Paradox Of 'FORECASTING'

(This document is the result of my independent work. All sources of information used in the document have been duly acknowledged.)

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Forecasting has always remained a buzz word in business management - be it Material Management, Financial Management or Planning anything new for the organization. So the first thing that we do is to predict or forecast what lies in the future. This is a common feature not just in the business scenarios but its a common element of our day to day lives too. Before taking any decision in our lives be it big or small we tend to anticipate the future circumstances.

But have we ever thought that how this forecasting itself can affect the future? Take an example of an organization which is trying to forecast its sales using the past data and taking into account the environmental changes that are likely to take place. And say they have discovered that their sales are likely to go down this way. So they will in most cases take preemptive action so as to avoid such a situation. Now due to such a response to the environment let us assume that the sales have increased. This ultimately means that the forecast has been proved wrong.

Future in most cases can only be predicted by using the past data that is by extrapolating the past although we know that the future is not a reflection or continuation of the past and it is bound to change. Through forecast we would expect to reduce future uncertainty, yet as we consider the future more carefully we realize that unexpected events are possible, thus increasing the uncertainty.

So what we gather from this example is that the if we can forecast a state of a system then we cannot plan for that system and vice versa. So we find that if we can intervene in a system then the system is indeterministic and if the system can be determined then we cannot intervene in the system.

But we should also understand that forecasts will be inaccurate most of the times but still they are an indispensable part of the planning process and we cannot strategize our future plan of action without estimating the uncertainties that lies in the future for us.

References:
MAKRIDAKIS, S. G. (1990). Forecasting, planning, and strategy for the 21st century. NY: The Free Press. (Ch. 3. Predicting the future: Myths and reality, pp. 49-68)