How Intelligent Forecasting Can Lead to Better Decision Making - strategy + business

Peter Drucker once commented that “trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.” Though we agree with Drucker that forecasting is hard, managers are constantly asked to predict the future — be it to project future product sales, anticipate company profits, or plan for investment returns. Good forecasts hold the key to good plans. Simply complaining about the difficulty does not help.

Nonetheless, few forecasters receive any formal training, or even expert apprenticeship. Too many companies treat the forecasting process like a carnival game of guessing someone’s weight. And given the frequency of sandbagged (deliberately underestimated) sales forecasts and managed earnings, we even wonder how often the scale is rigged. This lack of attention to the quality of forecasting is a shame, because an effective vehicle for looking ahead can make all the difference in the success of a long-term investment or strategic decision.

Competence in forecasting does not mean being able to predict the future with certainty

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Missing the Situation Leads to Optimism Among Powerful « The Situationist

Power leads to greater errors in forecasts, according to new research led by social psychologist Dr Mario Weick at the University of Kent. The research, to be published by the Journal of Experimental Social Psychology, shows that when people feel powerful they become more optimistic and less accurate in predicting the completion time of forthcoming tasks. The research examined for the first time the planning behaviour of powerful people and found that power drastically reduced the accuracy of forecasts with error rates soaring up to 70%. Dr Weick, a Research Fellow at the University’s School of Psychology, explained: ‘Time is a crucial factor in people’s everyday lives. Whether they are teachers, policy makers or engineers, people routinely plan their work and estimate the time it will take to accomplish tasks. Interestingly, people often underestimate the time it takes to accomplish tasks. This bias is known as the planning fallacy and derives from a too narrow focus on the envisaged goal. The more people focus on what they want

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