F O R E C A S T I N G : W H AT A N O. R . A P P R OAC H C A N D O F O R YO U JOHN BOYLAN
ALL ORGANISATIONS FORECAST. The forecasting may be ad hoc. Even managers who say “I don’t forecast - I simply plan on next year being the same as this year” are relying on a forecast. For them, of course, the forecast is implicit rather than explicit. Although all organisations forecast, few are satisfied with their forecasting performance, and many are unsure about how it should be improved. I believe that an O.R. approach can help and, in this short article, I shall explain how. One way that an O.R. approach to forecasting can help is by evaluating the scope for improvement. A good evaluation will challenge fatalistic attitudes such as “Forecasts will always be wrong – why spend time and money on trying to improve them?” It will also counter an over-optimistic expectation of gains in forecast accuracy which will never be fulfilled. This will lead only to disillusionment and lack of sustained support for forecast improvement.
UNDERSTANDING CURRENT FORECASTING PRACTICE
To understand the scope for improvement, it is first necessary to understand the current position. A ‘forecasting audit’, such as those conducted by the Lancaster Centre for Forecasting, for example, is often a useful exercise. Our approach is to undertake a systemic audit, in the true spirit of O.R. This focuses
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IMPACT © THE OR SOCIETY
JOHN BOYLAN
on forecasting processes as well as forecasting systems and methods. The importance of process has long been appreciated by practitioners of Sales and Operations Planning (S&OP). The S&OP approach seeks to integrate the forecasting activities of the Operations and Marketing functions. However, process is important not only in a supply-chain context; it is vital in all forecasting activities which are not fully automated. To appreciate the effect of forecasting process on forecasting performance, it is necessary to understand which forecasts are purely computer-generated, which are modified by human judgment and which are generated purely