Looking back at past forecasts and their realizations can help prevent overconfidence and suggest places where unexpected factors may emerge. Recently, researchers Victor Jose, Bob Nau, and Bob Winkler at Duke University proposed new rules to score and reward good forecasts. An effective “scoring rule” provides incentives to discourage the forecaster from sandbagging, a proverbial problem in corporate life. For example, Gap Inc. measures the performance of store managers on the difference between actual sales and forecast sales, as well as on overall sales. By assessing forecasting accuracy, the rules penalize sales above the forecast number as well as sales shortfalls. Unfortunately, Gap is an exception. To date, few firms have picked up on the research into incentive mechanisms and scoring rules to improve forecasts, despite the proven success in fields such as meteorology.
Source: “Cleaning the Crystal Ball”
Original Publication: strategy+business
Subject: Management
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