FLEXIBILITY IN DESIGN - Title Page - MIT

de Neufville + Scholtes D R A F T September 30, 2009organization and have probably left the scene by the time it is discovered that the forecast madequite a bit earlier does not correspond to what has now occurred.The gap between the producers and users of forecasts is dysfunctional from theperspective of achieving good project design. Each group of professionals works in its own worldwith its own criteria and expectations. The overall result is that designers use unrealisticallyprecise estimates during the design process. Standard practice is thus frequently trapped intofixating onto misguided concepts.The professional context drives forecasters toward reporting precise results, even thoughthey can easily report ranges. From the outside, companies and agencies desire preciseforecasts and often ignore ranges, when available. They routinely spend significant sums onforecasting exercises – millions and millions. These fees impel the analysts to provide detailedanswers. Indeed, who would want to spend large amounts to get a report saying that the futuremarket can only be known within plus or minus 50% of the forecast? From inside the profession,the tradition is to judge models according to statistical tests of how well their models of behaviormatch historical data -- which is the immediate evidence at hand. The forecasting exercise iswidely seen as a precise mathematical analysis subject to accurate calculation. Both theprofessional mind-set and the demands of the managers buying the forecasts thus drive theforecasting process to produce detailed numbers and reassuring precision.Complementarily, engineers want to work with specific numbers. Engineering issupposed to be analytic and precise; not fuzzy or ambiguous. Furthermore, however complex thesystem, it is much easier to design to some exact requirement than to a range of possibilities.Moreover, managers want assurance that their plans are on target. Together, engineers andmanagers reinforce the demand for detailed, exact forecasts.Unfortunately, the combined focus on precise forecasts is misplaced. The results are notworthwhile, as experience demonstrates. Sadly, it is hard to break the reinforcing professionaldynamics that drive the focus on precise predictions. However, we are better off dealing withreality than wishes. In this spirit, we need to examine carefully what we can reasonably hope for.The standard forecast is “always wrong”Forecasts for any year -- about the future demand for products or services, future prices, futuretechnological performance -- rarely tell us what actually happens. The actual values or levels thatexist in the forecast year are, as a rule, different from what most people predicted. After-the-factcomparisons routinely demonstrate a big gap between the reality and the forecast. It is in thissense that a good rule of thumb is: the forecast is “always wrong”. 4Some forecasts by chance turn out to be correct, of course. When many forecastersmake predictions, some projections will turn out to be closer to the true value than others, somemay even turn out to have been quite accurate. When the Swedish Central Bank examinedPart 1: Chapters 1 to 3 Page 26 of 69