The Importance of Forecasting

1. The Importance of Forecasting • Forecasting is Fundamental to Planning“Analysis and projection of population are at the base of almost all major planning decisions.” (Hightower, 1968)“Knowledge about past populations and assumptions about future populations are fundamental to planning decisions in every aspect of community life.” (Krueckeberg and Silvers 1974) • Why Make Forecasts? --To Predict Future Population Changes --To Analyze Determinants of Population Change --To Present Alternative Futures --To Promote Agendas and Sounds Warnings --To Provide a Base for Other Projections --To Promote Sound Planning

2. Planners Use of Forecasts • In What Ways do Planners Make Use of Forecasts?--Growth Management/Land Use Planners? --Health Planners? --Environmental Planners? --Housing/Community Development Planners? --Planners working in Developing Areas? --Transportation Planners? • Examples: Public Sector--Water supply planning in Florida, Atlanta, LA --Planning for New School, Fire Station Locations --Air Quality Planning • Examples: Private Sector--Real estate demand analysis for St. Joe/Arvida --Market analysis for new commercial/office development

3. Estimates, Projections and Forecasts • Estimate: A calculation of a current or past value of a variable typically based on symptomatic indicators of change in that variable.Example: Using the number of new housing permits in Leon County between 2000 and 2002, the county population in 2002 is estimated to be 244,000. • Projection: The numerical outcome of a particular set of assumptions regarding future values of a variable. A conditional “If …, Then…” statement about the future. Example: If Leon County continues to grow at the same rate it did between 1990 and 2000 (~25%), then its population in 2010 will be 370,000. • Forecast: The projection selected as the one most likely to provide an accurate prediction of the future value of a variable. This is a judgmental statement about what the analyst believes to be the most likely future. Example: Leon County’s population in 2020 is forecast to be 345,000, based upon an analysis of expected changes to the economic base of the community, development by Arvida/St. Joe, and the expansion of the university/CC student populations.

4. Types of Forecasts • Pure forecast: The “most likely” future given unanticipated public or private initiatives. This is a predicted future based upon the continuation of existing trends and expected initiatives. • Contingency forecast: A statement of a possible future, including the highest and lowest plausible levels of population. • Normative forecast: Statement about the desired future. An attainable future whose definition has evolved from the planning process.

5. Additional Forecasting Jargon Base Year: The year of the earliest data used in the projection (1940) Launch Year: The year of the most recent data used in the projection (2000) Base Period: The interval between the base year and the launch year (1940-2000) Target Year(s): The year for which the variable is projected (2010, 2020, 2030) Projection Horizon(s): The interval between the launch year and the target year (2000-2010, 2000-2020, 2000-2030) Projection Interval: The increments in which projections are made (10 years)

6. How Do We Make Forecasts? • Given the importance of forecasting, how is it that analysts make these predictions about the future? • For example, how do evening news weather forecasters make their predictions? What methods do they use? What inputs influence their prediction about tomorrow’s temperature, rain likelihood, etc.? --What about a forecast for next week? --What about a forecast for next year at this time • What methods seem appropriate for making a forecast about the future population of Leon County in 2005? What inputs should be considered? --What about a forecast for 2030? --What about a forecast for 2300?

7. Reminders About Forecasting • Bigger is Better: Forecasts for larger units are easier and usually more accurate than those for smaller areas. --It is easier to forecast the state’s population vs that of Monticello’s. • Short range accuracy: Forecasts for shorter periods of time are almost always more accurate than forecasts for longer periods of time. --We can very easily forecast Tallahassee’s population next year, but we will likely have problems forecasting it for the year 2030. • The “Horseshoes and Hand Grenades” Factor: When forecasting close is often ‘good enough’. --Almost all forecasts are incorrect to some degree, so a forecast within 5-10% is considered to be very accurate.

8. Projections as Science vs Forecasting as Art • The State of Projections Science  VERY STRONG--The practice of making mechanical population projections is relatively easy given the availability of: • --Low cost data: Cheap, quality data is available in quantities as never before, because of the Census Bureau and other federal and state agencies • --Powerful computers: The processing power of most computers is exponentially better than those of only five years earlier • --Useful software: User friendly spreadsheet software that allows for statistical analysis and data presentation allows most users to generate projections with very little manipulation. • Unfortunately, as Isserman (1984) makes clear, technically sound projections are far different from useful and accurate forecasts.

9. Projections as Science vs Forecasting as Art • The State of Forecasting Art  VERY weak--“Forecasting” has for too long rested solely on the belief that a strong understanding of past and recent trends is sufficient for predicting the future. Experience shows this be very wrong. --Florida in 1950 vs Florida in 2000 --Pre-WWII Central cities vs Central cities in 2000 • To be successful forecasters, planners must become authorities on the areas they are forecasting, knowing the local culture, its economic base, its political climate, regional trends, etc.“being able to draw relationships between current events and the area’s future is essential” (Isserman, 1984, p. 214) • There are numerous techniques available to planners that allow for them to acquire these inputs, inputs that are essential to the development of useful forecasts. --Scenario building --Brainstorming --Focus groups --Community meetings --Surveillance and monitoring • Although these techniques are “qualitative”, they are no less rigorous than quantitative methods.

10. Projections as Science vs Forecasting as Art • Good forecasting, then, rests in two very distinct skill sets: • 1) The ScienceTraining in the use of projection methodologies, their utility, their relative strengths and weaknesses, and their application. • 2) The Art--An ability to think “holistically” about an area.--A readiness to engage community leaders, residents, and business leaders about their visions and expectations for the area.--A willingness to utilize a broad set of quantitative and qualitative methods in the development of forecasts. • Isserman states that good forecasters show “a willingness to embrace artistic as well as scientific values, to think creatively as well as analytically.” (Isserman, 1985, p. 214)

11. URP 5261: Course Coverage in Part I Covered in Full Covered in Part

12. URP 5261: Course Coverage in Part II Current Economic Base Analysis Economic Base Projection Methods Assumption Approach MinimumRequirements ConstantShare ShiftShare LocationQuotients Economic Base Advanced Methods Covered in Full Covered in Part Input-OutputModels EconometricModels Figure 2. Economic Base Analysis Methods