Question

1. It has been said that forecasting is part science and part art. Can you explain to the class what that means to you?

2. do you think there is a tendency for forecasters to be overly optimistic of outcomes, thereby biasing their forecasts in an effort to tell management what they want to hear? Have you seen it happen in your own workplace?

Answer 1

1)

Those are properly the most accurate words to describe forecasting.

Science is defined as a practical activity and systematic study of a phenomenon.

An art, on the other hand is an expression of human skills and imagination.

Forecasting for let's say future revenue involves the application of various methods such as past data analysis, analysing financial statements, GDP growth and so on. This involves application of methods, but also the discretion of the forecasters. Forecasters use their competence and skills to predict and analyse such information to allow management to make strategic decisions.

2)

Yes, forecasters do tend to be optimistic of outcomes (if not overly optimistic). The general tendency in the business profession is to look at positive outcomes for any given investment. People always tend to assume that their investments would result in positive returns, thus being optimistic about the future as well.

There may however be an inclination to provide optimistic forecasts as it is what management wants to hear (given inclination towards positive returns). At times, I have seen it happen, but not in all cases because forecasters are aware of bad investments too, considering their past analysis which may show obviously poor investments.