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Forecasting

Many analytical frameworks and modelling techniques can be used to produce forecasts, incorporating different assumptions about how the economy may unfold over time. Unfortunately many standard models hide these underlying assumptions, creating a ‘black box’ that prevents users from sense checking and testing the robustness of their models. Volterra provide transparent and accountable analysis and supporting documentation. We fully discuss with our clients the methodology which has been employed and the assumptions chosen to underpin our analysis.

 

But forecasting is error-prone. Even if all the drivers of the business can be precisely identified and measured, which is itself no mean task, forecasts still fail. This is not just because random events can occur to knock a system off course. It is also because the interaction between different drivers can produce fluctuations which cannot be predicted. Indeed this was one of the insights of a mathematician called Vito Volterra, for whom we are named.

 

Thus the provision of forecasts needs to rest on two central propositions:

• Making the best use of all available data and statistical techniques
• Consideration of the likely range of outcomes and the potential for unforeseen outcomes

At Volterra Consulting we have developed an approach to forecasting which aims to achieve these. The key features of our approach are:

• An open minded approach
• A proper recognition of the uncertainties involved in forecasting and a focus on business risk
• Use of the most advanced statistical and modelling techniques available