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The Politics of Forecasting: Managing the Truth
Abstract
Executives think a lot about the future; it drives much of what modern management is all about. The techniques of forecasting and modeling, by their very nature, are designed to reduce the inherent uncertainty of predicting the future. Unfortunately, motives other than "predicting" often politicize the forecasting and modeling process to the detriment of managerial decision quality and investor confidence. Many firms routinely manipulate elements of the forecasting process. Requests by senior management to purposely alter forecasts, backcast from previously established cost and revenue positions, or mis-specify models occur all too frequently. Better training, formalized forecasting procedures, codes of conduct, clearly defined consultants' roles, and punitive actions can improve the quality of forecasting.
... Sales forecasting is often seen as a statistical problem; choosing the right algorithm, to give the most 'accurate' results. However, it is also an intrinsically human process involving frequent 'adjustments' to include expert knowledge such as the impact of sales promotions or weather, and it is also embedded in an organizational and political context [17,19,10,23]. As more and more complex interactive computation and visualization is used to support human activity in the field known as visual analytics [27], the evidence we present from the well established domain of forecasting [20,29], may offer insights that can help inform broader understanding in this growing area. ...
... price changes), a focused attention on products and their importance, and aspects of negotiations that are generated through forecast reports and forecasting review meetings. The framework also highlighted informal communications during the forecasting process, a merging of reasonable forecasts and actions, and the political underpinnings of organizational forecasting [10]. ...
... Making an adjustment involves more effort than the simple acceptance of a statistical forecast so a forecaster making judgmental interventions must perceive that there are benefits to be gained through this extra effort. In many cases these benefits will be political in that forecasters may deliberately bias their forecasts to try to gain advantage in the organisation (Fildes & Hastings, 1994; Galbraith & Merrill, 1996). ...
... Making an adjustment involves more effort than the simple acceptance of a statistical forecast so a forecaster making judgmental interventions must perceive that there are benefits to be gained through this extra effort. In many cases these benefits will be political in that forecasters may deliberately bias their forecasts to try to gain advantage in the organisation (Fildes & Hastings, 1994; Galbraith & Merrill, 1996). However, accounting for changes where there is a genuine desire to achieve forecast accuracy requires a more elaborate explanation. ...
This working paper is produced for discussion purposes only. The papers are expected to be published in due course, in revised form and should not be quoted without the author's permission.
... Sales forecasting is often seen as a statistical problem; choosing the right algorithm, to give the most 'accurate' results. However, it is also an intrinsically human process involving frequent 'adjustments' to include expert knowledge such as the impact of sales promotions or weather, and it is also embedded in an organizational and political context [17,19,10,23]. As more and more complex interactive computation and visualization is used to support human activity in the field known as visual analytics [27], the evidence we present from the well established domain of forecasting [20,29], may offer insights that can help inform broader understanding in this growing area. ...
... price changes), a focused attention on products and their importance, and aspects of negotiations that are generated through forecast reports and forecasting review meetings. The framework also highlighted informal communications during the forecasting process, a merging of reasonable forecasts and actions, and the political underpinnings of organizational forecasting [10]. ...
A qualitative explorative evaluation considered the effects of six visualization interfaces of sales forecasting systems on 60 university students. The study builds on earlier research from the domain of business forecasting in supply chain industries. The evaluation generates exemplar interfaces derived from the theoretical framework and task analysis of interviews with 20 expert users and designers of forecasting systems. The implications for information visualization and interaction design are discussed.
... Because they adopt a singular supposedly universal configuration for change, monotonic imaginations of transformation are also vulnerable to tacit assumptions that the orientation of the dynamics in play may also somehow axiomatically be given ex anteas a factor that is external to analysis. Such authoritarian body language is accentuated when it is furthermore implied (Nightingale, 2004;Silver, 2012) -even actively claimed (Galbraith and Merrill, 1996) that associated emerging phases can be predicted and policy interventions prescribed (Abramowicz, 2007;Taagepera, 2008). Here, it follows from points made above about dimensionality in the content of transformations that (despite regularities asserted in theory), crucial empirical characteristics of the dynamics (like durations of phases, or magnitudes of shifts) can also in practice be inconveniently ambiguous and complex (Colwell, 1974). ...
... However, decisions to adjust can also be afflicted by a variety of motivational and psychological biases. Company politics and game playing are common motivations for adjustments (Fildes & Hastings, 1994;Galbraith & Merrill, 1996;Mello, 2009;Oliva & Watson, 2009). Statistical forecasts can be adjusted when managers seek to convert them to targets, plans or decisions. ...
Forecast value added' (FVA) is a term commonly used to measure the improved accuracy achieved by judgmentally modifying a set of forecasts produced by statistical methods or algorithms. Assessing the factors that prompt such adjustments, and when they are likely to improve accuracy, is important in company demand forecasting and planning but has not been studied sufficiently. The published research has taken various individualistic approaches, both in the questions examined and the data analysis and modelling. In this paper we have collected the publicly available data from these studies, six in total, to analyse them using a common framework. Questions include when do demand planners adjust their statistical forecasts, do adjustments improve accuracy and reduce any bias, does the size of the adjustment signal a more substantive and useful piece of information gathered by the demand planner, and are improvements consistent across companies? These questions are important in practice since the costs of error are substantial, while the process of adjustment is expensive and time consuming, but they are also theoretically interesting raising the question of why consistencies across companies arise and the circumstances when one organization is more effective than another. The key question is how organizations can improve on their current forecasting processes to achieve greater 'forecast value added'.
... According to Fildes & Goodwin (2007a) , the main causes of interventions are usually various special events, such as promotions, price changes and holidays. Also, evidence has accumulated that political and budget reasons could motivate experts to intervene ( Fildes & Petropoulos, 2015;Galbraith & Merrill, 1996;Lawrence, O'Connor, & Edmundson, 20 0 0 ). In addition, various biases and human factors may influence the size and direction of adjustments, such as a sense of ownership ( Önkal & Gönül, 2005 ), anchoring ( Harvey, 2007 ), neglecting base rates and looking for similar patterns in the data, and reliance on readily available information (for general psychological overviews, see seminal books of Gigerenzer, 1999;Kahneman, 2012;Tversky & Kahneman, 1974 ). ...
