1. Six Rules for Effective Forecasting
Based on the article “Six Rules for Effective Forecasting”
Based on the article by: Paul Saffo
Harvard Business Review, July-August 2007

2. The myth of accurate prediction
Accurate prediction is possible only in a world in which:
- events are preordained
- the present does not influence the future
In the real world
- nothing is preordained
- what we do in the present affects how events unfold, often in significant unexpected ways.
Prediction is concerned with future certainty.
Forecasting should aim at identifying the full range of possibilities, not a limited set of illusory certainties.
The forecaster’s task is to map uncertainty.
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3. Understanding forecasting
Must have a logic.
People using the forecast must understand enough of the process and logic to make an independent assessment of its quality.
Effective forecasting provides essential context that informs our intuition.
A good forecast broadens understanding by revealing overlooked possibilities and exposing unexamined assumptions.
It narrows down the decision space in which intuition must be exercised.
The author mentions six rules for effective forecasting .
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4. Rule 1: Define a cone of uncertainty
Many factors go into defining the cone of uncertainty.
The breadth of the cone is a measure of overall uncertainty.
The art of defining the cone’s edge lies in carefully distinguishing between the highly improbable and wildly possible.
Outliers are what define the edge.
Outliers must be approached carefully.
We either dismiss outliers entirely or attempt to turn them into certainties that they are not.
We often overreact to an unexpected wild card by seeing wild cards everywhere. We get distracted and ignore the centre of the cone.
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5. Rule 2: Handle the S Curve carefully
Many important events follow the S curve.
Events begin slowly, suddenly explode, later taper off and finally decline.
Forecasting aims at identifying an S Curve pattern as it begins to emerge, ahead of the inflection point.
But anticipating inflection points is not easy.
The left hand part of the S curve is much longer than most people imagine.
Once an inflection point arrives, people commonly underestimate the speed with which change will occur.
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6. Rule 3: Embrace the things that do not fit
The best way to spot an emerging S curve is to appreciate things that do not fit into the current scheme of things.
We tend to ignore indicators that do not fit into familiar boxes
Anything that is truly new will not fit into a category that already exists.
Some indicators look like failures.
But it makes sense to keep track of interesting failures, i.e., smart ideas that seem to have gone nowhere
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7. Rule 4: Hold strong opinions weakly
We must not over rely one piece of seemingly strong information.
Traditional research methods are based on collecting strong information
Once as researchers we have gone through a long process of developing a beautiful hypothesis, we have a tendency to ignore any evidence that contradicts our conclusion.
Good forecasting is a process of strong opinions, weakly held.
We must forecast often and be the first to prove ourselves wrong.
We must forecast as quickly as possibly and then set out to discredit it with new data.
Having strong opinions gives us the capacity to reach conclusions weekly. But holding them weakly allows us to discard them the moment we encounter conflicting evidence.
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8. Rule 5: Look back twice as far as you look forward
Our historical rearview mirror can be an extraordinarily powerful forecasting tool
The problem with history is that our love of certainty and continuity often causes us to draw the wrong conclusions.
The recent past is rarely a reliable indicator of the future.
We must peer far enough into the past to identify patterns.
We must avoid the temptation to use history for support than for illumination.
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9. Rule 6: Know when not to make a forecast
There are moments of unprecedented uncertainty when the cone broadens to a point at which we should refrain from making a forecast at all.
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10. Conclusion
At the end of the day, forecasting is the systematic and disciplined application of common sense.
Common sense can help us to identify the opportunities and risks involved and review the quality of the forecasts.
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