Judgmental Adjustment of Statistical Forecasts

Abstract

Judgmental and statistical forecasts can each bring advantages to the forecasting process. One way forecasters can integrate these methods is to adjust statistical forecasts based on judgment. However, judgmental adjustments can bias forecasts and harm accuracy. Forecasters should consider six principles in deciding when and how to use judgment in adjusting statistical forecasts: (1) Adjust statistical forecasts if there is important domain knowledge; (2) adjust statistical forecasts in situations with a high degree of uncertainty; (3) adjust statistical forecasts when there are known changes in the environment; (4) structure the judgmental adjustment process; (5) document all judgmental adjustments made and periodically relate to forecast accuracy; (6) consider mechanically integrating judgmental and statistical forecasts over adjusting.