Despite improvements in statistical forecasting, human judgment remains fundamental to business forecasting and demand planning. Typically, forecasters do not rely solely on statistical forecasts; they also adjust forecasts according to their knowledge, experience, and information that is not available to statistical models. However, we have limited understanding of the adjustment mechanisms employed, particularly how people use additional information (e.g., special events and promotions, weather, holidays) and under which conditions this is beneficial. Using a multi-method approach, we first analyse a UK retailer case study exploring its operations and the forecasting process. The case study provides a contextual setting for the laboratory experiments that simulate a typical supply chain forecasting process. In the experimental study, we provide past sales, statistical forecasts (using baseline and promotional models) and qualitative information about past and future promotional periods. We include contextual information, with and without predictive value, that allows us to investigate whether forecasters can filter such information correctly. We find that when adjusting, forecasters tend to focus on model-based anchors, such as the last promotional uplift and the current statistical forecast, ignoring past baseline promotional values and additional information about previous promotions. The impact of contextual statements for the forecasting period depends on the type of statistical predictions provided: when a promotional forecasting model is presented, people tend to misinterpret the provided information and over-adjust, harming accuracy.
... Successful organizational planning is achieved because of concrete predictions [5]. 60% of Forecasting is not forecast because it focuses on management judgment [26] This shows that Forecasting can involve statistical methods for Forecasting [5]. ...
... Making an adjustment involves more effort than the simple acceptance of a statistical forecast so a forecaster making judgmental interventions must perceive that there are benefits to be gained through this extra effort. In many cases, these benefits will be political in that forecasters may deliberately bias their forecasts to try to gain an advantage in the organization (Fildes & Hastings, 1994;Galbraith & Merrill, 1996;Oliva & Watson, 2009). For example, forecasts may be intentionally overestimated by operations departments to avoid stockouts or underestimated, so that sales staff will be rewarded for exceeding the forecasts (Mello, 2009). ...
Computer-based demand forecasting systems have been widely adopted in supply chain companies, but little research has studied how these systems are actually used in the forecasting process. We report the findings of a case study of demand forecasting in a pharmaceutical company over a 15-year period. At the start of the study, managers believed that they were making extensive use of their forecasting system that was marketed based on the accuracy of its advanced statistical methods. Yet most forecasts were obtained using the system’s facility for judgmentally overriding the automatic statistical forecasts. Carrying out the judgmental interventions involved considerable management effort as part of a sales & operations planning (S&OP) process, yet these often only served to reduce forecast accuracy. This study uses observations of the forecasting process, interviews with participants and data on the accuracy of forecasts to investigate why the managers continued to use non-normative forecasting practices for many years despite the potential economic benefits that could be achieved through change. The reasons for the longevity of these practices are examined both from the perspective of the individual forecaster and the organization as a whole.
... Disciplined by MFT, pervasive normative guidance arises from the combination of neoclassical discursive forms, such as the best combination between corporate strategy and capital budgeting decisions (Shapiro:1999;; marketing decision-making in the context of financial services (Clark & Mckee:1997); or the mere operation of the politics of forecasting as assessed by Burgelman & Grove (1996). In this sense, MFT carries and defines the core discourse, from which the subordinate discourses (like strategy, marketing etc), ultimately required to translate MFT's disciplinary contents into diverse subordinate actors' languages branch out. ...
We pursue the informational connection between power-knowledge, information and finance. The financial system is not chosen as the locus of a thematic variance but rather as the institutional embodiment of an intelligence system managing the ultimate pivotal structure of symbolic references operating the socio-economic order, i.e. finance.
Three papers and a final commentary structure our propositional framework.
In the first paper, Power-Knowledge and the enforcement of unstated intentionality through Power-Information, we pursue the possibility of a conceptual framework for interpretative intelligence. We discuss how theories are selectively grouped in terms of the power-knowledge/power-information arrangement believed necessary to enforce the unstated intentionality of dominant actors over non-decisional actors.
In the second paper, Religion, Rationality and Unanimity, we trace the anthropological roots and historical evolution of the concept of unanimity, from which we draw an attempt to reinterpret the decisional paradigm of Modern Financial Theory, pursuing the possibility that its real centrality does not lie on its purported economic equilibrium framework, but rather on the unstated sociological implications of the concept’s underlying informational order.
Construing from there, we develop the idea that corporate governance culture and practice, and its corresponding informational order, define the logic of power in society.
In the third paper, by examining the The Power-Knowledge Pattern of Financial Decision Making in the case of Project Finance, we combine the interpretative possibilities offered in the former papers to unveil the power knowledge/power information culture of financial decision makers, discussing the very intelligence culture permeating their decisional framework and its pervasive implications in the shaping of power in society.
In the final commentary we develop our vision of the interconnections between modern financial theory, society and power as an authentic reality show, thus requiring for its interpretation a disruption with the screen play and deep dive into the structural order of things.
... The main rationale for learning approaches is the acknowledgement that, while relatively accurate in the short term, the accuracy of any forecasting technique diminishes in the medium and long-term as political, economic, social, and technological changes interact in novel and unforeseeable ways (Galbraith & Merrill, 1996). The impossibility to make reliable enough predictions definitely represents an insurmountable barrier to strategic planning, by compromising its reliability and effectiveness. ...
We explore the relationship between foresight and managerial cognition and the contribution of foresight to the long‐term performance of organizations facing major sources of uncertainty. Our research setting is the automotive industry, a compelling research setting for illustrating and reflecting upon the role of foresight in strategic decision making, as the industry is currently experiencing major drivers of change and technological discontinuities. We carefully examined the most recent empirical and theoretical works in the field of foresight, by conducting a thorough literature review. We found that scholars and practitioners increasingly emphasize the ability of foresight to change the mental models of senior managers and the role of such ability in the long‐term adaptation to external changes. Overall, our study contributes to the development of a programmatic stream of research in the domain of foresight and future studies.
