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 Business and Economic Forecasting
The world of business forecasting is undergoing a fundamental revolution. Techniques of modeling and simulation that have served many economic forecasters in government and in business for the past twenty years are being adapted to today's changed economic environment and economic thinking. Interestingly enough, a technological revolution - the microcomputer and all its promise for low cost data manipulation and business applications - is likely to lead to the most significant changes. Large-scale models run at long distance on giant mainframe computers are on the way out. The microcomputer has placed the task of forecasting squarely on the desk of business planners and managers. Model-based forecasting is being stretched from the model of the nation to models of industries and firms. Model systems link the company's financial planning model, marketing studies, and inventory and production scheduling to the national economic environment. And in this work the industrial engineer and planner are taking the place of the formally trained business economist.
In an uncertain and risky world, information is at a premium. The information required is both for today and about tomorrow. More than ever, forecasting is an essential ingredient for business planning and decision making. The fact that increasing uncertainty has made forecasts seem less accurate does not make them any less useful. Just the opposite. Greater uncertainty increases the need for forward planning and testing the plan against alternative forecasts. This is the heart of business forecasting.
Fortunately, as needs for detailed forecasts have increased, improved forecasting techniques have been developed. Modern econometrics has become a mainstay of business forecasting. Computer systems drawing on national data banks and large-scale econometric models feed into every major business enterprise. In recent years, the original focus of econometric forecasting on national macroeconomic variables has been extended in the direction of more detailed industry and product statistics, regional data, prices and wages, interest rates, financial flows, and so forth. Information from computerized data banks and econometric models is an important input into corporate planning and decision making in nearly every major corporation. It is now beginning to flow even into smaller enterprises. This material offers an empirical picture of history and a most probable forecast. Perhaps most important, it offers the opportunity to look at alternative forecast scenarios and to consider many of the risks affecting business decisions.
It has been more than 30 years since most major business corporations set up economics departments - the National Association of Business Economists (NABE) held its first national convention in 1958 - yet today there is little agreement on the role and organization of a business economics forecasting effort. This is partly because business forecasting has been undergoing rapid change. The content of the work is stretching vastly beyond the traditional emphasis on the macroeconomic environment. The methodology has moved toward econometrics and other quantitative techniques with computerization of data and modeling. Business forecasting is becoming more closely integrated with the business planning process. Even the nature and training of business forecasters are changing. Prospects are for further rapid development and for greater integration of econometrics and simulation methods into the affairs of the company. But the need for judgment at critical points today is no less than in the past.
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