Management Judgment Forecasts, Composite Forecasting Models, and Conditional Efficiency

Abstract

In an empirical study of sales forecasts, management judgment forecasts are compared with systematic forecasts (based on the Box-Jenkins ARIMA method). A composite sales forecasting model is developed which incorporates information from these different sources. In most cases forecast improvement apparently can be realized by combining multiple forecast inputs into a composite model. The concept of conditional efficiency then is introduced to evaluate the strength of an individual forecast input to the composite forecast. Upon finding the management judgment forecasts to be conditionally efficient on the basis of the composite model standard, the authors examine the management judgment forecasting task and environment in terms of the conditions which facilitate accurate management judgment predictions.