Academic journal article The Journal of Business Forecasting Methods & Systems

Forecasting in the 1990's

Academic journal article The Journal of Business Forecasting Methods & Systems

Forecasting in the 1990's

Article excerpt

Forecasts that are easiest to accept are those which fit with the management goals ... it is important to match the forecasting model not only to the data or situation but also to the culture of the organization for which forecasts are being prepared ... forecasters are now entering into new areas of exploration where both uncertainty and risk are hi h.

Forecasting services have a derived demand function. The effectiveness and importance of forecasting is directly impacted by the ability of the forecaster to meet the needs of the forecast user -- most often some management function within a company or organization. It follows that the forecaster must satisfy the expectations of managers. Their needs are being affected by a changing business environment and a dynamic set of shareholder and constituent group expectations. As the external environment operates, it will affect management's forecast needs.

At the 1996 Business Forecasting: Best Practices Conference in Chicago, a recurring theme in individual discussions and in the formal presentations was the changing world of the forecaster. Fewer resources, less time, downsizing, and greater management demands were identified as important factors influencing the professional demands placed upon the forecasting profession. Forecast and forecaster credibility, more diverse forecasting projects, more forecast situations where sufficient historical data are not available, and conflicting forecasting methods were also areas of concern expressed by those in attendance. Unclear objectives and inter-functional rivalries also contribute to the difficulties of managing a forecasting process, along with the expectations for technology. Organizational fragmentation and an unwillingness to share information further exacerbate efforts to meet management needs. All of these factors are symptoms of the changing business environment, and in some cases are a direct consequence of the changes which are affecting management in many organizations.

The purpose of this article is the identification of those factors which have the greatest potential to affect the manner in which forecasters work and interact, and to identify actions which can be taken to better position forecasting and the forecasters in the dynamic environment in which business and supporting services must operate. A most important consideration is determining how the forecast function can add value to the business operations.

If one looks up "forecast" in the dictionary, forecasting is defined as the attempt to predict, foresee, prophecize, plan, or otherwise develop outlooks for future events. The innate need to see into the future has been recognized by political and business figures throughout history. The importance of a soothsayer or prophet, and the danger of becoming one, has been long documented in both mythology and theologically recognized documents of authority.

In Greek mythology, Cassandra was given the gift of prophecy by Apollo -- the gift of seeing future events and outcomes. But as a punishment, Apollo also decreed that no one would believe her prophecies, even though they were true. Certainly many modern day forecasters can identify with the frustration which Cassandra must have experienced. Valid, reliable forecasts are not always readily accepted by those who would benefit.

Forecasting has always been a risky business. The processes by which forecasts are developed -- be they mathematical in origin, psychic in nature, or supernatural in outlook -- have always awed as well as alienated those whom the forecasters have endeavored to reach and persuade. The unacceptable nature of many outcomes as well as the probabilistic nature of the events being forecasted have often made forecasts difficult to envision or accept. Where forecasts do not fit the conventional wisdom or the current vision of those for whom the forecasts are being developed, the forecasts are generally criticized based upon their assumptions, plausibility, and in some cases the credibility of those preparing the forecasts. …

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