INFOTECH: Fancy Tools WonÂ’t Make Up for a Bad Forecasting Strategy
Recent Gauteng Business News
reliable forecasts, a lot of people turn to increasingly fancy tools and algorithms.Â”
But what if the problem with your forecasts isnÂ’t the tools you are applying, but your whole approach to forecasting in the first place‘ If
your basic strategy is wrong, no amount of fancy processing will improve the quality of your forecasts. In fact, it could make things
worse, by masking the incorrectness of the data and giving a dangerous false sense of confidence.
Of course no prediction of the future can ever be better than an educated guess Â– but we can improve our guesses by improving the quality
of the information we base them on. ItÂ’s as the old adage goes: Garbage in, garbage out. If your forecasts for next year are based on
nothing more than this yearÂ’s figures, their value is low.
The most critical question to ask before you embark on any forecasting exercise is this: How much can we expect next year to be just like
this year‘ Close on its heels should come the next question: How many things that are going to make next year different do we already know
about, or can we find out‘ There will always be unknowns lurking around the next corner, but it makes sense to reduce their number as much
The question about what might change for your business next year is not one that can be answered by the finance department alone. Sure,
there are some high-level variables you can get from professional economic analysts; but when it comes to the very specific issues that
might affect your business, you need to be turning to your own managers and operational staff.
One canÂ’t help wondering, for example, if whoever compiled LonminÂ’s forecasts for this year was aware of the fact that a rival union to NUM
was organising at their Marikana mine. If they had known, might they have factored in an increased risk of industrial unrest‘
An easy first step is simply to ask the question: Â“Is it reasonable for us to assume that youÂ’ll match this yearÂ’s production next year‘Â”
If the answer is no, seize the opportunity to find out more. What does your sales staff know about what competitors might be planning‘ What
do your production managers know about a supplier thatÂ’s facing difficulties‘
Instead of using technology to put your numbers through fancy contortions, use it instead to solicit information from your staff, quickly
ItÂ’s a bit more work to do this research than simply to run this yearÂ’s figures through a clever algorithm, of course Â– but the benefits go
beyond more well-founded forecasts. If people know that their input has been heard, theyÂ’re typically more inclined to commit themselves to
turning those forecasts into reality Â– and to contribute intelligence to next yearÂ’s forecast in turn.
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