Learn Excel 2016 Essential Skills with The Smart Method

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Lesson 5-26: Add a forecast

sheet

Weather forecasters used to definitively predict the future with

statements such as: “It will rain tomorrow”. They now tend to advise the

probability that they may be wrong with statements such as: “There is an

80% probability that it will rain tomorrow”.

Excel 2016 introduces a very sophisticated Forecast Sheet feature to more

reliably predict the future. The new forecast sheets can be used to predict

the likely movement of trending data such as currencies, stocks and

shares and commodity prices. Just like the weather forecasters, Excel’s

new forecast sheets allow you to add a confidence factor. Excel can even forecast the future with a 99.9% chance of being correct (at least , this is

Excel’s bold claim).

This lesson was written in December 2015. At that time there was

accurate data for the New York average monthly temperature for each

month until November 2015. In this lesson you’re going to use Excel 2016’s new Forecast Sheet feature to predict what the average New York

monthly temperature will be in January, February and March 2016.

1 Open New York Temperature from your sample files folder (if it isn’t already open).

This workbook contains the average monthly temperature recorded in New York’s Central Park for the five years up until

November 2015. There’s also a simple chart to give a visual

representation of the data:

You can see that the temperature data is cyclical. You wouldn’t be

able to predict the average January temperature with a trend line

as a trend line is not sophisticated enough to take into account the

cyclical nature of the seasons.

2 Create a forecast sheet that will predict the average monthly

temperature for January, February and March 2016.

‘Tis impossible to be sure of anything but Death and Taxes.

Christopher Bullock, from: The Cobler of Preston (1716)

note

Excel’s forecast sheets make use of

five new Excel 2016 functions

A set of five new FORECAST functions have been added to Excel 2016 in order to support the new Forecast Sheet feature.

Fortunately, Excel automatically creates these functions for you when you create a Forecast Sheet.

You can see the use of two of these functions on this lesson’s forecast sheet:

FORECAST.ETS FORECAST.ETS.CONFINT

The functions are quite easy to understand as their parameters simply mirror those shown on the Create Forecast Worksheet dialog.

In reality you’ll probably never use these functions directly as it is far simpler to use the Forecast Sheet feature described in this lesson to create them automatically.

As well as the forecasting functions used in the forecast sheet, Excel 2016 provides three other new functions:

FORECAST.ETS.SEASONALTY

FORECAST.LINEAR

FORECAST.ETS.STAT

You’ll probably never use these functions directly. Their main purpose is to provide behind-the-scenes support for Excel forecasting features.

New York Temperature

© The Smart Method Ltd. This e-book may not be printed. To purchase hard copy physical books click here.

Session Five: Charts and Graphics

© 2016 The Smart Method® Ltd 271

1. Select cells A4:B75

A quick way to do this is to place the cursor anywhere in the range and then press the <Ctrl>+<A> keys on the keyboard.

2. Click DataForecastForecast Sheet

3. The Create Forecast Worksheet dialog appears

4. Set the Forecast End date to 31st March 2016.

5. Click the Options button at the bottom left of the dialog

6. Set the Confidence interval to 95%

This will result in a prediction that Excel is 95% certain will be

correct.

Notice the Seasonality setting. This lets you know that Excel has correctly identified a seasonal trend that occurs every 12

months.

Notice also that there are two icons at the top right of the dialog that enable you to select a Line or Column chart type.

You’ll probably find that the line type works best for most

forecasts.

7. Click the Create button.

Excel inserts a new worksheet containing a forecast chart along

with the data used to create the chart . The data is presented in an Excel table (see sidebar for more about tables).

You can see that Excel has provided both a forecast and margins of

error. For Excel to be 95% sure that the forecast is correct . The

chart is advising you:

In January 2016 the average temperature is forecast to be 37.3 F. There is

a 95% probability that the average temperature will be no lower than 30.5 F and no higher than 44.2F.

If you had set the Confidence setting to less than 95%, Excel would

have forecast a narrower temperature range to allow for a higher margin of error. Notice that Excel has got into a bit of a muddle

with dates. Forecasts have been made for average temperatures up

to 30-Jan-16 (useful for the Jan-16 forecast) 01-Mar-16 (useful for the Feb-16 forecast) and 31-Mar-16. You would need to create

three different forecast sheets if you wanted forecasts that were

slightly more accurate.

3 Save your work as New York Temperature-1.

note

About Excel tables

Microsoft could easily have used a normal Excel range to present the data in the Forecast Sheet. Instead they have chosen to use an Excel table.

The data in the table is used as the source data for the forecast chart.

Tables are considered to be an expert-level feature and are covered in depth in the Expert Skills book in this series. Tables make some expert-level functions and features easier to use as they have many advanced features.

Forecast sheets don’t use any of the advanced features supported by tables. Simply regard the table that supports the forecast chart as a rather colourful range.

You’ll see that the data source of the chart only references simple ranges within the table . You’ll be able to completely understand how the chart works with your existing chart skills.

You don’t need to learn anything about Excel tables to use the Forecast Sheet feature.

© The Smart Method Ltd. This e-book may not be printed. To purchase hard copy physical books click here.