. For example, if you choose a Box-Jenkins model, the software may find the optimal parameters for that model, but if you specify that Winters’ method be used, the product may require that you manually enter the three smoothing constants. W W W. I N F O R M S . O R G