... Otherwise, there are studies dealing with methods of sales forecasts (Beheshti-Kashi et al. 2015), which have been ascribed influential power in corporate environments (Piercy 1989). These methods are known to be not necessarily true and are often manipulated, yet they are still able to create beliefs on which people in corporate environments act ( Galbraith and Merrill 1996). ...
This thesis examines the culture of trend forecasting—an academically under-conceptualised tastemaking industry. The major research aim is to deliver an in-depth empirical analysis of the mechanisms that make trend forecasting an effective cultural player. From the outside, trend forecasting appears to be a black-boxed creative industry in which, through seemingly mysterious processes, the intangible future is aestheticised, circulated, and sold. This thesis demystifies the cultural production of trends and futures. In doing so, it follows the tradition of anthropological and sociological studies concerned with scrutinising elusive cultural processes. Qualitative research methodologies, such as data triangulation, multi-sited research, and embedded organisational ethnography involving a researcher with a professional work background in trend forecasting—as applied in this thesis in the field studies conducted with two leaders of the European trend industry—were key to making trend forecasting a less impenetrable industry. The empirical findings reveal that trend forecasting’s culture is constituted by three core practices—the legitimisation of future knowledge, the
representation and mediation of the future, and a specific cycle of value generation. The analysis of these practices demonstrates that trend forecasting turns imagined futures into cultural norms through collective activities—this is the inner logic that gives trend forecasting the power of culture. “Unravelling the Culture of Trend Forecasting” sheds light on a hidden social and cultural phenomenon and on the influence of creative industries on our culture, and contributes to a deeper understanding of how cultural change happens.
... Projects today operate in a world of unprecedented uncertainty and complexity (Benjamin and Levinson, 1993;Besner and Hobbs, 2012;Cavaleri et al., 2012;Davies and Mackenzie, 2014;Galbraith and Merrill, 1996;Piperca and Floricel, 2012;Pitsis et al., 2014;Williams et al., 2012), meaning that generic approaches are not always suitable (Cicmil and Hodgson, 2006;Crawford and Pollack, 2007), and understanding and improving performance is challenging (Sage et al., 2014;Williams, 2008). the outputs of RePM building on these themes. ...
Purpose
The purpose of this paper is to bring together two seemingly disparate bodies of literature – ambidexterity (the ability both to exploit and explore) and mindfulness – to take a fresh perspective on the management of uncertainty. The authors differentiate between “rule-based” and “mindfulness-based” reliability and explore project risk responses in environments characterised by varying degrees of uncertainty.
Design/methodology/approach
Five case organisations across a range of industries are used to illustrate how uncertainty may be prepared for and suitable responses activated. This also adds to the understanding of the nature of ambidexterity, which has previously been characterised primarily at the organisational level with relatively few studies looking at managerial actions and “switches” between modes. The data consist of initial survey responses to indicate the level of mindfulness under conditions of normality, followed by interviews studying particular incidents and the nature of the responses.
Findings
Key practices are identified that support high reliability in complex projects, with four managerial modes (“Traditional”, “Just-in-time”, “Infusion”, and “Entrepreneurial”) that emerged from the data.
Practical implications
The findings offer managers a practical framework to choose between different modes of reliable performance by considering the uncertainty of the environment and whether the primary driver of the work is efficiency or effectiveness. This allows managers to reflect on their own organisations and practices and identify whether their current approach is suitable.
Originality/value
This work offers new insight into risk responses in complex environments and shows how the mindfulness and ambidexterity literatures may be used as beneficial lenses to increase understanding. Blending these two schools also offers opportunities for future research.
... Besides the examinations of trend forecasting under study and within the context of creative industries and design, there are explorations of futures studies within other academic fields. See, for instance:(Galbraith & Merrill, 1996;Henshel, 1982;Masini, 1998;Pfadenhauer, 2004;Piercy, 1989;Rust, 2008; Tiberius, 2012;Uerz, 2006; van der Duin, 2007). ...
Elisabeth Petermann, PhD candidate, University of Applied Arts, Vienna.
Abstract
This paper examines the place of trend forecasting in current design debates concerning the varying notion of design being a change agent and crafting the future, in order to point to a limited understanding of trend forecasting within these debates. Moreover, the paper indicates research gaps in the rare examinations of the phenomenon of trend forecasting.
It is almost as if trend forecasting is an invisible force and an intangible phenomenon. Its directive power remains unrecognized and therefore under-conceptualized in design discourse. The practice is considered as commercial and thus unworthy for academic attention. Therefore this paper illustrates briefly the dissemination of the trend forecasting industry and its trajectory from being merely used for fashion style advice to becoming political and having effect on major operators of society.
The presented theoretical framework is part of the underlying PhD project: Archaeology of the future - Inside the culture of trend forecasting. An ethnographic study has been commenced to explore the phenomenon of trend forecasting and its immanent concepts. This paper advocates that such a detailed analysis can deliver useful insights to design discourse by helping to understand aspects of future making, the development of discursive power and the driving forces behind material culture and change, as well as contributing to the discussion of changing notions of design.
... Uncertainty represents a key challenge for strategic planning and investment decisions, as it affects the foundation of strategic planning itself: the possibility to make accurate forecasts (Ansoff, 1991;Porter, 1980). While relatively reliable in the short term, forecasting accuracy diminishes in the medium and long term as political, economic, social and technological drivers of change interact in novel and unforeseeable ways (Galbraith and Merrill, 1996;Eisenhardt et al., 2010). ...
The main goal of this paper is to explore whether and how we might integrate real options analysis into scenario planning in order to overcome the limitations and enhance the benefits of both techniques. So far scholars have emphasized that the main advantages of scenarios consist in developing the learning and adaptive skills of organizations. We thus investigate how to develop further these learning skills. Our paper contributes to the strategic management literature in three ways. First, it illustrates a new and simplified methodological approach to real option valuation. Second, it embeds this methodological approach into the 2 × 2 scenario matrix technique. Third, it deepens our understanding of the advantages that the combined use of scenarios and real options might bring to each technique.
