The forecasting process, illustrated in the following diagram, represents a typical process flow that can be applied to both time series and other models. There isn't a stage in the process that is more important than others. However, a good understanding of the business problem should be the building block of any modeling process:
Figure 2.2: Forecasting process
Let us walk through the process of forecasting:
- Define the business problem and state what the model expects to achieve.
- Collect data from various sources and systems and transform it to clean data.
- Plot the data, run statistical tests, fit the model, and interpret the results.
- Validate the model by using a holdout sample.
- Obtain a model sign after it meets the technical and the business requirements. Integrate it into the business process.
Most modelers spend a disproportionate amount of time...