It was only back in February that I wrote about the flaws in forecasting. Yet I feel compelled to comment again. At their annual shareholders meeting, WalMart stated that 20% percent of its growth in inventory was product it doesn’t want and today Target reported its inventory increased 43% and that its operating margin would decline by 350 basis points as it tries to get rid of stuff people don’t want!
Is it just me, but isn’t this shocking incompetence? Two of the largest retailers in the world are incapable of forecasting one to two quarters into the future. For all the promise of data and analytics, and name an industry that has more data than retail, its not doing much good yet. Add in Treasury Secretary Janet Yellen’s admission that she was wrong about inflation being ‘temporary’ and a ‘blip’ and you have to wonder what’s going on.
In my February piece I laid out some basic best practices for forecasting in uncertain times. However, it is probably time to address the elephant in the room. One of the major drivers of forecast inaccuracy (or should it be called stupidity?) has nothing to do with models or data. The biggest flaw in most forecasts is the impact of expectations and/or desires.
CEO’s want forecasts to trend towards the targets they gave investors, politicians want forecasts to trend towards situations that win votes, or at least, don't lose votes. In my 40 years in business, I have seen numerous examples of forecasts being ‘adjusted’ to align with desires and expectations rather than reality. Until these biases are eliminated we will continue to pay the price for incompetence.