... The latter view emerged in response to the former, itself an older understanding that emphasized forecast accuracy, neutrality, and objectivity. The 'necessarily political' school, by contrast, held that the practice of envisioning futures was, by virtue of its embeddedness in particular social and/or political contexts, not capable of the ideal standard set by the older perspective (Baumgartner & Midttun, 1987b;Bijker, Hughes, & Pinch, 1987;Galbraith, 1996). Moreover, the technocratic aspects of the former view could have real political consequences, such as the exclusion of certain points of view from discourse concerning the future. ...
Over the past decade, transition scholars have argued that images of the future (of what sort of change is possible or probable, desirable or undesirable) play a critical role in societal transitions, and there is a long-standing tradition of analysis that points out the political significance of visions of the future. This article explores the politics of the future in sustainability transitions by looking at controversy surrounding a prominent global energy future report—the International Energy Agency's World Energy Outlook—between 1998 and 2008/2009. A key theme of this controversy was that the Outlook's record on global oil supply projections demonstrated a bias towards the preservation of the status quo. Based on research interviews conducted with key participants in this controversy, and a review of Outlooks produced between 1998 and 2008, we explore the main ‘sites of contention’ in the allegation of bias from both an ‘internal’ (sympathetic) and an ‘external’ (critical) perspective. We argue that the politics of bias have less to do with one's relationship vis-à-vis the preservation of the regime, and more to do with a question concerning the speaker's authenticity.
... The prediction of the future is a complex issue (Glenn & Gordon, 2003), often involving various methods and techniques, and thus has a wide record in publications. (Booth, 2006;Galbraith & Merrill, 1996;Lacher et al., 1995;Landeta, 2006;Onkal et al., 2013). ...
Spalek S., Finding a New Way to Increase Project Management Efficiency in Terms of Time Reduction, Inzinerine Ekonomika-Engineering Economics, 25(5), 2014, ISSN: 1392-2785, pp. 538–548. DOI: 10.5755/j01.ee.25.5.8419
There are three basic constraints called ‘the golden triangle’ in each project: time, budget and scope. Researchers and practitioners are trying to find a way to increase the efficacy of the project’s outcomes in terms of shortening the project’s duration, lowering budgetary costs and meeting the scope. Although several publications have been written on that topic, there is still no common solution in place. However, more in-depth research related to the specific type of projects or industries is being conducted and this paper seeks to incorporate additional knowledge into that contemporary field. Furthermore, this is of growing importance in modern, turbulent times, where the expectations of profiting from lessons learned are ever increasing.
Following the current market demands, in the article a new, innovative approach is proposed to manage the expectation that future projects will have a shorter duration. Therefore, the idea of creating specific roadmaps is proposed, which should help the decision makers improve the efficacy of project management in the company, where the process of such improvement is measured using the maturity levels assessment concept.
Based on the world-wide quantitative studies in the construction, information technology and machinery industries, specific roadmaps for each industry were determined. The purpose of these roadmaps is to indicate the most effective investment sequence in the increase of project management maturity, which should result in a decrease of future projects’ duration. Moreover, discussions on the limitations of such investments are examined.
... Econometric methods have become increasingly sophisticated, new tools such as neural networks have been developed, and powerful computers and software have made it possible to work with huge amounts of data. Despite the progress in all these areas, firms' success has been limited, especially over longer forecast horizons (Galbraith, 1996). Figure 2 shows the difference between forecasts and scenarios. ...
... On the other hand, judgmental forecasters can anticipate the effects of special events, but they are subject to a range of cognitive and motivational biases (Goodwin, Onkal, & Lawrence, 2011). For example, they may have a tendency to perceive systematic patterns in random observations (O'Connor, Remus, & Griggs, 1993), or they may distort forecasts to please senior managers (Galbraith & Merrill, 1996). ...
... Two noted business scholars concluded that, "misinforming the public under the guise of forecasts and computer models, appears to have taken firm root in the culture of many organizations". 8 According to their research, senior management frequently asks for adjustments in some base-line figures in order to make the projections appear more favorable. Over 60% of the forecasters reported that these adjustments decreased the accuracy of their models. ...
How can executives create and sustain an organisational climate that welcomes, utilises and exploits uncertainty? This research programme addressed this issue after the discovery that employees who work in organisations that embrace uncertainty tend to be more satisfied with their jobs and committed to their companies. Further investigation revealed that executives can address this challenge by recognising different working climates and understanding how organisational practices unwittingly suppress uncertainty. The paper concludes with a discussion of three basic uncertainty-embracing competencies: (1) cultivating awareness of uncertainty, (2) communicating about uncertainty, and (3) catalysing action during uncertain times.
... More attention needs to be focused on how managerial, political, and procedural factors in¯uence the forecasting process in organizations; implementation of forecasts; uses of forecasts; and credibility of forecasts. A few forecasting researchers in recent years have taken note of this de®ciency Gorr, 1989, 1991;Makridakis, 1991;Schultz, 1992;Galbraith and Merrill, 1996). Bretschneider and Gorr (1987) argued that forecast accuracy of state government revenue forecasts was directly related to the level of political con¯ict/cooperation present in state government. ...
This paper proposes a theory to explain why some forecasting organizations institutionalize forecast accuracy evaluation while others do not. The theory considers internal and external aspects of managerial, political, and procedural factors as they affect forecasting organizations. The theory is then tested using data from a survey of the US Federal Forecasters Group. Though some support for the theory is developed, multiple alternative explanations for results and the ‘public’ nature of the sample organizations prevent wide-scale generalization. The results suggest that larger organizations are more likely to have some form of forecast evaluation than smaller units. The institutionalization of forecast accuracy evaluation is closely linked to internal managerial and procedural factors, while external political pressure tends to reduce the likelihood of institutionalization of evaluation of forecast accuracy.© 1997 John Wiley & Sons, Ltd.
