Cloudonomics: The Business Value of Cloud Computing, + Website

Demand for Products and Services

Volatility in financial markets drives volatility in the broader economy, and the broader economy returns the favor. Such stranger-than-strangeness is what makes forecasting so difficult. In their 876-page textbook, Retailing Management, Stanford and Harvard professors and Price Waterhouse consultants had this to say about sales forecasting:

[The] following are advised cautions since sales forecasting involves substantial judgment as well as established technique . . . [in] an attempt to predict the future. The best that can be hoped for are educated guesses.. . .Generally, past sales [tell] the retailer only what has happened, not what will happen [given] a wide variety of factors, many beyond the retailer’s control.

If this process seems filled with estimates and quite imprecise, be reminded of the professionalism inherent in large-scale retail management.. . .Executive judgment is the final ingredient in any sales forecast. A sales forecast is, therefore, a human estimate [that] may prove ultimately very accurate or quite wrong, but it is the best starting point available.13 (emphasis added)

To make things worse, reliance on “executive judgment” may not be sufficient. Studies have shown that with executives, as with mutual funds, past performance is no guarantee of future results. Caltech’s Mlodinow observed that everyone understands that “genius doesn’t guarantee success, but it’s seductive to assume that success must come from genius.”14 But ...