Forecasting techniques can be helpful to organizations planning for their future. Of the many techniques available, only a few are needed in the process of corporate strategic planning. Other methods of forecasting may be useful for other more specialized functions within the organization.
Some forecasts are based on the personal opinions of various managers. These may range from reasonably well informed by experience, to wild or wishful thinking.
Other methods of forecasting are more evidence-based, and may be more defensible to external groups, such as investors and regulators.
While there are no forecasting techniques that can in any really accurate way ‘foretell the future’, they are useful in narrowing the range of an enterprise's future options for decision-making.
For information on the broader range of forecasting methods you might like to visit the Forecasting Principles site which summarizes much useful information about forecasting for use by researchers, managers, planners, consultants, and educators. The site is devoted to improving decision making by furthering more systematic and evidence based forecasting.
Some forecasting approaches of use in the context of corporate strategic planning include the following -
Here is a little detail on each of these.
Time-series forecasting is a quantitative forecasting technique. It measures data gathered over time to identify trends. The data may be taken over any interval: however, for corporate strategic planning we are usually talking of forecasting processes that use data spanning a few years. I suggest using data for at least three years.
Trend, cyclical, seasonal and irregular components make up the time series. The trend component refers to the data's gradual shifting over time. It is often shown as an upward- or downward-sloping line, to represent increasing or decreasing trends, respectively.
Cyclical elements sit above or below the trend line, and may recur for a year or longer. Business cycles in national economic activity illustrate such a cyclical trend.
Seasonal components are similar to this in their periodicity, and they occur within a one-year period. The annual changes in sales of items like air conditioners would be one illustration of this. Some changes, like terrorist attacks seem to happen almost randomly. With hindsight some early warning indicators may be discerned. However this data is usually insufficient for forecasting to be used to predict future events.
In corporate strategic planning, profit forecasts can be built up as time series from analysis of past experience, estimates of the impacts of recent decisions, effects of seasonal sales and so on.
More information on forecasting using time series data can be found in these resources.
Scenario planning, scenario thinking, or scenario analysis is an approach used in strategic planning, which some organizations use to help them make more robust and flexible long-term plans. Used in forecasting it is sometimes referred to as scenario writing.
Among methods of forecasting, Scenario Writing is used to generate various imagined outcomes, based on different sets of starting conditions and anticipated trends in key strategic factors. The decision-maker then decides on the most likely outcome from the numerous scenarios presented. Scenario writing typically involves presenting best, worst and middle case study alternatives.
It tends to be used more at the SWOT analysis stage of strategic planning, rather than at the gap analysis stage forecasting.
In this technique the corporate strategic planning team in effect creates the script for a game. These games take evidence about current trends blending them together into stories about the future. Members of the planning team challenge each other’s views about likely scenarios
Areas where trends may be assessed include political tensions, economic developments, social shifts, technological innovations, and industry dynamics, blended with information on demographic trends.
Find further details on scenario planning as well as other forecasting tools in these resources.
The Delphi approach is a structured method of communication, originally developed as a systematic, interactive forecasting method by the RAND Corporation in the late 1950s.
This forecasting technique relies on a panel of experts. The experts complete questionnaires in a series of two or perhaps more rounds. After each round of questioning, a facilitator provides an anonymous summary of the expert opinions on future trends from the previous round, as well as the reasons the experts offered in support of their forecasts. In this way the participants are given an opportunity to change their earlier inputs in light of the opinions of the other panellists. The intention is that the divergence among the expert opinions will reduce, and a stronger consensus will emerge around the most likely outcomes of perceived trends.
The process is ended at some agreed point, such as number of rounds, or stability of results, and the final results are established using the mean or median results of the last round.
The Delphi method used in forecasting assumes that forecasts from a group of individuals, with relevant expertise and experience, working in a systematic way, will be more useful than those from unstructured discussion groups, where the individuals will have little opportunity to systematically reflect on the contributions of other participants.
More insight on such forecasting techniques can be found in these publications.
The forecasting techniques can be applied in different stages of the strategic planning process. The following table gives indicative applications at each stage.
As you ‘look to the future’, you can find further information and ideas on forecasting techniques in the resources listed in the above panels or in the right column.
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