in greater detail should one wish to do so, viz., varying fluctuations in point of time. While in general we say that the really serviceable barometers are those which correlate most closely with our particular business, is it a matter of any importance whether this month's statistics of bank clearings or commodity prices or railroad earnings, let us say, correlate with the conditions of our business more closely or less closely than the similar statistics of last year would have done or of next year will do? In other words, does the time element especially concern us? 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 All Rights Protected and Reserved Figure 26 (a). Babson's "Compositplot" Statistics covering the various topics shown in the classification on page 265 are presented by the Babson's Statistical Organization in the manner shown. (Reproduced by permission.) The various items specified as barometers, such as exports, railroad earnings, immigration, business failures, all change as a period of prosperity fades into a period of decline and finally into depression, or vice versa; but they do not advance or recede simultaneously. Bank clearings of a particular period were found correlated with commodity prices to the degree indicated by the coefficient +.758; but the commodity prices were found correlated more closely with the bank clearings of the preceding year, the coefficient being +.818. In case we wish to use one of these two sets of data today as a basis upon which to reason what is likely to occur later in regard to the other, it is evident that bank clearings and commodity prices are by no means of equal efficacy in forecasting. The items which tend to fluctuate first and thus serve to forecast changes later to take place in other items are stock prices, the number of shares traded in, bank clearings, new railroad mileage, and the percentage of business failures. Forecasting Made Possible by Statistical Knowledge Systematic study of statistics, both regarding one's own business and the business world in general, enables the executive to forecast the future, to utilize the experience of today and yesterday as an indicator of what is to occur tomorrow. The gift of prophecy which in times past was presided over by a wonder-working priesthood, is in our machine age shorn of its mystical attributes and put into matter-of-fact service under the control of scientific method. The selfdeceived man, the non-scientist, the man whose feelings, as Lord Bacon warns us, imbue and corrupt his understanding in innumerable and sometimes imperceptible ways, reads into the future his own prepossession, whereas the executive trained rigorously in the logical processes of thought normally develops the forecaster's type of mind. It is merely the proper course of reasoning to proceed from the known to the unknown, from the evident to the obscure, from the antecedents which are now seen to the consequents which are to be. Wrong deductions will no doubt continue to be made, since business problems are complex, the facts often difficult to secure, and human powers of analysis all too limited. Yet the process of forecasting as it has been worked out is intrinsically sound and upon it no limits can safely be drawn. Forecasting EXERCISES The rôle of foresight in enabling a man to take advantage of business changes is vital in its influence upon profits. The first exercise has for its aim the testing of your ability to predetermine events. (See Test Chart 14.) As you survey this card after the last event has been decided and in the cold light of what has happened test your predictions of what was to happen, what is your opinion of yourself as a forecaster? Perhaps the average is low. Be that as it may, the really important thing to do is to set about increasing your skill as a business prognosticator. As a means toward that end let us find out why this average was not higher: Was this prediction based upon what you hoped would occur, instead of what you believed would occur? Was it based in any degree upon fear or anger or revenge or self-deception? Were you entirely open-minded about it? Were certain of the causal factors which later brought about the result undetected by you at the time? In other words, was your analysis seriously incomplete? Did you miscalculate in estimating the relative importance of the various factors, the result accordingly being materially reshaped? Were additional factors, sufficient to alter the outcome, introduced after your original prediction was made? Did you suspect the introduction of such factors, and estimate in advance their effect? Are you unable to account for the failure of any of these projects to develop as predicted? I PREDICT THAT UPON THESE RESULTS* COMMENTS* *To be filled in later. Test Chart 14. Six Forecasts Certain of the forecasts will have been successful, however. These deserve a similarly careful examination since if their occurrence is dismissed as merely a case of "luck" you will not derive from them any particular improvement in method, and it is this improvement in method, the ability to increase consistently your percentage of correct forecasts, which constitutes the real goal. Accordingly, try to account for these successes as for the failures. The results of the two preceding exercises let us set clearly before us, by means of Test Chart 15. A survey of its two columns, when completed, suggests several definite means of improvement. The incorrect methods are to be eliminated, the result-getting methods developed in their power of prevision. Have you planned, in surveying the various means of improvement which Test Chart 15 has suggested, to utilize certain business barometers which Babson and Brookmire specify in their lists as given on page 265. Which of these various barometers stand in close causal connection with your own business? WHY I HAVE FAILED WHY I HAVE BEEN CORRECT Test Chart 15. A Personal Forecast |