Chapter 1 - Forecasting Principles

42 Pages·2010·4.63 MB·English

by  J. Scott Armstrong

LONG-RANGE FORECASTING
From Crystal Ball to Computer
J. SCOTT ARMSTRONG
Wharton School
University of Pennsylvania
Second Edition
A WILEY-INTERSCIENCE PUBLICATION
JOHN WILEY & SONS, New York Chichester Brisbane Toronto Singapore
Copyright © 1985 by John Wiley & Sons, Inc.
All rights reserved. Published simultaneously in Canada.
Reproduction or translation of any part of this work
beyond that permitted by Section 107 or 108 of the
1976 United States Copyright Act without the permission
of the copyright owner is unlawful. Requests for
permission or further information should be addressed to
the Permissions Department, John Wiley & Sons, Inc.
This publication is designed to provide accurate and
authoritative information in regard to the subject
matter covered. It is sold with the understanding that
the publisher is not engaged in rendering legal, accounting,
or other professional service. If legal advice or other
expert assistance is required, the services of a competent
professional person should be sought. From a Declaration
ofPrinciples jointly adopted by a Committee ofthe
American Bar Association and a Committee ofPublishers.
Library of Congress Cataloging in Publication Data:
Armstrong, Jon Scott, 1937
Long-range forecasting.
"A Wiley-Interscience publication."
Includes indexes.
1. Forecasting. 2. Business forecasting. I. Title.
H61.4.A76 1985 338.5442 85-3292
ISBN 0-471-82360-0
ISBN 0-471-82260-4 (pbk.)
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
Long-Range Forecasting, Second
Edition, is the most practical, read-
able, and reliable book on forecast-
ing in the social and management
sciences. like the first edition,
which went into seven printings, it's
based heavily on empirical studies,
uses the same humorous style that
won over so many readers, and
shows you how to use the latest
forecasting techniques to attain
higher levels of accuracy. Research
on forecasting has been growing
rapidly, and this new edition incor-
porates it all. It's the best book to
answer the questions: "Which fore-
casting method is best to use in a
given situation?" and "What are the
advantages and disadvantages for
each method?"
Long-Range Forecasting, Second
Edition, covers research in econom-
ics, sociology, psychology, trans-
port ation, education, and
management, with references to
medicine, weather, and technology.
Long-Range Forecasting empha-
sizes the highly practical tech-
niques, such as judgmental
forecasting, that you use most
often. It explains, in clear detail:
How to structure a forecasting
problem
The strengths and weaknesses of
the available forecasting methods
How to evaluate forecasting
systems
How to get a new forecasting
method accepted by your users
How managers should use fore-
casts
Ideas for future researchwith
suggestions on the kind of research
that will have the biggest payoff.
(continued on back flap)
(continued from front flap)
This revised and expanded edition
combines the results from 350 new
books and articles with 700 from
the first edition. New selections in-
clude a discussion on the relation-
ship between planning and
forecasting, a synthesis of dramatic
findings on the use of scenarios, a
quantitative review of all empirical
studies examining sophisticated ap-
proaches to extrapolation, some
benchmarks for assessing forecast
accuracy, and guidelines for audit-
ing the forecasting process in an
organization.
Long-Range Forecasting, Second
Edition is easy and enjoyable to
read, with aphorisms, poems,
photos, and over 80 illustrations in-
terspersed throughout the text. Re-
searchers, managers, consultants,
and students will appreciate author
J. Scott Armstrong's guiding philos-
ophy: "Who said scientific books
had to be dull?"
About the author
J. Scott Armstrong is a Professor
at the Wharton School, University
of Pennsylvania. He is a founder of
the International Institute of Fore-
casters, Editor of the International
Journal of Forecasting, and a con-
tributing editor to Interfaces. Dr.
Armstrong, who received his PhD
from the Sloan School of Manage-
ment, has worked for Eastman
Kodak, Polaroid, and Xerox. He has
taught at the Stockholm School of
Economics, the University of Ha-
waii, IMEDE (Switzerland), and Chu-
lalongkorn University in Bangkok.
THE NEED FOR FORECASTS
Environment
Industry
Company Competitors'
actions actions
Market share E
Costs Sales
Results
Forecasting Audit Checklist
Topic Area No Yes
FORECASTING METHODS
1. Forecast independent of top management?
Forecast used objective methods?
Structured techniques used to obtain judgments?
Least expensive experts used?
More than one method used to obtain forecasts?
Users understand the forecasting methods?
Forecasts free of judgmental revisions?
Separate documents prepared for plans and
forecasts'?
ASSUMPTIONS AND DATA
Ample budget for analysis and presentation of data?
Central data bank exists?
Least expensive macroeconomic forecasts used?
UNCERTAINTY
Upper and lower bounds provided?
Quantitative analysis of previous accuracy?
Forecasts prepared for alternative futures?
Arguments listed against each forecast?
COSTS
Amount spent on forecasting reasonable?
LONG-RANGE FORECASTING
From Crystal Ball to Computer
POSTSCRIPTS
WHY ROME FELL 1 n ancient Rome (A.D. 357), the
Emperor Constantius made a
law forbidding "anyone to consult
a soothsayer, a mathematician, or
a forecaster . May curiosity to
. .
foretell the future be silenced for-
ever."
Theodosian Code, Book Title 16,
9,
Section 4
up
NEW YORK IS NEXT? ersons pretending to fore-
r- cast the future" shall be
considered disorderly under Sub-
division 3, Section 901 of the
Criminal Code and liable to a fine
of $250and/or six months in prison.
Section899, New York State Code
Criminal Procedure (noted in
of
ASCHER & OVERHOLT
11983])
687
To
Murrl J. Anderson, my father-in-law,
who helped me to accept the future
esearch on forecasting has been
PREFACE ED,
IN growing rapidlymore so than
in most other areas of the social
Things are more like they are now than and management sciences. It
they ever were before. seemed appropriate, then, to re-
vise Long-Range Forecasting.
Dwight David Eisenhower
This second edition of Long-
Range Forecasting improves upon
the first edition in the following
manner:
First, it indicates where recent
research has made significant con-
tributions, either supporting or
refuting conclusions from the first
edition. (This research is inte-
grated into the text and described
in the updated bibliography.)
Second, the updated bibliog-
raphy compiles the most impor-
tant research on forecasting since
the first edition was published
seven years ago. It includes over
350 books and papers. References
to these works are easily found in
the text as they are cross-refer-
enced. The LAST NAMES OF THE
AUTHORS have been capitalized
to help the reader find the latest
research.
Third, the graphics have been
improved. Shaded areas set off de-
scriptions of empirical research.
Exhibits have been redrawn for
better readability.
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