How Can AI Make Forecasting Better?

Written by Adam Morris

Updated August 3, 2023
Man with umbrella overlooking company financials

Do you often find yourself relying on traditional methods of forecasting? There might be a better way to predict what the future holds (and it’s not just an educated guess).

The usage of artificial intelligence (AI) in businesses is growing exponentially, and with good reason. AI allows for faster, more accurate data processing and analysis than ever before.

By leveraging the power of AI, data scientists can optimize forecasting models to generate more precise, reliable predictions about the future. In this article, we will look at how exactly AI help with forecasting and what other benefits come from using this technology.

What is Business Forecasting?

Business forecasting is an important tool for understanding and anticipating future developments in areas such as sales, revenue, and demand for resources. In order to accurately forecast these areas, time series data is used to estimate foreseeable trends. Business forecasting can be divided into two main categories.

Business trend in pink on paper on table

The first is demand forecasting, which involves predicting the requirement of resources like inventory and staff. By planning the inventory needed for each location in advance, a business can successfully reduce inventory costs whilst simultaneously providing a better customer experience.

The second category of forecasting is growth forecasting, which is implemented by companies when they require more accurate corporate planning. Predictive growth modeling helps to identify potential trends that can occur based on certain factors such as past performances, competition, and industry changes. By being able to predict what could happen in the future, companies can make business decisions that will help lead them toward success.

What is AI Forecasting?

AI forecasting is an innovative and powerful new technology in the field of logistics, supply chain, and demand forecasting. It relies on Machine Learning (ML) algorithms that can analyze vast amounts of structured and unstructured data to uncover patterns and relationships that manual forecasting systems cannot detect. By automating the data processing and analysis process, AI/ML algorithms enable planners to more quickly identify trends, anticipate customer needs, and optimize their forecasts.

Advanced AI capabilities like artificial neural networks, support vector machines, genetic programming, deep learning techniques, natural language processing (NLP), and clustering algorithms provide businesses with opportunities to leverage existing data sources quickly and efficiently.

This can enhance forecasting accuracy; as an outcome, the focus has shifted from short-term predictive models towards AI/ML so organizations can gain greater recognition for valuable insights into long-term customer behaviors. Moreover, the use of AI enables quick implementation timeframes since fewer resources are needed when compared to manual models such as regression or time-series analysis.

Not only does this help business managers make better decisions faster than ever before; but it also eliminates the need for lots of manual labor traditionally associated with forecasting processes.

The ML algorithms are able to build models based on the available data points by taking into consideration external variables such as historical sales data, weather conditions, economic conditions, etc, empowering planners with predictive insight into future demand. By unlocking accurate patterns from large datasets without requiring human intervention, AI/ML can drastically reduce forecast errors while driving operational efficiency and decision-making accuracy.

Forecasting with Machine Learning

Business forecasting with machine learning is quickly gaining traction as a way to gain insights into the future of any company or business. Machine learning allows companies to easily process large amounts of data and track past and current trends in order to better predict what will happen in the future. By incorporating machine learning into their forecasting methods, businesses are able to better understand how their products, services, and strategies will perform over time.

Wood blocks forming stairs with shopping cart icons on blue background

Machine learning for business forecasting takes advantage of thousands of different metrics that can be considered for predicting outcomes more accurately than manual methods. Despite all these metrics, ML models need not always include every single one and instead consider only those relevant for predicting a certain outcome more effectively.

This makes machine learning one of the most cost-efficient ways for organizations to improve their decision accuracy by including meaningful input variables and creating powerful predictive systems with greater data transparency.

Moreover, machine Learning also offers an adaptive approach that adapts comfortably to changing circumstances, unlike other approaches which require manual intervention at every turn. With machine learning, organizations can efficiently create forecasts that are both reliable and timely to better align them with real-time operations and fluctuations in demand.

How does It work?

AI forecasting has been revolutionizing demand forecasting and how organizations manage the full end-to-end process, from accurately predicting demand and improving forecast results to introducing new products and promotions that increase market size. This is enabled by transitioning from legacy forecasting to Demand Sensing and Demand Shaping.

Demand Sensing uses automation and machine learning to analyze all available data – ranging from demographics to the weather, price changes or consumer sentiment – and compare it with historical data for insights. These insights are then used in Demand Shaping to not only create better forecasts but also enhance the business performance through launching new products or marketing campaigns that target specific customer segments.

By integrating AI-based tools into the demand forecasting process, organizations can see better numbers when it comes to forecast accuracy as well as reduced risk when it comes to product improvements or marketing campaigns. All of this combines with the cost benefits created through automation processes outlined earlier for improved efficiency and financial performance for businesses everywhere.

The AI process itself reduces the amount of time a planner would spend on manual forecast analysis, as well as automating various actions or approvals like setting up workflows or widgets. Due to its ability to take input from various forms of data as well as make decisions autonomously based on those inputs, AI can produce quick and accurate results despite volatile markets or unexpected circumstances. With its advanced capabilities, AI is set to revolutionize how businesses will utilize forecasting in order to find success in an ever competitive market.

Use Cases of Business Forecasting 


The application of AI to e-commerce has revolutionized the retail industry, from product recommendation systems to smart supply chains and chatbot customer service. The use of these applications enables companies to gain a better understanding of their customer base, allowing them to provide personalized and localized experiences to shoppers.

