Simple lead forecasting optimizes the forecasting parameters to minimize the error measure between the historical data and the fit values, both offset by a specified number of periods (lead). Use this forecasting technique when a forecast for some future time period has more importance than forecasts for previous or later periods.
For example, suppose a company must order extremely expensive manufacturing components two months in advance, making the forecast for two months out the most important. In this case, the company could use simple lead forecasting with a lead of 2 periods.
In simple lead forecasting:
The fit for period t is calculated as the (lead)-period-ahead forecast from period t = 0. The fit for t = 1 calculated with simple lead forecasting is the same as the fit for the standard forecast, which is a 1-period-ahead forecast from period t = 0.
The residual at period t is calculated as the difference between the historical value at period t and the lead-period-fit obtained for period (t).
The lead RMSE is calculated as the root mean square of the residuals as calculated previously.
The forecasts for future periods and the standard errors for those forecasts are calculated as for standard forecasts.
If the method parameters are already provided by the user, simple lead forecasting is performed as described previously. If the parameters are not provided, then the parameters are optimized to minimize the lead error measure (for example, lead RMSE). After the parameters are optimized, the fit and the forecast are then calculated as for standard forecasting method.