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Strategic business forecasting

Article in International Journal of Forecasting September 1996

DOI: 10.1016/0169-2070(96)90049-7

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Spyros Makridakis
Neapolis University
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 Book reviews / International Journal of Forecasting 12 (1996) 433-438
leap from the page. The book needed diligent
proofing.
I like football, But not everybody does. Stu-
dents not raised in North America, and even
many that are, may not grasp and enjoy the
subtleties of kicking the extra point and going for
the tie, versus attempting the two-point conver-
sion. Yet this example is one of several that are
employed repeatedly. So, too, is the example of
colon cancer detection. Perhaps college students
are interested in the probability of detecting
colon cancer via sigmoidoscopy, but men of my
age would bend over backwards to avoid that
example. The bank credit problem, whether to
extend it or not, is the single repetitive example
with which a typical business school student
ought to be able to identify.
My most serious misgiving is that despite its
overwhelming technical competence, the book
presents the material in a rather mechanical
fashion that neglects the artistic nuances of both
the decision-making and forecasting processes. I
am mystified by some omissions. As exemplars,
it seems odd to be that in a book with forecasting
in the title and Bayes' Rule appearing through-
out the text, the words "predictive density"
never appear (though perhaps I missed them). If
DM and forecaster are to wed, on apt occasions
ought not the forecaster suggest that the DM
consider assessing a natural conjugate prior to
the conditional likelihoods? The conjugate-den-
sity concept is never mentioned. The authors
emphasize the expected value of perfect infor-
mation, which one rarely if ever has, yet they
never mention the expected value of sample
information and how that might be determined. I
also may very well have missed it, but a post-
reading look at the index did not lead me to the
observation that the expected value of perfect
information to the risk-neutral DM is equal to
the expected loss of the optimal decision. A
version of the von Neumann-Morgenstern ax-
ioms is presented, and there is a good discussion
of multiattribute utility, but the word "paradox"
does not even appear in the index. The only hint
to the effect that individuals have been found to
consistently violate these axioms, is in the
435
gratuitous coverage of the analytic hierarchy
process, which is introduced in semi-gory techni-
cal detail, only to point out why it should be
avoided.
Lest I end on these sour notes, let me repeat
what I said at the start: as a result of reading this
book I know a lot more about the role of
influence diagrams in decision making under
uncertainty than I ever thought I would want to
know. I am delighted to have gained this addi-
tional knowledge and the insights that go along
with it. I would be remiss if in the future I failed
to take advantage of this knowledge and those
insights. The material is very palatably presented
and merits more than just a causal glance from
IJF readers, the majority of whom will be
rewarded for their efforts.
Ira Horowitz
Decision Sciences and Managerial Economics
The Chinese University of Hong Kong
Shatin, N.T.
Hong Kong
Pll s0169-2070(96)00690-5
B. Pecar, 1994, Business Forecasting for Man-
agement (McGraw Hill Book Company Interna-
tional (UK) Limited), $14.95, ISBN 0-07-
707865-9.
J.K. Shim, J.G. Siegel and C.J. Liew, 1994,
Strategic Business Forecasting (Probus Publishing
Company), $47.50, ISBN 1-55738-569-6.
Both books cover the basic forecsting methods.
These include the following time series methods:
1. Classical time series decomposition
2. Moving averages forecasting
3. Exponential smoothing forecasting
4. Winters' seasonal forecasting
436 Book reviews / International Journal of Forecasting 12 (1996) 433-438
5. Adaptive filtering
6. Box-Jenkins model fitting
(Shim et al. do not cover adaptive filtering).
In addition, the book by Shim et al. has two
chapters of less than 40 pp. which provide a
minimum coverage of simple and multiple re-
gression.
According to Pecar, the objective of his book
is as follows:
This book should present a balance between
the factors that, in turn, should guarantee
the optimum result.
One can find several computer-forecasting
packages on the market and, admittedly,
some of them are very good. However, to
use them one has to understand the princi-
ples and requirements of every method
applied. There are also quite a few books
available about forecasting, but they fall
into one of two categories. Some of them
are easily digestible, but only scratch the
surface of some of the more complex mat-
ters. Some of them are absolutely brilliant,
but difficult to understand by anybody who
is not engaged full-time and professionally
in forecasting. In our attempts to make this
are transparent, understandable and usable
to as wide a readership as possible--which
primarily covers undergraduate and post-
graduate students, business people and man-
agement in general, and anybody else inter-
ested in forecasting--we have had to neglect
certain dimensions of forecasting. We have
not lost anything or made it incorrect, we
have just simplified it in order to make it
understandable to almost everybody.
Similarly, Shim et al. present what they
believe is unique in their book for the following
three reasons:
