Forecasting is a key component of a successful business. Every aspect of a business will be in some form of change at all times so it is important to take an approach that keeps that in mind. "An accurate forecast can establish measurements to guide management, facilitate planning and goal-setting and basically create a plan to avoid risks while helping the company meet its goals and milestones" (Why Forecasting Leads To Success In Your Business, n.d.). Keeping your company agile in the face of a shifting environment allows you to take advantage of change rather than being a casualty of it.
Two methods for forecasting are expert opinion and econometric modeling. An expert opinion approach is basically paying an individual or a group of people to do the hard work. There may be an assumption that the opinion provided is accurate regardless of the supporting data provided or the experts may be required to "show their work" so the customer can have their experts review the material. One favorable version of the expert opinion is known as the Delphi method. An example of how the Delphi approach may be applied is that Microsoft may identify experts on technology all across the globe. There would be a facilitator of the group that would provide an initial topic that each expert would weigh in on. The facilitator would do a bit of editing to some of the responses in an attempt to keep the discussion on track and eliminate potentially inflammatory comments. In the end, Microsoft would be provided with a product that identifies the likely ten-year advances that will provide a significant change to computing or whatever the topic was.
Econometric modeling comprises calculations and statistical computations which predict effects of future changes on the market. Econometric modeling can also be described as the measure of "past relationships among such variables as consumer spending, household income, tax rates, interest rates, employment, and the like" which are then plugged in to formulas and modified in order to identify the resultant changes (Forecasting and Econometric Models, n.d.). An example of how this model may be used would be if Microsoft hired a firm to analyze the factors necessary to lead to an increase in sales for their tablet. A model would be created which describes the current state of the sales and then variables would be introduced and adjusted in order to determine various effects. A comprehensive study would be provided which would allow Microsoft to decide the most likely course of action they should take to be in position to capitalize on a certain shift in the market.
The most obvious pro for the expert opinion method is that it can pull in ideas and opinions from people all over the world that would not be able to get together. This can lead to revolutionary ideas and valuable collaboration. Econometric modeling provides a solid mathematical theory of how the market will react in numerous situations which will give the company many possible avenues to explore and prepare them for many different changes. There is also a significant amount of confidence in ideas that can be backed up with mathematical certainty. The primary cons for the expert opinion method are groupthink and the poison pill. Groupthink is "the lack of individual creativity... that is sometimes characteristic of group interaction" (GROUPTHINK. n.d.). This means that a group may begin to only agree and develop reinforcing ideas rather than expand thought. The poison pill is the person who either turns everyone away from the goal of the discussion or commands the group to move in their desired direction. Econometrics main flaw is that an error in the calculations can result in drastically incorrect suggestions which would drive a company to do the wrong thing at the wrong time.