... Thus, phrases like ''cream skimming'' or ''teaching to the test'' have entered the public management vernacular. Gormley and Weimer (1999) provide a review of what they term ''response problems'' applied to organizational report cards. Kerr (1975) remains a classic statement of misaligned incentives. Galbraith and Merrill (1996) offer an empirical review, characterizing organizational environments as nonmanipulative, selectively manipulative, and highly manipulative. Among the most robust evidence in the US public sector comes from the administration of federal job training programs (Heinrich 2002; Marschke 2001). ...
Few problems common in management reform are more prominent or more vaguely conceived than is leadership. Advocates and observers broadly agree that leadership is a critical factor where reform takes hold. Yet, in scholarship assessing the results-model management reforms proliferating in public organizations during the last decade and a half, leadership remains an elusive concept, rarely subject to empirical scrutiny. Applying the logic of credible commitment drawn from the study of institutional political economy, this article models leadership commitment as a factor shaping organizational responses to reform. Quantitative analysis of data drawn from two Government Accountability Office surveys of agency managers administered during the implementation of the Government Performance and Results Act provides evidence regarding the impact of leadership commitment on perceived credibility results-based reform and reported use of performance measures. The article concludes with a brief discussion of reputation-based credibility and the skepticism many government managers hold toward reform.
... It seeks to outline the organizational arrangements that best support the successful integration of this machinery of forecasting into the firm. For example, these models of Abest practice@ call for specific efforts to develop systems of communication and data gathering (Fildes and Hastings 1994); suggest that specialist forecasters be employed to operate forecasting systems and be provided with a position in the organizational hierarchy that provides them with political capital ; and demand the creation of a set of policies and rules in the organization that discourage and stigmatize unnecessary human intervention in forecast outputs (Galbraith and Merrill 1996). More critical viewpoints query whether the particular organizational Aimprovements@ that are proposed have ever been shown empirically proven to improve forecasts, let alone produce the better business decisions that are thought to flow from them (Fildes et al. 2003). ...
Forecasters in firms are expected to employ mathematical techniques encoded in information systems in order to predict the
future demand for a firm(s goods. In practice, many forecasters have eschewed statistical methods of fore casting and depend
instead on human expertise. This resistance to the ideals and technologies of forecasting has largely been understood in the
literature as a failure of rationality in firms. This paper provides a social and political analysis of forecasting in a case
study firm, and examines alternative rationalities present in the firm that legitimate what appears to the forecasting literature
as foolish practices. The case study organization, a large manufacturing firm, undertook a process of reform of the forecasting
process during the course of the study. This paper explores how resistance to a new forecasting support system was shaped
by the local equilibrium that had been reached between rationalities in the firm.
KeywordsForecasting–organizations–rationality–forecasting support systems
... In particular, differences between over-stocking costs and under-stocking costs may lead to forecast bias, though the direction seems to depend on the organisational circumstances Manrodt, 1994, andStewart in Fildes et al., 2003). In addition, it has been found, both in the UK (Fildes & Hastings, 1994) and in the US (Galbraith & Merrill, 1996), that around 60% of forecasts were negatively affected by organisational politics (also see Deschamps, 2004). The literature also provides plenty of evidence for over-optimism in management judgment, and has been shown to impact a wide variety of forecasts including security analysts' forecasts (Helbok & Walker, 2004), project time prediction (Buehler & Griffin, 2003) and capital budgeting (Flybjerg, Bruzelius, & Rothengatter, 2003). ...
Demand forecasting is a crucial aspect of the planning process in supply-chain companies. The most common approach to forecasting demand in these companies involves the use of a computerized forecasting system to produce initial forecasts and the subsequent judgmental adjustment of these forecasts by the company’s demand planners, ostensibly to take into account exceptional circumstances expected over the planning horizon. Making these adjustments can involve considerable management effort and time, but do they improve accuracy, and are some types of adjustment more effective than others? To investigate this, we collected data on more than 60,000 forecasts and outcomes from four supply-chain companies. In three of the companies, on average, judgmental adjustments increased accuracy. However, a detailed analysis revealed that, while the relatively larger adjustments tended to lead to greater average improvements in accuracy, the smaller adjustments often damaged accuracy. In addition, positive adjustments, which involved adjusting the forecast upwards, were much less likely to improve accuracy than negative adjustments. They were also made in the wrong direction more frequently, suggesting a general bias towards optimism. Models were then developed to eradicate such biases. Based on both this statistical analysis and organisational observation, the paper goes on to analyse strategies designed to enhance the effectiveness of judgmental adjustments directly.
... involving both top-down and bottom-up elements), although this wasn't the specific intention of the model. Structures to expose and constrain personal bias are also considered by Galbraith and Merrill (1996) and Gonik (1978) . Aside from ensuring that recommendations address the issues of reward systems, the i mpact of recommendations on individuals needs to be considered and resolved as part of addressing the issue of companies not implementing the 'way-for- ward'. ...
Sales forecasting is a common activity in most companies affecting operations, marketing and planning. Little is known about its practice. Mentzer and his colleagues have developed a research programme over twenty years aimed at rectifying the gap in knowledge. Most recently, in the Mentzer et al. (2002) paper they have demonstrated with supporting evidence the use of a sales forecasting audit to establish the dimensions of best practice. In this commentary on the paper, the methodology underlying their approach is examined from a number of different perspectives. The commentaries examine how convincing and complete has been the choice of audit dimensions as well as how this new research fits with evidence from other sources. Both commentators and respondents agree that the topic is important to organisational practice and more research is needed to gain a complete picture of the sales forecasting function and the systems that support it. Clarifying the audit function is particularly important since sales forecasting often has a low organisational profile until events turn sour with damaging consequences to organisational viability.
... Our finding that 52.3 percent of our respondents indicated that senior management changed their forecasts, and in 28.2 percent of these cases altered a forecast without consulting the forecaster, is more worrisome. This is consistent with the finding that many forecasts are judgmentally adjusted for political reasons and compatible with those in earlier studies by Galbraith and Merrill (1996) in the United States and Fildes and Hastings (1994) in the United Kingdom. Galbraith and Merrill found that over 60 percent of their respondents reported less accurate forecasts as a result of adjustments for political reasons, whereas only 15 percent saw improvements. ...
