Nouhad Dammous, editor-in-chief of Hospitality News Middle East, discusses the importance of making good judgement calls when forecasting.
Forecasting sales is an important activity that helps businesses plan. Without a sales projection, management doesn’t know whether to conserve cash aggressively or continue its current operations. It’s not an easy problem to solve, especially during uncertain times. However, some insights are possible.
The goal of forecasting is not to predict the future but to tell you what you need to know. To make the best decisions we can, we must first project future economic conditions with our own policy actions in mind. The objective of the exercise is to select the policy options that will best help us achieve our dual mission of promoting price stability and safeguarding maximum employment.
A series of planning principles, oriented to today’s business, requiring planning processes to provide a rapid response, is essential to competitive survival.
These principals are supplemented by tools and management surveys to add an element of practically.
In the end, a sales forecast will be judgmental. It may come out of a computer model without further adjustment, but a human created the model and decided to use it rather than a finger in the wind.
Although sales forecasting is possible, highly accurate forecasting is not. So the sales forecast should be used as a rough idea, with plenty of humility added to the construction of business plans. Flexibility in decision-making will benefit those companies that develop resilient plans. Leaders are often committed to their prior plans because of emotional attachment to their creations, as well as the prestige that comes from plans respected by others. Losing those emotional commitments will allow sales forecasts to be rough guides rather than set-inconcrete constraints on future changes.
Any economic forecast incorporates three essential ingredients, and they are used in different proportions depending on the forecaster and his or her resources. These ingredients are: data; models; and judgement. For that reason, we need to adjust our model’s predictions with the most important economic forecasting ingredient – and that is judgment. Interplay between models and judgments.
For that reason, we need to adjust our model’s predictions with the most important economic forecasting ingredient – and that is judgment. Interplay between models and judgments.