Chapter 1 Introduction
I started writing this book in 2020 during the COVID-19 pandemic, having figured out that it had been more than 10 years since the publishing of the fundamental textbook of Hyndman et al. (2008), who discuss ETS (Error-Trend-Seasonality) model in the Single Source of Error (SSOE) form and that the topic has not been updated substantially since then. If you are interested in learning more about exponential smoothing, then this is a must-read material on the topic.
However, there has been some progress in the area since 2008, and I have developed some models and functions based on SSOE, making the framework more flexible and general. Given that publication of all aspects of these models in peer-reviewed journals would be very time consuming, I have decided to summarise all progress in this book, showing what happens inside the models and how to use the functions in different cases, so that there is a source to refer to.
Many parts of this textbook rely on such topics as model, scales of information, model uncertainty, likelihood, information criteria and model building. All these topics are discussed in detail in the online textbook of Svetunkov (2021c). You are recommended to familiarise yourself with them before moving to the more advanced modelling topics of ADAM.
In this chapter, we explain what is forecasting, how it is different from planning and analytics and what are the main forecasting principles one should follow in order not to fail in trying to predict the future.