Forecasting at Your Own Risk

July 8, 2021

We call them forecasts or budgets but aren’t they really predictions based on data? Forecasting is considered a sub-discipline of Prediction and is usually done using scientific methods. However, forecasting is still an educated guess based on the most probable events occurring.

The major risk of sales forecasting is whether the underlying data is accurate and reliable and a simpler risk could very well be that time spent forecasting is less time selling.

Most predictions are wrong and do not materialise – we tend to focus on those made by well-known people in much the same way as attention grabbing newspaper headlines. All it takes is one incorrect prediction and a person’s credibility is destroyed. If the leader of a company makes such an incorrect prediction it could very well cause the whole company to fail.

Some interesting, but incorrect predictions that we can look back on with a smile.

  1. “The world potential market for copying machines is 5000 at most.” IBM to Xerox in 1959.
  2. “The concept is interesting and well-formed, but in order to earn better than a ’C’, the idea must be feasible.” Yale professor on a paper proposing overnight delivery by his student, Fred Smith who would later found FedEx. Circa 1960s.
  3. “There is no reason anyone would want a computer in their home.” Famously said by an engineer, Fred Olson, the founder of Digital Equipment Corporation in 1977. Unsurprisingly the company is no longer around.
  4. “The Soviet economy is proof that, contrary to what many sceptics had earlier believed, a socialist command economy can function and even thrive.” Economics Nobel Prize winner Paul Samuelson in 1961.
  5. “Television won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.” Film producer, Darryl Zanuck of 20th Century Fox in 1946.
  6. “The Internet would soon go spectacularly supernova and in 1996 catastrophically collapse.” Robert Metcalfe, co-inventor of Ethernet, University Professor and Harvard PhD in 1995.
  7. “There is no danger that Titanic will sink. The boat is unsinkable and nothing but inconvenience will be suffered by the passengers.” Phillip Franklin, vice president of the White Star Line, producer of the ship said this in 1912 minutes after hearing of the sinking.

What about some that were accurate?

  1. “Photographs will be telegraphed from any distance. If there be a battle in China a hundred years hence, snapshots of its most striking events will be published in the newspapers an hour later…. photographs will reproduce all of nature’s colours.” Said by John Watkins, an engineer in 1900.
  2. “It will soon be possible to transmit wireless messages all over the world so simply that any individual can own and operate his own apparatus.” Nikola Tesla predicting cell phones in 1909.
  3. “…the unchecked burning of fossil fuels would have a sort of greenhouse effect and the net result is the greenhouse becomes a sort of hot-house.” Alexander Graham Bell, back in 1917.
  4. “It will be as if there’s a little person inside that box who starts to anticipate what you want.” Steve Jobs in 1993 not knowing about Alexa and Siri.
  5. “Wireless telephone and telegraph circuits will span the world. A husband in the middle of the Atlantic will be able to converse with his wife sitting in her boudoir in Chicago. We will be able to telephone to China quite as readily as we now talk from New York to Brooklyn.” Another by John Watkins, an engineer in 1900.

I think a quote is the best way to finish off a short summary of forecasting. In a version of the Dunning Kruger effect (a hypothetical cognitive bias stating that people with low ability at a task overestimate their ability) the economist John Kenneth Galbraith said “We have two classes of forecasters: Those who don’t know — and those who don’t know they don’t know.”

Author – Warrick Asher, June 2021.