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Unit 4: Forecasting and Premising

techniques is that the forces responsible for creating the past, will continue to operate in Notes
the future. This is often a valid assumption when forecasting short term horizons, but it
falls short when creating medium and long term forecasts. The further out we attempt to
forecast, the less certain we become of the forecast.
3. Consensus methods: Forecasting complex systems often involves seeking expert opinions
from more than one person. Each is an expert in his own discipline, and it is through the
synthesis of these opinions that a final forecast is obtained.

4. Simulation methods: Simulation methods involve using analogs to model complex systems.
These analogs can take on several forms. A mechanical analog might be a wind tunnel for
modeling aircraft performance. An equation to predict an economic measure would be a
mathematical analog. A metaphorical analog could involve using the growth of a bacteria
colony to describe human population growth. Game analogs are used where the
interactions of the players are symbolic of social interactions.
5. Cross-impact matrix method: Relationships often exist between events and developments
that are not revealed by univariate forecasting techniques. The cross-impact matrix method
recognizes that the occurrence of an event can, in turn, affect the likelihoods of other
events.
6. Scenario: The scenario is a narrative forecast that describes a potential course of events.
Like the cross-impact matrix method, it recognizes the interrelationships of system
components. The scenario describes the impact on the other components and the system as
a whole. It is a "script" for defining the particulars of an uncertain future.
7. Decision trees: Decision trees originally evolved as graphical devices to help illustrate the
structural relationships between alternative choices. These trees were originally presented
as a series of yes/no (dichotomous) choices. As our understanding of feedback loops
improved, decision trees became more complex. Their structure became the foundation of
computer flow charts. An example of a decision tree is illustrated in Figure 4.1.
Figure 4.1: Decision Tree

Outcome 1
– Decision
Outcome 2
A
– Uncertainty (external event)
C

Outcome 3
1
Outcome 4
Outcome 5
2
Outcome 6
B
Outcome 7

8. Economic Forecasting: Economic forecasting is one of the common types of external
forecasting. The basic aim of economic forecasting is to predict business fluctuations, i.e.,
fluctuations in general economic activity. Depending on the nature of the business, these
fluctuations affect the success or failure of business in various ways.

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