Three different kinds of burgers on wood board

McDonald’s is just one example of a global retailing giant that utilizes AI technology in order to optimize its supply chain and balance customer demand and available inventory. By using an AI-driven software system that can dynamically adjust the menu options based on current surplus or deficit levels of food items, McDonald’s can ensure customers have access to the items they desire while at the same time optimizing inventory levels.

AI technology also helps brands drastically improve browsing flexibility on their websites by introducing product recommendations that are tailored specifically for each individual user based on their past behaviors.

This technology allows for small, medium and large businesses alike to connect with customers more intimately, engaging them with relevant offers; ultimately driving higher sales.

Additionally, AI is being employed more frequently in data analysis in order to detect trends across large data sets quicker and more accurately than ever before; all deemed essential as modern-day customers become increasingly more accustomed to convenience-driven shopping experiences from global retailers and brands.

Financial Institutions

The use of AI in banking and financial institutions is becoming increasingly important for companies that want to keep up with the competition. Banks are already leveraging AI technologies including conversational bots, humanoid robots, AI ATMs and machine learning techniques, to improve customer satisfaction and back office operations.

High rise buildings in city with blue skies on background

AI also offers valuable insights for banks when it comes to reducing risk such as predicting if applicants may not pay off a mortgage based on their credit score, income, and employment information. Machine learning techniques help detect fraud or cybersecurity threats while predictive analytics can estimate an applicant’s chance of defaulting on payments. By using the data generated by AI, banks are taking proactive steps toward reducing any associated risks without compromising customer privacy.

In essence, AI technologies are providing an effective way for banking and financial institutions to maximize their competitive edge while still keeping customers safe.


Manufacturing is an increasingly complex process that requires careful management and monitoring throughout the supply chain. Production quality, delivery reliability, costs and lead times are all important aspects to consider when optimizing production and efficiency. To facilitate the successful operation of a manufacturing process, many large manufacturers incorporate AI and ML techniques into their supply processes.

Factory boxes on shelves labeled by AI

Adopting such technologies can help with supplying accurate data at a low cost while also promoting greater delivery reliability. Companies like Colgate-Palmolive have already implemented measures to monitor machinery “health” through wireless sensors and ML-powered analytical software across 81000 machines worldwide.

This helps to ensure their production maximises efficiency without compromising on good quality standards in the outputted products or increasing lead times in customer services too much. By embracing these advanced technological developments, businesses can look forward to optimising production processes for improved performance.

Benefits of Using AI Forecasting

AI forecasting offers tremendous benefits to the demand forecasting process. One of the primary advantages is greater accuracy, as AI algorithms can uncover valuable insights from historical demand patterns which might be overlooked by traditional methods. Additionally, AI-based forecasting can quickly identify any biases in data and make adjustments for a more accurate prediction.

Furthermore, AI’s ability to support transparency unlocks visibility into the basis of the forecasts, making it easier to understand why certain predictions were made and how they can be improved.

Another noteworthy benefit of AI forecasting is its ability to automate routine tasks faster than manual processes allowing businesses to respond quickly and efficiently to fluctuating demand. As well as driver selection, outlier correction, and blending of consensus forecasts are all things that can hugely benefit from the effective use of AI/ML technology. Allowing businesses to redeploy resources previously tied up on laborious processes towards market analysis or other strategic projects which will ultimately drive growth and profitability.

Problems with AI Forecasting

AI forecasting has become increasingly popular due to its ability to rapidly identify trends and quickly adapt to changing circumstances. However, there are a variety of common challenges that companies can face when implementing next-generation AI planning solutions.

Woman silhouette wearing glasses on front of screen with data

One of the key difficulties is in defining the roles and responsibilities involved in forecasting activities; while traditional forecasting often relies on data administrators to manage data collections and cycle preparation, AI/ML forecasting requires specialized skills from data scientists and analysts. This can create both career opportunities for planners as well as potential roadblocks if suitable skills are not available in-house.

In addition, AI/ML technology often relies on open-source programming languages such as Python and R, which require specialized knowledge to use effectively. These programming languages tend to be relatively new tools that carry some learning curve both for organizations integrating them into existing infrastructure and for employees who are looking to gain the necessary technical proficiency. Organizations should take this learning curve into account when planning their implementation of AI forecasting systems in order to ensure success.


Using artificial intelligence (AI) techniques to improve forecasting can bring many benefits for sales. With AI smart analytics, leveraging current and historical data to gain more accurate forecasts for future activity outcomes is possible. By using this information, companies are able to extract valuable insights integral to their success.

This knowledge can help guide the decision-making processes when it comes to hiring and budgeting, allowing them to make the most effective decisions that will optimize their profits. Additionally, AI can be an essential tool in solving out-of-stock and overstock issues – both of which are very costly mistakes that can hurt a business’ bottom line.

Smart sales predictions resulting from AI techniques open up endless possibilities for businesses by providing insightful information about future market trends and activities. These improved forecasts allow organizations or companies to develop effective strategies in order to capitalize on trends or events as they occur, helping maximize profits and minimize costs simultaneously. With effective forecasting, businesses stand a better chance of reaching their financial goals and objectives – especially when backed by ever-improving technologies such as AI smart analytics.

Adam is a crypto expert & AI enthusiast who has been researching and writing on the topics since 2017.

He’s spoken on numerous podcasts and has been featured in many prominent media publications such as Forbes, CNN & CNBC.