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When building a machine learning model, one of the most common questions is whether to opt for long-term or short-term predictions. In other words, should you build a model that forecasts an event tomorrow or a month from now?

Our article will demystify this critical decision-making process. We’ll walk you through a strategic approach that will simplify the challenge of selecting the ideal prediction timeframe, which is crucial in determining the forecast accuracy in ML models.

How Far Should You Go in Generating Predictions?

As we dive into machine learning model forecasting, the first question that arises is, “How far into the future should my forecasts be directed?” For instance, if you’re predicting demand for certain products, should you forecast demand for the next week, quarter, or year? 

The answer is simple: We tend to be better at forecasting short-term events compared to forecasting events that happen too far away in the future. This is because as we stretch our prediction windows, we introduce more uncertainty and unknowns, which translate into a lower predictive quality.

Trade-Off Between Long-term vs. Short-term Predictions

When you’re deciding how far ahead to make predictions with your machine learning model, it’s important to consider the trade-off between actionability and accuracy. 

Let’s break it down. 

As the prediction window increases, the actionability of the model increases. For example, if you’re forecasting demand a year from now, and your production cycle takes a month, you can do a wide variety of things, from fixing prices with your suppliers to properly sizing your operational team.

But here’s the catch: this increase in actionability comes at the expense of predictive power, as we are generally bad at predicting long-term events. Plus, to make these long-term predictions, you would need a lot of data —for a year’s prediction, you would need data from at least the previous year.

If you believe your business has a less-than-perfect AI model in a business setting, consider reading this article on Making Money with Mediocre AI Models: A Guide for Business Stakeholders

So, What is the Ideal Prediction Time Frame for Your Model?

The ideal prediction time frame is the one with the shortest prediction window where you still have high actionability. 

Start by asking yourself: What’s the shortest period within which the predictions can still significantly impact your business decisions? For example, a month-long forecast is your ideal window if your production process takes a month. It gives you enough time to adjust based on the prediction, without venturing too far into the uncertain future. 

This concept of long-term vs. short-term predictions is not exclusive to time but also applies to how direct or indirect the action you are predicting is. For instance, if you’re building a recommendation system in an e-commerce website, your predictions might include immediate actions like a user clicking a product or adding it to their cart. 

Conclusion

In summary, the trade-off between actionability and predictive power is crucial when deciding between long-term and short-term predictions in machine learning predictions. 

Our advice? Always choose the shortest prediction window that allows you to take meaningful action. This approach will help you make the most of your machine-learning model and contribute to informed decision-making and a positive business impact of ML forecasts.

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