Forecasting... hazard

One unpleasant morning (how do you expect the morning to be pleasant during 2nd World War) in US Army Air Corps which is the Military aviation arm of the United States of America. The Air Force weather forecasting team got a letter from the Commanding General. It was an order to forecast the weather for a month ahead. This job was handed over to a group of young statisticians who had just completed their Masters.

Young Statisticians, obviously with theoretical knowledge, knew that maximum period range for accurate weather forecasting is one week or at the max two weeks. That too after applying the best available forecasting models available at that point of time. Any weather forecasting done for a period exceeding a week is no better than a rolling of Dice. By the way, Arabic word for Dice is "al-zahar" from which the english word "hazard" is derived. Coming back, young Statistical forecasters, mutually agreed and requested the superiors to relieve them from their duty to forecast as it is not practical to forecast the weather for a month. They got the following reply from superiors :

"The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes".

Story seems to be familiar right.. ? Can be correlated to Finance Professionals ?? So what are we planning and what is the basis/assumptions to our planning. ?

Story mentioned above is the personal experience of "Kenneth Arrow" an American economist and Nobel laureate (youngest person to have received this award, at 51). He was the Statistician serving in US Army Air Corps during World War 2. Arrow mentioned this story when discussing about the uncertainty of the future and the humans unwillingness to accept the same. He had mentioned that information, which is the key to the decision making, is very limited and the greatest hazard is that most people overestimate the information they possess for decision making.

So in that case, should we not forecast ?

Forecasting is very much required at all level and all functions of the business. It acts like a lighthouse for achieving the organisational goals. Only thing is that, necessary precautions need to be taken while preparing the forecast. In the words of Arrow

"When developing policy with wide effects for an individual or society, caution is needed because we cannot predict the consequences"

In other words, we need to understand our limitations while forecasting, namely Information we possess (The information you have is not the information you want, The information you want is not the information you need, The information you need is not the information you can obtain and information you can obtain costs more than you want to pay), Assumptions we make etc.,.

Else instead of Forecasting any probable Hazards, there will be Hazard in Forecasting.