First, it is practically oriented. It avoids
theoretical, and mathematical discussions. It
directly gets into how to use it, when to use
it, what it is used for, and what resources
are required of it. It includes many practical
examples, applications, illustrations, guide-
lines, measures, checklists, rules of thumb,
"tips", graphs, diagrams, and tables to aid
your comprehension of the subject.
Secondly, it incorporates the use of com-
puter technology--especially PC. Actual
computer printouts obtained via spreadsheet
programs such as Lotus 1-2-3, Lotus-based
add-ins (such as ForeCalc) and Microsoft
Excel, and popular software packages such
as SPSS, STATPACK, SAS, Forecast Pro,
Forecast Plus, and MicroTSP will be dis-
played and explained.
Thirdly, the book goes far beyond simple
sales forecasting. It encompasses a wide
range of topics of major importance to
practical business managers, including cash
flow forecasting, cost prediction, earnings
forecasts, bankruptcy prediction, foreign
exchange forecasting, interest rate forecast-
ing, and much more.
For someone who has been involved in fore-
casting for more than 30 years and has written
many books in the area, including two of the
best sellers (Makridakis et al., 1983; Madridakis
and Wheelwright, 1989) both books are very
basic. Both the material they include and the
methods they cover are the same as those cov-
ered in many (not just a few) forecasting books
that have already been published. The only
novelty is in the book by Shim et al. which
covers several financial areas to illustrate fore-
casting applications. However, I personally have
some difficulties in seeing what is unique about
these aplication areas as far as forecasting is
concerned, or how managers can profit from
their use. Also, I cannot understand how ex-
 Book reviews / International Journal of Forecasting 12 (1996) 433-438
change rate or interest forecasting can be done
when it is well known and accepted that both the
exchange rate and the interest rate markets
behave in a random walk fashion. Does the book
claim that exchange and interest rates can be
predicted (if the authors of this book think it can
be done, they should apply their advice and
become billionaires by doing so).
Both books fail to report recent research and/
or empirical published in the forecasting litera-
ture. This is more so for Pecar's book which does
not include any recent references or the results
of recent work such as that dealing with the
selection of various forecasting methods.
In conclusion, both books cover the basic
forecasting methods but they do not provide any
new insights or original coverage of these meth-
ods in comparison to other books that already
exist on the market.
Spyros Makridakis
INSEAD
Fontainebleau
France
References
Makridakis, S. and S. Wheelwright, 1989, Forecasting Meth-
ods for Management, 5th edn. (John Wiley & Sons, Inc.,
New York).
Makridakis, S., S. Wheelwright and V. McGee, 1983, Fore-
casting: Methods and Applications, 2nd edn. (John Wiley
& Sons, Inc., New York).
P l l S0169-2070(96)00692-9
Kwok Keung (Kern) Kwong, Cheng Li, Vladimir
Simunek and Chaman L. Jain, 1995, Bibliog-
raphy on Forecasting and Planning (Graceway
Publishing Company, Inc.), 332 pp., paperback,
$56.95, ISBN 0-932126-16-2.
Bibliography on Forecasting and Planning in-
cludes references of about 4200 articles, 700
View publication stats
437
proceedings papers, and 350 books on forecast-
ing and business planning published between
1979 and 1993. The books are listed both by
author and by publishing year and the articles
and proceedings papers are listed both by author
and by subject category. The publications are
listed only; there is no annotation. Addresses are
provided for the publishers of the listed books,
journals, and proceedings. The intent was to
cover US publications, although some Canadian
and European publications are included. The
areas of planning covered are strategic planning
and corporate planning, not city and regional
planning.
The book listing is comprehensive, and in-
cludes all the volumes that I would expect to be
in such a bibliography. The list of books by year
allows one to easily see which are the more
current publications. The most useful part of this
reference volume is the listing of journal articles.
The authors include articles from about 300
journals and other professional publications. The
interdisciplinary nature of this group of publi-
cations is what makes it so useful. This list
should promote further cross-pollination of the
many fields that forecast. Also useful is the list of
papers from conference proceedings, as these
references may not turn up in a standard search
of the literature.
Bibliography has two weaknesses. The first is
that it includes only academic publications, and
more specifically, it excludes government fore-
casting papers and reports. A significant amount
of forecasting activity is at the federal and state
government levels. Numerous federal reports
and conference papers have been published
presenting forecasts, forecast applications, and
forecast techniques and methodology. To discuss
forecasting in the United States and not mention
the Bureau of Economic Analysis, the Bureau of
Labor Statistics, the Bureau of the Census, or
the Congressional Budget Office is a major
omission. In addition, non-government, non-aca-
demic forecasting subscription publications such
as the Blue Chip Economic Indicators and the
DRI quarterly reports are not included. A sec-
ond flaw is that the focus is on the United States