Traditional Forecasting
Traditional forecasting is the use of historical observations and data to estimate future business metrics. Examples of metrics that use forecasting are inventory requirements, budgets, and revenue. This type of forecasting is usually done quarterly and within one fiscal year. Wade describes traditional forecasting as the extrapolation of the past and the present to produce “the most likely scenario”. (Wade. 2012) Traditional forecasting also makes marginal projection within the ± 5- 10% percent range and is labeled “the best and worst case scenario. (Wade. 2014 ) In traditional forecasting you can events and disruptions like politics, economics, management, regulations, technology, consumers, competitors, and social that can move the forecast prediction in different directions that would negate its accuracy.
Advantages:
- Simple and easy to understand
- Several outcomes with one being “the most likely scenarios”
- Can decrease costs
Disadvantages:
- Never 100 percent accurate
- Time-consuming
- Does not account for changes and disruptions
- Not flexible
(Wade. 2012; Wade, 2014; DS Panel. 2020; Galt. n.d.)
Scenario Planning
The key to scenario planning is the understanding that predicting the future is impossible. (Wade. 2012) So scenario planning is not focused on making predictions but rather preparing for certain scenarios. Wade makes the statement that scenarios are not predictions, they only illuminate different ways the future might unfold. (Wade. 2012) There 10 steps creating different scenarios
- Framing the Challenge
- Gathering information
- Identify driving forces
- Define “either/or” uncertainties
- Generate scenarios
- Cerate storylines
- Validate scenarios/future research
- Implications and responses
- Identify signposts
- Update scenario
(Wade. 2014)
Scenario planning also takes into account driving forces, trends, and changes that could have an impact on the business. These uncertainties must be understood and usually are categorized by the possible impact. Some of these forces that are identified are
- Political
- Environmental
- Economical
- Societal
- Technological
Advantages:
- Helps focus on the most critical uncertainties
- Analytical Planning
- Helps focus on individual “players”. Ex: customers, suppliers, employees
- Risk Reduction
- Improved decision making
- Provides a direction/vision
Disadvantages:
- More time consuming than traditional forecasting
- Critical uncertainties might be too many to focus on all of them
- Resources
- Can become bureaucratic
(Wade. 2012; Wade, 2014; Mariton. n.d.)
References
DS Panel. (2020, September 25). Live forecasting vs traditional forecasting vs rolling forecasting. Performance Canvas. https://www.performancecanvas.com/live-vs-rolling-vs-traditional-forecasting/#:~:text=Traditional%20forecasting%20basically%20uses%20historical,not%20necessarily%20represent%20the%20future
Galt, J. (n.d.). 3 advantages and 3 disadvantages of forecasting. https://blog.johngalt.com/3-advantages-disadvantages-of-forecasting
Mariton, J. (n.d.). What is scenario planning and how to use it. Strategic planning facilitator Vancouver | Strategic plan consulting | SME Strategy. https://www.smestrategy.net/blog/what-is-scenario-planning-and-how-to-use-it
Wade, W. (2012) Scenario Planning: A Field Guide to the Future. John Wiley & Sons P&T. VitalSource Bookshelf Online.
Wade, W. (2014). Scenario Planning – Thinking differently about future innovation. Globis Retrieved from http://e.globis.jp/article/343
Kevin Tepas 