Accurate forecasts are crucial to successful organizational planning. In 2001, 40 international experts published a set of principles to guide best practices in forecasting. Some of these principles relate to the use of management judgment. Most organizations use judgment at some stage in their forecasting process, but do they do so effectively? Although judgment can lead to significant improvements in forecasting accuracy, it can also be biased and inconsistent. The principles show how forecasters should use judgment and assess its effectiveness. We conducted a survey of 149 forecasters to examine the use of judgment based on these established principles and to investigate whether their forecasting procedures were consistent with the principles. In addition, we conducted four in-depth case studies. Although we found examples of good practice, we also discovered that many organizations would improve forecast accuracy if they followed basic principles such as limiting judgmental adjustments of quantitative forecasts, requiring managers to justify their adjustments in writing, and assessing the results of judgmental interventions.
Forecasting researchers acknowledge that improving our understanding of forecasting’s organizational aspects could shed light on challenges such as prediction accuracy, forecasting techniques implementation, and forecast alignment between firms’ functions. However, despite the potential of an organizational research program, the literature has often maintained its emphasis on technical aspects or has approached organizational complexity from a functionalistic lens; assuming a concrete reality “out there” that is predictable and exists independently of the participants’ beliefs. Consequently, subjectivity and nuanced organizational dynamics are often disregarded as problematic behavior that needs to be extricated from the forecasting process. Within this context, this article proposes a paradigmatic shift toward a functionalist-interpretive “transition zone” where the inherent subjectivity of human organizations can be incorporated into the forecasting process to describe it more accurately and crucially, refine prescriptions. To bridge the functionalist-interpretive world views, this article brings forward the mindful organizing program, a framework that introduces a nuanced template of groups’ real-life interactions focused on collective interpretive work, the quality of organizational attention, and a particular sensitivity to analyze errors and near misses (Weick, Sensemaking in organizations. Sage, 1995; Weick et al., Research in organizational behavior, Elsevier Science/JAI Press, 1999). The incorporation of these concepts can contribute to the forecasting field from three angles: (a) substantiates the inherent subjectivity of the forecast process where actors can influence prediction outcomes, (b) offers a representation of collective judgment debiasing mechanisms and (c) emphasizes the process of collective learning via error deliberation. Under this approach, achieving forecast accuracy is less critical than unveiling collective learning mechanisms, which will eventually yield higher forecast adaptation levels in the long run.KeywordsGroup judgmentMindful organizingDebiasingGroup forecasting
In this chapter we argue that the ‘process' approach to developing reliable organizational performance, although powerful, is insufficient for increasingly complex environments. We offer the alternative perspective of ‘mindfulness-based' reliability, and use the K2 mountaineering tragedy of 2008 as a case in which this can be explored. This was the worst mountaineering disaster in history, in which 11 climbers lost their lives. Through extensive analysis and detailed interviews with survivors, we identify the underlying reasons and behaviors that can create ‘mindlessness'. Although this is an extreme example, we then explain how the issues can be valuable for managers in less extreme environments and synthesize a model of the organizational behaviors and cultural attributes that may be developed to support organizational mindfulness.
This book highlights the interaction between science and politics and between research in economics and European Union policy-making. It focuses on the use of Quantitative tools, Top-down and Bottom-up models in up-stream European decision-making process through five EU policy case studies: energy taxation, climate change, energy efficiency, renewable energy, and internalisation of external costs. The author reveals how the European Commission grounds part of its legitimacy on the «objectivity of the figures» and on its «technical charisma». Faced by strong stakeholders, an elected European Parliament and a Council representing the national interests, the Commission defends the credibility of its policy initiatives (e.g. energy and environment targets, new market mechanisms) by scientific reports. Through an in-depth analysis of the preparatory legislation (Commission White Papers, Communications, Directive Proposals, Staff Working Documents, Impact Assessments), the author explains how the European Commission justifies economically and supports politically its initiatives. This book offers a new way of understanding the EU decision-making process with special reference to the energy and environment fields.
Purpose
– This paper aims to address the broad question of how organizations capture value from foresight exercises. Through a comparative case analysis, this paper looks at what firms do to make the information usable and create value. It explores factors that cause different firms to respond differently to the same trends. It analyzes the passenger car segment of the automobile industry and the response of six major firms to fossil fuel and changing environmental regulations through an analysis of their policies and strategic activities, such as new product development. It finds foresight to be an important link between firm capabilities and environmental changes.
Design/methodology/approach
– This paper adopts the case approach to capture the linkage between the issue and the context (Yin, 1994) and uses multiple cases to explore the variables by comparing and contrasting the cases on key aspects (Eisenhardt and Graebner, 2007). As the paper ' s objective is to understand the similarities and differences between dominant firms in the sector, it chooses through theoretical sampling, six firms that have a presence in all the major regions of the world – two each from the USA, Europe and Japan – Ford, General Motors, Volkswagen, Renault, Toyota and Honda. This sample represents the firms and regions traditionally strong in the passenger car industry.
Findings
– Thus, it is seen that the relationship that was posited in the conceptual model between the goal of the firms, the vision of the future and the nature of products and approach to technology/competence development seems to be valid. However, in addition, the paper perceives that some additional linkages that link between foresight and the goals and vision of the future seem to be influenced by the extent of uncertainty. In addition, the decisions regarding portfolio of products and approaches to technology and competence development seem to be also influenced by the perception of existing competencies and the external competitive context.
Research limitations/implications
– This paper was based on multiple cases created out of secondary information, hence the constructs used are those which are perceived and stated.
Practical implications
– The paper could help firms understand decisions related to technology choices in field involving high levels of uncertainty and competition.
Social implications
– This paper could improve learning processes from foresight exercises, and enable strategic decisions to be taken on these.
Originality/value
– Thus, this paper has explored the linkages between what firms perceive and state, and what is reflected in their actions. It has looked at this linkage from the perspective of foresight, and the strategic perspective of the firm. It has come up with additional issues and questions that influence this relationship. These can inform future research in this domain.
