Average growth forecasting
Average growth forecasting projects a quantity using a growth rate summarised from past observations. Define the observed periods, growth-rate measure and averaging method before applying it to the latest value. An arithmetic mean of period growth rates differs from a compound annual growth rate; neither establishes that the future rate will remain constant. Forecasts should be tested against business conditions, data quality and plausible alternatives.
Worked example
A business observes two annual growth rates of 10% and 20%. Their arithmetic mean is 15%. If it explicitly uses that rate for one further year, current sales of $100,000 produce a $115,000 forecast; this is an assumption, not a guaranteed result.
Common mistake
Confusing the arithmetic average of annual growth rates with the compound growth rate, or assuming past average growth must continue.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | PM | Supporting | September 2026–June 2027 |