Forecasting is not the same as prediction

A brilliant article by Paul Saffo in a recent edition of Harvard Business Review (July-August 2007) brings out the differences between prediction and forecasting. Prediction is possible only in a world in which events are preordained and current actions will not influence future outcomes. As Saffo mentions: “Prediction is concerned with future certainty; forecasting looks at how hidden currents in the present signal possible changes in direction for companies, societies or the world at large.”

The key function of forecasting is to identify a full range of possibilities based on a set of reasonable assumptions. A forecast must have a strong logic. And people who use the forecast must understand the logic and evaluate for themselves the quality of the forecast. As Saffo mentions: “The wise consumer of a forecast is not a trusting bystander but a participant and above all, a critic.”

This is a great article for people who want to know more about forecasting and how to be intelligent users of forecasts.