Purpose
– The main purpose of this paper is to address a key issue in literature on management and foresight: the author explores how firms might cope with the increased turbulence of the business environment.
Design/methodology/approach
– This paper is based on a multiple case study of major firms of the energy and the mobile communication industries.
Findings
– The focus is on strategic foresight and organizational flexibility: the author introduces the concept of “boundary uncertainty” and investigates its managerial implications.
Originality/value
– The main contribution of this paper is to expand our understanding of environmental uncertainty and to reinvigorate the study of strategic decision making in turbulent industries. The author provides descriptive data on the foresight approaches that some of the world’s largest and most influential companies used throughout the 2000s for remaining aligned with their fast-paced environments, and thus informs the debate between the “planning” and the “learning” schools of strategic management.
Major shifts in the business environment can make whole investment strategies obsolete. In order to anticipate such shifts, the Royal Dutch/Shell Group of Companies uses scenario analysis, a method it pioneered three decades ago. Given that most investments are irreversible, scenario planning can be combined with real options analysis to help identify options in the future; help time the decision to exercise a real option; and provide an important input in the process of evaluating real options.
This paper is about the role of scenarios in strategic management. Generally, a scenario depicts some feasible future state of an organisation's environment and mostly includes the dynamic sequence of interacting events, conditions and changes that is necessary to reach that state. The scenario approach changed considerably during the last two decades. This is reflected in the different functions ascribed to scenarios. The more traditional functions (in first generation scenarios) are tool for evaluation and selection of strategies, integration of various kinds of data, and exploration and identification of future possibilities. The more recent ones (in second generation scenarios) are making managers aware of environmental uncertainties, stretching of managers' mental models, and triggering and accelerating processes of organisational learning. The paper discusses especially the latter cluster of functions which are closely linked to each other. By linking the dynamic scenario-development process to Kolb's learning cycle and strategic management, the strategic learning cycle can be enhanced. The strategic learning cycle elucidates a number of bottlenecks that may seriously hinder learning within strategic management (e.g. cognitive inertia and feedback lags). Scenarios seem to dissolve these bottlenecks and in doing so support strategic learning.
This paper explores the relationship between corporate foresight and the capability of the organization to respond successfully to external changes (i.e., strategic agility). More generally, we investigate the value that firms, facing growing uncertainty because of the fast pace of external changes, create through foresight. We base our analysis on three different research streams: the first one is literature on environmental uncertainty; the second one is literature on strategic planning and first mover (dis)advantages; and the third one is literature on organizational learning and organizational memories. We thus focus on two fundamental questions which characterize the interaction between turbulent environments, foresight and long-term performances: what kind of knowledge should organizations achieve in order to sustain their competitive edge? Under what conditions can this knowledge enhance strategic agility?
As business problems become more complex, so do their associated risk and uncertainty. Frequently, organizations try to deal with risk through the application of standard processes -- often supported by rigid structures of compliance. Despite this, risk still creates huge problems for all sorts of activities, from banking to major investment projects. Yet, some organizations seem to thrive on uncertainty, and although they have encountered inevitable adversity, they remain considerably resilient. In this Executive Report, we explore the key aspects of what we call a "culture of resilience." We have found that traditional risk management is too limited for the complex problems many organizations face, and conclude that -- with the right approach to cultural change -- many more organizations can become more resilient.
This paper presents a systems thinking approach to cost growth estimation for the Department of Defense weapon system life cycle costing. The research herein clarifies the effects of human behaviors, time delays, inaccurate expectations of cost growth behavior and other factors, offering improved conceptualization of the impact of abstract variables on cost growth. Methods of research include analysis of numerical data, statistical findings by research and development groups (RAND), Department of Defense system acquisition reports, and application of the developed model to a relevant program. A systems thinking approach to cost growth behavior analysis provides decision-makers with a holistic understanding of cause, effect and reaction in order to more realistically estimate cost growth. This paper provides a foundation for such an approach.
This paper examines the critical factors for the effective adoption and use of forecasting support systems (FSS) in product forecasting. The adoption of FSS has proved slow and difficult, and their use ineffective. In this paper, using the technologies-in-practice model developed by Orlikowski, and based on evidence from professional designers, users and organizational documents, we found that FSS adoption and use depend on certain situational factors, such as organizational protocols, communication among stakeholders, and product knowledge availability. At the adoption level, analysis shows that FSS are mostly seen as a means of communicating the forecasts effectively, and their outputs can be used as springboard for organizational actions. The findings provide foundations for an enhanced model of adoption and use for the practical development of FSS designs and services.
This paper explores how the foresight practices and techniques that might be used for coping with environmental uncertainty are coordinated throughout large corporations and how their results are used for supporting strategic decision making. Based on an in-depth and multiple study of several companies, we analyse the main characteristics of environmental uncertainty - complexity and dynamism - that shape companies’ approaches to strategic foresight and uncertainty management. We explore the impact of growing complexity and dynamism on these approaches and the role of prediction and control in their design and implementation. We outline a conceptual framework for strategic foresight activities - and their relationships with decision making under uncertainty - as a planned learning process about the future which enables managers not to know opportunities and threats in advance, but to detect them more promptly and to react more effectively as soon as they start emerging.
Sales forecasting is a common activity in most companies affecting operations, marketing and planning. Little is known about its practice. Mentzer and his colleagues have developed a research programme over twenty years aimed at rectifying the gap in knowledge. Most recently, in the Mentzer et al. (2002) paper they have demonstrated with supporting evidence the use of a sales forecasting audit to establish the dimensions of best practice. In this commentary on the paper, the methodology underlying their approach is examined from a number of different perspectives. The commentaries examine how convincing and complete has been the choice of audit dimensions as well as how this new research fits with evidence from other sources. Both commentators and respondents agree that the topic is important to organisational practice and more research is needed to gain a complete picture of the sales forecasting function and the systems that support it. Clarifying the audit function is particularly important since sales forecasting often has a low organisational profile until events turn sour with damaging consequences to organisational viability.
