How to make the most of forecasting
Forecasting is a vital tool for many businesses, but is often poorly understood by stakeholders.
“What does the random number generator say,” is a joke forecasters hear too often, according to Ben Brewer, head of forecasting at Heathrow Airport. “And it’s not funny.”
Speaking at a HPC Supply Chain Innovation Lab conference in London yesterday, Brewer and other experts gave practical advice on how to make sure your business makes the most of forecasting.
Here are some of the top takeaways.
Use probability forecasts where possible
Many people don’t understand how probability affects forecasting, according to Paul Goodwin, emeritus professor at the University of Bath.
“Understanding probabilities isn’t easy, but if we can help people to understand probabilities then it will make probability forecasting much more usable and available,” said Goodwin.
The forecasts most people see are ‘point forecasts’ indicating the most likely outcome, however behind that is a range of probable outcomes. This is the difference between “it will rain tomorrow” and “there is a 60% chance of rain tomorrow”.
Just because the most likely outcome doesn’t happen, it doesn’t necessarily make the forecast wrong. But it does make people distrust the forecast, said Goodwin. “Certainly probabilities give you a much more realistic idea of what the forecast is about.”
Talk assumptions not numbers
When talking about forecasts with stakeholders and business leaders, explaining the assumptions behind the numbers can create consensus and shared ownership, said Daniel Barrett, head of forecasting at Lego.
“Even in statistics assumptions are made, the history that you use, the trend levels, the seasonality patterns, all these are assumptions,” said Barrett.
When a business leader asks how you arrive at a forecast, “you can say, ‘well the model assumptions are x per cent growth, I’ve used this history to calculate this’.
“You break it down and talk the assumptions behind the number, not just the number, and then hopefully the leader goes ‘great, I understand the model, I trust the forecast’.”
Understand your business needs
The success of your forecasting shouldn’t be how accurate your numbers are, important as that is. Forecasting should be a tool to reach business outcomes, said Brewer.
“If we’re interested in how accurate the BA001 flight is and we’re one passenger out, but there’s queuing down the line or there weren’t enough trollies somewhere, that means we not really understanding how that forecast was being used,” he said.
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