Forecasting and prediction

The business dictionary (n.d) defines forecasting as a planning tool that assists management with their attempts to cope with the uncertain future, relying mainly on data from the past and present and analysis of trends. According to Amer et al (2013) traditional forecasting techniques use various concepts like qualitative forecasting, which is based on opinion and judgments and quantitative forecasting which is based on moving averages like time series, exponential smoothing or time series and regression or casual methods. Quantitative methods are normally employed when data from the past is available otherwise qualitative methods are used. The authors argue that the traditional forecasting techniques are rigid and always fail to predict significant changes in market conditions, particularly in very dynamic real world environment. Sing (2014) found that traditional forecasting methods tend to be reliable when the primary product performance measure used by customers is well understood, the author adds that the same method fail when the basis of competition changes. To this point Bachman (2011) adds that, no macroeconometric forecasting technique anticipated the financial market meltdown and subsequent recession in 2008-2009. Bass (n.d) states that traditional forecasting fails since it is not possible to predict the future. However Traditional forecasting also has its benefits. According to Amer et al (2013) the method is mathematical and scientific in nature thus the output prediction is independent of human error. Bass (n.d) adds that the primary advantage of forecasting is that it provides businesses with valuable data to assist in making decisions about the future.

In the 1970s major cooperation’s such as shell and General electric realized that traditional forecasting methods were becoming strategically dangerous and focused on creating new forecasting methods (Nelson, n.d.). The companies defined the practice of scenario planning, this provided links between organizational processes such as strategy making, innovation, risk management, public affairs and leadership development (Wilkinson & Kupers, 2013). Scenario planning is defined by Hiemstra (2012) as a tool used by leaders to discover new strategic options for the future and gain a deeper level of foresight than is typical in most strategic planning efforts. Freeman (2009) states that scenario planning does not predict the future, rather it considers the complete scope of likely forces that might have an impact on an organization. It differs from traditional methods in several ways. Scenario planning does not rely on rational exercises such as market research, while utilizing some aspects of traditional forecasting, scenarios are written as stories in order to bring to light a more personal relationship between the method, outcome and proponents. Scenario planning also helps visualize the future. According to netMBA (n.d) Scenario planning is not about predicting the future, it attempts to describe what is possible. The article adds that the idea is to bring together a wide range of perspectives in order to consider scenarios other than the widely accepted forecast. Some benefits of scenario planning include:

• Managers break out of there standard word view thus exposing blind spots that might otherwise have been overlooked.
• Decision makers are better able to recognize a scenario in its early stages.
• Managers are better able to understand the source of disagreements that may occur when they are envisioning different scenario
• The method also allows flexibility.

The drawbacks of this methodologies include

• The range of future uncertainties can cause high stress to individuals whose personality and habits are concerned with controllable factors.
• Freeman (2009) adds that in order for scenario planning to be effective it requires inputs from a broad spectrum of internal and external environments. Thus many organizations are put off by this aspect.

Nelson (n.d) suggests that organizations should implement scenario planning as opposed to other techniques as an approach to risk management. And adds that the technique causes firms to deviate from linear projection of past business practices by the development of potential situations that question traditional assumptions.




References

Amer, M., Daim, T.U., & Jetter, A. (2013). A review of scenario planning. Futures, 46, 23-40.

Bass, B. (n.d.). Advantages and disadvantages of forecasting methods of production and operations management. Retrieved from http://smallbusiness.chron.com/advantages-disadvantages-forecasting-methods-production-operations-management-19309.html

Forecasting. (n.d.). In BusinessDictionary.com. Retrieved from http://www.businessdictionary.com/definition/forecasting.html

Freeman, O. (2009). Scenario planning. www.strategytube.net.

Hiemstra, G. (2012). Scenario planning. Futurist.com.

Nelson, K. (n.d.). Scenario planning - strategy, organization, model, company, business. Retrieved from http://www.referenceforbusiness.com/management/Sc-Str/Scenario-Planning.html

Netmba. (n.d.). Scenario Planning. Retrieved from http://www.netmba.com/strategy/scenario/

Singh, S. (2014, January 28). iPhone Sales: The Failure of Traditional Forecasting Methods | Tech-Thoughts by Sameer Singh. Retrieved from http://www.tech-thoughts.net/2014/01/iphone-failure-traditional-forecasting.html#.Vj4647erSM8

Wilkinson, A., & Kupers, R. (2013, May). Living in the futures. Retrieved from https://hbr.org/2013/05/living-in-the-futures