Albert Einstein once famously said, “Everything should be made as simple as possible, but not simpler.” With this in mind, the seven principles of forecasting developed by management guru J.Scott Armstrong are designed to enable managers to make better and more accurate predictions about the future. These seven principles are based on Armstrong’s own research as well as scientific studies from a variety of disciplines, including psychology, economics, and management.
Armstrong’s seven principles are as follows:
1. Use all relevant information: Armstong’s first principle of forecasting is to not rely solely on personal opinions and judgement, but to use all relevant information when making predictions. This includes data and trends, industry knowledge, and customer feedback.
2. Accurately specify the forecasting task: Armstrong’s second principle is to identify the specific task or event you are trying to forecast. This will help managers focus on factors that have importance in the current situation and understand the scope of their prediction.
3. Use forms of forecast that have been demonstrated empirically to work: Armstrong’s third principle is to use methods that have been statistically shown to be accurate. This includes using average values, time series forecasting and other methods that have been proven to produce accurate results.
4. Judge the accuracy of the forecasts: Armstrong’s fourth principle is for the manager to judge the accuracy of the forecasting methods or techniques used. This could involve asking questions of customers, industry leaders, and members of the analytics team to assess the degree of accuracy of their predictions.
5. Use judgment to combine forecasts: Armstrong’s fifth principle is to use good judgement to combine forecasts. This may be done by combining different methods, gathering additional data, or using judgmental adjustments.
6. Check the performance of your forecasts: Armstrong’s sixth principle is to check the accuracy of the forecasts by tracking their performance over time. This could include comparing the predictions to actual results or to the expectations of key stakeholders.
7. Update forecasts when relevant information changes: Armstrong’s seventh principle is to update forecasts when there are changes in the relevant information. This could include changing economic conditions, customer feedback, or new information on a project.
The seven principles developed by Armstrong are intended to be a guideline for managers who are attempting to make forecasts about the future. By following these principles, managers can ensure that their forecasts are based on a range of relevant information, and are updated regularly as conditions change. By using these guidelines, managers can make better and more accurate predictions, allowing them to make more informed decisions in their management and planning.
