Forecasting is necessary because the modern economic system with its related social order is highly dynamic in character.
What we usually call the economic machine is, in effect, a living organism which has much in common with the characteristics of living organisms in the animal and vegetable kingdoms.
And behind the outward and visible change in such elements as these, a process of modification is continually taking place in economic relationships, in ethical standards, in political beliefs, in social customs, morals, and ideals, and in all those fundamental and frequently intangible forces which wield an influence over the destinies of the human race and all its institutions.
Moreover, these changes do not occur in a steady uniform flow. On the contrary, they come and go, they vary in intensity and in radius; they may be continuous, discontinuous, or periodic.
As a matter of fact, of course, the processes of business forecasting are in no way mysterious. But it is true that these processes cannot be reduced to any rigid formula or series of formulas which can be expounded in fairly concrete terms. Unfortunately, forecasting in the business world may still be more of an art than a science.
The methods actually employed must be closely adapted to the particular needs of particular organizations. In short, while the need for business forecasting is universal, the methods involved in such forecasting are almost infinitely varied and should never be purely mechanistic.
The essence of the quantitative or statistical method is the collection of significant periodic, usually annual, data descriptive of various pertinent elements of economic life over a reasonably long term of years in the past; and the application to these data of statistical methods of analysis which will yield a quantitative measure of their characteristic behavior as to growth or decline.
It is obvious that any objective extension into the future of current trends, no matter how carefully these trends may have been measured, will be fully significant only if the forces which have affected them remain unchanged in number and in relative intensity.
The statistical approach might be adequate in itself under static conditions. But in a dynamic society the forces of development and progress do not remain unchanged. This provides the cue for the entrance of the philosophical method as a means of interpreting the statistical measurements and of furnishing qualitative descriptions of the changing currents in the economic stream.
It assumes an innate flair for the detection of those undercurrents in economic behavior which are not visible on the statistical surface of the stream, and a keen sensing of the advent and the potentialities of new forces as yet in embryonic stage.
Under the method, economic processes are continually under quasi-microscopic observation; and the observer must be alive to the silent but relentless evolution in popular tastes, habits, ideals and objectives which is characteristic of a progressive people and an advancing civilization.
Forward-looking industrial leaders are recognizing that opportunistic action on the part of business institutions merely for the sake of temporary competitive gain must more and more give way to systematic planning of reasoned programs.
The business statesman must supplant the business politician, if order is to be maintained in a world in which the economic machinery is becoming more intricate and the economic processes more interdependent as time goes on.
Extract from Paper Presented at Dedication of the James Ward Packard Laboratory of Electrical and Mechanical Engineering, Lehigh University, October 17, 1930.
The Methods of Industrial and Business Forecasting, by S. L. Andrew
Bell Telephone Quarterly, 1931