Explosion in the Forecasting Function

Article excerpt

Although business forecasting is a young function, it has grown by leaps and bounds in the last two decades or so. Prior to 1985, very few companies had dedicated forecasters. The forecasters were basically economists who were primarily concerned about the state of the economy and its impact on the overall health of a company. Also, their forecasts were more strategic and less operational. The kind of growth we see today is primarily in the area of operational forecasting.

Our survey confirms both the youngness and growth of this function. On the average, the forecasting function is 5.6 years old, meaning it was 5.6 years ago when the average company hired one or more full- time forecasters. The industries that are pioneers in starting a forecasting function are Pharmaceutical, Automotive and Oil/Petroleum with an average age of 7 years and more. The youngest industries to introduce a forecasting function are Retail and Service, with an average age of a little over 2 years.

One way to get an idea about the growth of this function is to look at the percent of companies that first hired one or more full-time forecasters only during the last 5 years - about 61 % of the companies across all industries hired one or more full time forecasters only during the last 5 years. The largest growth has been in Computer/Tech, Gas/Electric, Healthcare, Retail and Service where more than 70% of the companies first hired one or more full-time persons for this function only during the last 5 years.

The average company has 4.6 persons in the forecasting area, though the number varies from one industry to another. The industry with most forecasters per company is Service (9.3), followed by Transportation and Healthcare with 6.3 persons each. (See Figure 1)

The other way looking at the growth of the forecasting function is by the number of companies with 5 or more full-time forecasters. Across all industries, 35.74% of the companies have 5 or more full- time forecasters. At the top is Service, where 66.67% of the companies have 5 or more forecasters, followed by Transportation, 62.5% and Pharmaceutical, 52.6%.

The survey of US Labor Department also shows growth in jobs in this area. The 1998-1999 Occupational Outlook Handbook, published by the Bureau of Labor Statistics, states, "Those skilled in quantitative techniques and their application to economic modeling and forecasting, using computers, coupled with good communications skills, should have the best opportunities." The spring 1996 issue of Occupational Outlook Quarterly states, "for economists and marketing research analysts, faster than average growth is expected ... due to increased reliance on quantitative methods of analyzing business trends, forecasting sales, and planning."

VENDORS OF FORECASTING SOFTWARE AND SYSTEMS

The emergence of a new multi-billion dollar industry (vendors of forecasting software and systems) that provides support to the forecasting function is another evidence of growth in the forecasting function. The forecasting software is a stand-alone package. It generates forecasts either by the model selected by the forecaster or by the model selected by the software package. Most of the forecasting software packages have a built-in automatic system that selects the best model for each set of data based on pre-defined criteria. The forecasting system, on the other hand, does much more than preparing forecasts. Depending on the sy stem, it can, in addition to preparing forecasts, help in generating plans for distribution, manufacturing, transportation, sales and marketing. Most of the vendors in the area started their business in 1985 or after.

The key players in forecasting software are SAS, John Galt Solutions, Smart Software, and Business Forecasting System. Although SAS started up in 1976, it introduced its forecasting component only in 1980. John Galt Solutions was founded only in 1996. Both Smart Software and Business Forecasting System started up in 1986. …