How to Navigate the Trickiness of Business Forecasting
Forecasting future performance or workforce trends is a big part of business. But how can leaders determine which methods are legitimate and which are not?
Forecasted workforce trends in the early 2000s projected a deluge of retiring baby boomers, with a lack of younger workers to replace them. While this is gradually taking place now, the 2008 financial crisis and ensuing recession delayed the mass boomer exit.
“Despite what the workforce trends told us, there were things that happened in the market and in the environment where that those trends suddenly turned upside down,” said Jim Link, chief human resources officer at Randstad North America, a human capital advisory firm based in Atlanta. Even the best forecasting in those circumstances couldn’t predict that there would be as many baby boomers still working today.
Forecasting is a difficult discipline, but it’s something every organization relies on. Whether it’s predicting next quarter’s revenue or trying to foresee employee turnover through the next year, business leaders need to be able to develop reasonable forecasts so they can prepare accordingly.
Still, even as the increased availability of data and advancements in predictive modeling techniques have made forecasting more accurate, pitfalls remain. “It’s just like the weather, right? You need to have something to depend upon for planning purposes,” Link said. But also like predicting weather, forecasts can often be wrong, which calls into question how business leaders should approach the discipline.
One area where forecasting proved effective is in foreseeing the trend of flexible work arrangements, Link said. Over the past decade, polls asking what keeps workers in their jobs pointed to working for a good person, the company contributing to society, providing learning and development, and health care benefits. Then, about seven years ago, polls began showing that workplace flexibility was a great benefit. Flexible work is now a reality for workers at many companies.
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“We know that companies have to react to that type of information if they’re going to respond to be able to appropriately attract, retain and engage these individuals,” Link said.
Labor force trends are important to business leaders, as they rely on these reports to plan for the upcoming business cycles. For example, if a company depends on science, technology, engineering or mathematics, or STEM, graduates to complete work but there’s a projected shortage of this talent, then it’s important to look ahead and prepare.
“If you’re not, you’re going to be left behind in the employment market,” Link said.
“The key is making sure it’s directional and credible,” said Brian Weiss, vice president of practitioner career development at Project Management Institute, a professional membership association based in Newtown Square, Pennsylvania. Forecasts need the support of tangible facts from reputable sources. Also, what’s driving the reason for the research, Weiss asks? That motive and purpose for the forecast should be in the report.
Rick Von Feldt, a strategic foresight specialist and a senior partner at Kolaborative, a consulting firm focusing on the future of the workplace, has seven methods to validate predictions on the future of work. Most important, Von Feldt encourages business leaders to examine the methodologies behind foresight reports as a way to determine their validity, something he admits can be tricky.
His seven methodologies are:
- Proof points: This involves taking real data run through machine learning to put together signals and patterns that could indicate a trend.
- Reportorial: This style of reporting data involves sharing the numbers, facts and trends without editorial commentary.
- Historical vision: People can use historical instances of a trend and project it to the future.
- Signals and patterns: After collecting signals for some time, they can show patterns.
- Scenario planning: Signals and patterns lead to companies then looking to plan for the future, choosing their preferred route and outcome that will help the organization.
- Communicating ideas: Companies then publish their plans for the future to share with shareholders.
- Future readiness: Finally, leaders can consider their current capabilities and how to reach the future they envision.
Developing a Forecast Team
Still, with these methods, it’s not perfect, Von Feldt said. Using fact-based strategic planning is a new science that is part fact, part sociology.
For companies hoping to create their own forecasts, Von Feldt encouraged them to have a strategic foresight team. “Knowledge and proof shows us that when signals and patterns are shared and discussed by larger numbers of people, you end up with more accurate testing of the ideas and more accurate scenario planning of what would be the best preferred future,” he said.
According to The Good Judgment Project, a study of prediction outcomes, the best forecasting teams have intellectual diversity, while having at least one team member with domain expertise of what they’re studying, as stated in Harvard Business Review. And training will help in removing bias the forecasters place on data collected. In fact, just one hour of training improved accuracy of forecasts by 14 percent.
Nevertheless, Von Feldt said that if companies hope to simply work with outside report or experts instead of building their own internal teams, “I always encourage people to say, ‘So, what’s your proof point behind it, and what signals and patterns are you tracking that lead you to that scenario?’ That will set a more robust dialogue around that as well,” he said.
Lauren Dixon is an associate editor at Talent Economy. To comment, email firstname.lastname@example.org.