Do your forecasts lack confidence (bounds)?

Just how confident can we be about the future? This is an important consideration that plays into the decisions we make based on our forecasts. Makridakis, et al, discuss this in Forecasting Methods and Applications.

“It is usually desirable to provide not only forecast values but accompanying uncertainty statements, usually in the form of prediction intervals. This is useful because it provides the user of the forecasts with “worst” or “best” case estimates and with a sense of how dependable the forecast is, and because it protects the forecaster from the criticism that the forecasts are “wrong.” Forecasts cannot be expected to be perfect and intervals emphasize this.” (p. 52)

Not all forecasting software provides prediction intervals, but SAS High-Performance Forecasting (the “engine” inside SAS Forecast Server software) does. The width of the prediction interval (sometimes referred to as the confidence limits or confidence bounds) indicates how close the future is likely to be to the forecasted value. (Confidence bounds are shown by the shaded blue area on the far right of this plot.) When the confidence bounds are wide, forecasters sometimes whine and complain that they are useless – what good is a forecast in which we can have no confidence? But what is there to do in this situation?