Did Hippocrates really say this? Probably not, for among other reasons he spoke Ancient Greek and not Modern English. However, such mere technicality should not distract us from the importance of this oath for forecasters. Please place your hand over your heart and say with me:
First, do no harm.
There is a certain level of satisfaction we achieve with touching and tinkering and changing things to our liking. But does this touching and tinkering and changing improve the quality of our work? And how would we ever know?
In forecasting, we have the opportunity to change things to our liking by manual override of our system generated forecasts. Many organizations have some manner of forecasting system. These can range from lowly trend line functions in Excel, all the way up to large-scale automatic forecasting with inputs and calendar events in SAS Forecast Server. Whatever the software comes up with for a forecast, we reserve the right to review and change the number to something that meets our management’s approval. But is this the right thing to do?
Forecast Value Added is a metric for evaluating this kind of forecasting process activity. FVA is defined as the change in a forecasting performance metric (MAPE, bias, or whatever you happen to be using) that can be attributed to a particular step or participant in the forecasting process. When FVA is positive this is a good thing – your efforts are adding value by making the forecast better. But when FVA is negative, it means that your efforts are just making the forecast worse. By itself, a traditional forecasting performance metric (such as MAPE) does not tell you whether you are making things better or worse – you’d never know. The painful reality is that much of what we do in forecasting does just make it worse – in complete violation of our Hippocratic oath. (See my quarterly column “Worst Practices in Business Forecasting” in Supply Chain Forecasting Digest for examples of these missteps.)
For more details on FVA analysis and some short case studies on organizations that have applied it, see the recorded webcast Forecast Value Added Analysis: Step-by-Step and the accompanying white paper.
I am committed in this blog to be critical, but also good humored. For a good laugh (if it weren’t so sad), please take a look at this minute long demo: Base sales forecasts and trend lines on data. Warning: As you watch this keep in mind the children’s game “What’s Wrong with This Picture.” I’ve already compiled my own list, and am looking forward to hearing yours…