Planning and Forecasting

In this post, we explore the concept of planning and forecasting and we will discuss the traditional forecasting and scenario planning.

Traditional forecasting is the traditional way of predicting the result of an event or a future state based on historical observations; the examples are the forecast of inventory requirement or budgets. The traditional forecasting has two methods: the qualitative method and quantitative method (Daniel Research Group, 2011). Just like the research method, the qualitative method conducts surveys or interview of the participants on their opinions and judgments, whereas the quantitative method uses statistical analysis such as the causal and multivariate techniques, or time series analysis based on empirical data. For example, the finance department uses the quantitative method to forecast next quarter revenue based on the empirical relationships observed from previous quarters (Seemann, 2002).

On the other hand, scenario planning focuses more on the strategic side of the organization by studying the possibility and plausibility of the forecast (Wade, 2014). Firstly, scenario planning helps the firms to simulate alternatives views, therefore managing any unknown risk and uncertainty especially winning the competitions. According to Frum (2013), for business to prosper, the management teams have to recognize and adapt the changes in the economy, financial, and market environment, and scenario planning is the technique that will do just that.

The advantages of using a traditional forecast method are the inclusion of science in the planning. Both the mathematical and scientific approach will produce the result based on the empirical data and is independent of human involvement which means no personal biases in the model. In contrast, the drawback of the traditional forecast is the predictive outcome having a higher rate of failure because it cannot respond quickly enough to a sudden change in the event.

The greatest benefit of using scenario planning method is the flexibility if it offers to the strategic planning responding to immediate changes in the future state. Another advantage is the outcome of the forecast has a high rate of success and how the technique allows firms to an organizational framework based on a set of scenarios, thus making the strategic immune to uncertainty and risks (Ogilvy, 2015). However, the technique also has some shortcomings. The ideas of having many scenarios based on the changes of the future state can cause a high stress to the employees to handle the controllable factors. Also, executing the scenario planning method is more about art than sciences due to its flexibility, therefore making the method harder to manage.

Reference:

Daniel Research Group (2011). Traditional forecasting and modeling methods. Retrieved from
http://www.danielresearchgroup.com/WhatWeDo/ForecastsandMarketModels/TraditionalForecasting.aspx

Frum, R. (2013, August 6). Word association of newspapers scenario planning. Retrieved from http://personalexpertsystem.blogspot.com/2013/08/world-association-of-newspapers.html

Ogilvy, J. (2015). Scenario planning and strategic forecasting. Retrieved from http://www.forbes.com/sites/stratfor/2015/01/08/scenario-planning-and-strategic-forecasting/#661a1e006b7b

Seeman, S. (2002). Traditional forecast techniques. Retrieved from
http://speedy.meteor.wisc.edu/~swetzel/winter/methods.html

Wade, W. (2014). “Scenario Planning” – thinking differently about the future. Retrieved from http://e.globis.jp/article/000363.html