Rules for Effective Forecasting: The Main Goal

¶ … Rules for Effective Forecasting:

The main goal of forecasting is to identify the complete range of probabilities facing a society, organization, or the entire world. Forecasting is a process based on prediction and a major process in determining the future and how to prepare for it. This process of forecasting is based on the myth of accurate prediction, which is based on the assumption that forecasting is achievable in a world with preordained events and that the present does not impact the future. Since prediction is centered on determining future certainty, forecasting should focus on identifying the whole range of probabilities rather than a limited set of illusory certainties. Therefore, the major task or responsibility of the forecaster is to chart uncertainty in attempts to recognize the full range of possibilities.

In his article, Paul Saffo demystifies the process of forecasting in order to assist executives to become complicated and engage consumers of forecasts. This process of demystifying forecasting does not focus on making executives and consumers passive absorbers. The author demonstrates how forecasts can be used to widen understanding of possibilities and limit the decision space within which an individual must exercise spontaneity. As a result of his focus, Saffo examines what executives can do to avoid being surprised or blind-sided by wild cards like the events of 9/11. Moreover, he examines what executives can do to avoid being surprised by radical changes in markets or the relatively abrupt emergence of disruptive technologies (Saffo, 2007, p.122).

Saffo attempts to describe what forecasters achieve through outlining six simple, commonsense rules that competent business executives should observe when they participate in the voyage of discovery with professional forecasters. These rules for executives are planning a cone of uncertainty, look for the S curve, embrace strong opinions loosely, accept things that don't fit, evaluate the past as much anticipating the future, and determine unsuitable time to make a forecast. The author provides these rules as a means of giving executives tools they can use to evaluate forecasts themselves.

The first rule i.e. defining a cone of uncertainty is based on the need to rely on intuition and judgment as a decision maker. The eventual intuition and judgment is based on the essential context provided by effective forecasting to guide the process. Effective forecasting also widens an individual's understanding through exposing overlooked possibilities and unexamined assumptions regarding expected outcomes while narrowing decision space for exercising intuition. The process of mapping a cone of uncertainty is considered as a mechanism for outlining possibilities that goes beyond a specific event or moment. During this process, the forecaster focuses on defining the cone in a way that enables the decision maker to exercise strategic judgment. This process incorporates several considerations including defining the breadth of the cone of uncertainty, relationships among elements, and positioning of probable outcomes (Saffo, 2007, p.2).

The second rule is to look for the S curve since change rarely spreads out in a straight line, which implies that such changes take place in an S-curve shape. The main reason for looking out for an S curve is because change begins slowly and incrementally before exploding suddenly and ultimately tapering off and sometime dropping back down. This is followed by embracing things that don't fit in terms of distribution of changes across the organization. The need to embrace things that don't fit is fueled by the usual dislike of uncertainty and people's preoccupation with the current. As a result of these tendencies, people tend to ignore signals that don't fit into common boxes. Generally, anything that is really new to an event, system, or occasion won't fit into a category that is already in existence.

Fourth, forecasters or decision makers should hold strong opinions weakly in order to avoid the over-reliance on a single piece of relatively strong information that reinforces the already developed conclusion. This process can be achieved through being the first one to prove yourself wrong after making the forecast. The forecaster or decision maker should create a forecast within the shortest time possible and then begin discrediting the forecast with new data. The fifth rule is to look back as far as you look forward to determine the turns rather than straightaways. While the recent past is not necessarily a reliable signal of the future, it helps in identifying patterns during forecasting. The final rule is for executives to know the inappropriate time not to make a forecast because there are some occasions when forecasting is nearly impossible and others when it's comparatively easy.

The simple, commonsense rules for forecasting provide a balanced approach towards this process since they cover nearly every aspect and element of forecasting. These rules help in understanding the essential elements of the forecasting process that enhances the roles of executives and consumers. Some of the essential components of forecasting presented in the six rules include the fact that forecasting must have a logic. As a result, people using the probabilities must have adequate knowledge of the process and logic in order to make an independent evaluation of the quality of the forecast.