Planning for future real estate and facility needs in a highly uncertain competitive environment can benefit from a four-stage process of demand forecasting. Based upon research conducted within the Corporate Real Estate Portfolio Alliance and a review of general business forecasting techniques, each successive stage relies on more abstract data and increased dialogue about business strategy with the lines of business as uncertainty about the future increases. Each stage requires increasing flexibility in the supply of real estate as the range of probabilities around the forecast widens.
This paper aims at discussing some concepts regarding technological forecasting techniques (TFTs) and competitive intelligence (CI) and presents some links between them in a strategic approach based in a theoretical review. These techniques are considered as tools for improving the innovation process within firms. This paper analyzes, via a business case, how a Brazilian electronic company, Digitel SA, which produces modems and multiplexers for internal and global markets, deals with these techniques as a way of improving its process of innovation to achieve competitive advantage.
Purpose
– The main purpose of this article is to promote further systematic inquiry into the field of strategic foresight. It carefully aims to re‐examine the notion of environmental uncertainty, the main theoretical approaches advanced by literature on strategy to cope with uncertainty, and foresight activities in corporate organizations.
Design/methodology/approach
– This article is theoretical in nature. However, its insights are significantly based on empirical analysis: the author has been involved in the past ten years in in‐depth investigation of foresight practices in several international firms of different industries.
Findings
– Several important issues and research questions on strategic foresight have remained largely unresolved from both an academic and managerial perspective. This paper outlines such questions.
Originality/value
– The contribution of this paper is twofold. First, it links the work on strategic foresight to a wide range of related literature streams, thus revealing new connections and issues to be explored. Second, it develops a research agenda that may inspire further theoretical and empirical work on the nature and effects of strategic foresight efforts.
Strategic value analysis (SVA) integrates decision analysis with well-known principles of business strategy to develop spreadsheet-based models that select among alternative paths to competitive advantage. These models rank strategic alternatives by evaluating in one spreadsheet the competitive intelligence about rivals, customers, and suppliers, together with the value of the business position on key resource factors for success. Strategic value analysis applies scenario analysis and sensitivity analysis to the spreadsheet to test the validity of the ranking. Two core SVA processes, learning and evaluation, call for the CI analyst to have a central role in decision-making for competitive advantage, and to build collaborative working relationships with management and other sources of expert information. This article describes SVA and illustrates it with examples from actual business experiences. © 1999 John Wiley & Sons, Inc.
Since the oil shocks upset the business world in the 1970s, the use of multiple scenario analysis has been increasingly propagated as an approach to deal effectively with the many long-run uncertainties that surround business organisations. Since its introduction, the scenario approach has undergone some considerable changes and it is now claimed fulfils a diverse range of functions. Newly-added functions include the stretching of managers' mental models and the triggering and acceleration of processes of organisational learning. Although these functions currently get most of the attention in academic and management journals in recent years, a satisfying explanation of how scenarios fulfil these functions is still missing in the scenario literature. The scenario methodology seems to tell only part of the story suggesting that construing and using scenarios ‘simply’ consists of sequentially completing several distinct phases. If multiple scenario analysis really is able to fulfil the wide range of functions ascribed to it another, more dynamic process has to be hidden behind the rather static phase model. The scenario literature does not give any insight into this latter process. This article aims to increase the understanding of multiple scenario analysis by unravelling some of the mysteries surrounding it. For this purpose, the role of scenarios in strategic management is studied from a cognitive perspective. It appears that scenarios can deal effectively with several bottlenecks that potentially hinder organisational learning on a strategic level in organisations.
The empirical literature on forecasting practice has hardly distinguished between export and domestic sales forecasting. This is surprising given the importance of exporting for companies and the additional difficulties involved in preparing export as opposed to home market forecasts. Drawing from the forecasting and export literatures, this study examines several linkages between firm and export characteristics and the accuracy of short- and medium-term export sales forecasts (as captured by self-reported MAPEs). Using survey data derived from UK exporters in the manufacturing sector and a multivariate analytical framework, the results indicate that export experience (as reflected in the firm's stage in the export life cycle), export diversity (as reflected in the number of export markets served) and the turbulence of the export environment are the key variables affecting export sales forecast accuracy. The implications for the study of export sales forecasting practice are considered and future research directions suggested.
By surveying current forecasting practices at 500 US corporations, we explored the reasons managers rely heavily on judgmental forecasting methods and attempted to identify what needs of practitioners are not met with current procedures. Although managers are more familiar with quantitative forecasting methods than in the past, the level of usage has not increased. Practitioners continue to rely largely on judgmental forecasting methods. The major obstacles cited to the use of formal forecasting are lack of relevant data and low organizational support. Further, when quantitative forecasting methods are used, they frequently are judgmentally adjusted. Most practitioners prefer a bias in the forecast that is related to the organizational reward system.
This paper tests a general theory of the factors influencing the accuracy of state government revenue forecasts. Besides the more familiar hypotheses on forecasting techniques and randomness of dependent variable time series, our theory includes hypotheses on the political environment and organizational procedures used in forecasting. The primary data are from three surveys of state governments and include percentage forecasts errors for total and sales tax revenues. The analysis uses two measures of forecast accuracy, the mean and median absolute percentage errors. These are estimated in a linear model that uses ordinary least squares and least absolute value regressions. The results confirm most parts of the theoretical model, subject to the caveats of field data. Forecast accuracy increases when there are independent forecasts from competing agencies. It increases even more when formal procedures exist to combine competing forecasts. It decreases when outside expert advisors are used and when there is a dominant political party or ideology. Finally, it increases when simple regression models and judgmental methods are used as opposed to univariate time series methods or econometric models.
This analysis examines the influence of economic forecast errors and political and institutional factors on the general fund revenue forecast errors of 23 states for the period 1978 to 1987. During this period states in the sample underestimated their revenue by only 0.5%. This modest tendency toward conservative forecasting is further reduced after controlling for economic uncertainty. Moreover, the analysis reveals no systematic relationship between revenue forecast errors and state political and institutional factors. Thus, the results cast substantial doubt on the prevailing belief as found in the literature, that state revenue forecasts have a pronounced conservative bias.
- Bretschneider Stuart