TOPIC 5

POLICY FORECASTING AND FORMULATION

STAGE 2 OF
POLICY PROCESS / POLICY CYCLE

Meaning
Policy Forecasting
Process of predicting future direction / action towards a problem (policy agenda):
• What kind of option is suitable to solve a particular policy problem?
• What action to take? – new policy, modifying policy, terminating policy

Policy formulation
• Process of drafting courses of action (policy options) to address what has been
placed on the policy agenda

• A process typically includes an attempt to assess as many areas of potential policy impact
as possible in order to lessen the chances that a given policy will have unexpected or
unintended consequences. • Involves the crafting of alternatives or options for dealing with
a problem. • May also refer to the process of making important organizational decision.
Is the development of effective and acceptable courses of action for addressing what has
been placed on the policy agenda.

Policy formulation is the development of effective and acceptable courses of action for
addressing what has been placed on the policy agenda.

FORMS OF FORECASTING
• Projection.
A forecast based on the extrapolation of current and historical trends into the
future.

• Prediction.
A forecast based on explicit theoretical assumptions.

• Conjecture: A forecast based on informed or expert judgments about future

states of society.

WHY FORECASTING?
• Forecasts provide information about future changes in policies and their
consequences.
• Forecasting permits greater control through understanding past policies and their
consequences, implying that the future is determined by the past.
• Forecasting helps to shape the future in an active manner, irrespective of what has
happened in the past.
• Forecast provides insight into uncertainty
•
PURPOSE / OBJECTIVES OF FORECASTING
• To plan for the best possible course of action among the various alternatives which
the future may offer
• To use the past and present situation to determine the future states of a problem.
• To shape the future in an active manner in relations to what has happened in the
past.

METHODS OF FORECASTING
Methods of making decision for future actions / directions

1. Quantitative methods:
Time Series, Regression Analysis

Quantitative methods include formalized principles that form the basis for a stringent
research process that proceeds from formulation of research questions, research design and
the selection and analysis of data to interpretations and conclusions.

The data will be linked to specific variables, and standardized methods are applied for data
collection (for example in expert assessments, observations, interviews or formal testing).
The variables can thus be expressed in numerical form, and the data material can be
described in the form of tables, graphs or statistical measurements such as averages,
variances and correlations, and analysed with the aid of e.g. analysis of variance, factor
analysis or regression analysis.

Even though quantitative methods are characterised by stringent requirements for

structure, the methods also provide room for flexibility and pragmatic adaptation.
Combined designs using "mixed methods" that include qualitative as well as quantitative
data are therefore increasingly used. This may imply that a qualitative study is included as a
pilot study, or that qualitative data are used as the basis for a subsequent quantitative
analysis. In addition, the data collection may be undertaken qualitatively (e.g. in the form of
essay assignments) while the analysis is undertaken quantitatively. In this case, the
information in the essays will be quantified and prepared for statistical processing.

Moreover, qualitative methods can be used to elaborate on findings from a survey. While
surveys are able to provide a general overview of the matter at hand, qualitative data have
the potential to provide more detailed insight into the opinions and experiences of the
informants.
It is an essential requirement for researchers to have fundamental ethical attitudes that
permit them to conduct all stages of the research process in an honest and credible manner.

2. Qualitative methods:
Judgmental
1. Consensus
§ Face to face meeting
§ Delphi Technique
2. Genius forecasting

Quantitative methods:
• Method that relies on hard data / statistics and statistical model to predict and
project future direction
• Example:
• Time series methods – using of past values data of variables to predict future
(to make decision for future)
• Exponential smoothing method – using statistical model:
New Forecast = a (most recent observation) + (1 - a) (last forecast)

Advantage & Disadvantages of Quantitative methods for forecasting:

• Objective
• Data is costly
• Need persons who are good with statistics / mathematics – difficult to get & costly to
pay for their expertise

Qualitative Methods (Judgmental)

• Methods that relies on the opinions and judgments of human being (individual or
group of panel) to predict future direction.
• The panels makes decision base on their expert judgment (knowledge, personal
experience, and intuition)

Qualitative forecasting techniques are subjective, based on the opinion and judgment of
consumers, experts; they are appropriate when past data are not available. They are usually
applied to intermediate- or long-range decisions. Examples of qualitative forecasting
methods are informed opinion and judgment, the Delphi method, market research, and
historical life-cycle analogy.

Qualitative Methods & Techniques

1. Consensus
§ Face to face meeting
§ Delphi Technique
This is a group technique in which a panel of experts is questioned
individually about their perceptions of future events. The experts do not
meet as a group, in order to reduce the possibility that consensus is reached
because of dominant personality factors. Instead, the forecasts and
accompanying arguments are summarized by an outside party and returned
 to the experts along with further questions. This continues until a consensus
is reached.
 Advantages: This type of method is useful and quite effective for long-range
forecasting. The technique is done by questionnaire format and eliminates the
disadvantages of group think. There is no committee or debate. The experts are not
influenced by peer pressure to forecast a certain way, as the answer is not intended
to be reached by consensus or unanimity.
 Disadvantages: Low reliability is cited as the main disadvantage of the Delphi
method, as well as lack of consensus from the returns.

2. Genius forecasting
Genius forecasting is an unspecified set of processes used by geniuses to arrive at
statements about the future. The processes need not be the same for any two
geniuses.

Not all statements about the future by geniuses are genius forecasts, only those
pronouncements in their areas of expertise for which they have proven insight.
Genius forecasts can also come from people whose IQ is less than genius, but who
have proven to have great insight in some specialty. As Theodore J. Gordon argues:

"Somehow an individual, seasoned by experience and history, integrates all that is

obvious and implicit - through internal processes that are not necessarily obvious -
and argues for a particular future or set of developments. How do they do it? Not by
decision trees like computers, but by some other internal genius processes."4

One of the key qualities of futurists is their ability to imagine the future as being
different from the past. Those without such imagination can only extrapolate trends,
something less than useful in providing the necessary vision for long-term planning.
Herman Kahn taught that the biggest surprise would be that the "surprise-free
scenario" from extrapolation would actually occur. How then do we move the mind
beyond extrapolation to analysis, synthesis, and speculation about alternative
futures? One way is by including subjective processes, such as genius forecasting,
intuition, prospective, and insight, into the mix of methods used in long-range
forecasting and strategic planning.

Probablythebestsourceofdiversegeniusforecastingissciencefictionliterature.5 Science
fiction, however, unlike futures research, does not need to connect its statements to
the realities of the present; hence, science fiction is a freer medium in which to
express speculation and intuition. Intuition by graphic artists and poets can also
provide insights peripheral to the mainstream or surprise free thinkers about the
future. Such peripheral vision can help identify emerging issues. Sirkka. Heinonen, in
reviewing this chapter, added that, “Day & Schoemaker (2006) use the metaphor of
the human eye for illustrating the importance of peripheral vision. In a typical
organization, the majority of resources are focused on its central task. In other
words, in the „organizational eye‟ most organizational resources are devoted to
focal vision (cone cells), while only a minority of resources are given to the periphery
 (rod cells). In human vision, the majority of retinal cells are devoted to peripheral
vision.”

4.Consensus Method
A group decision-making process that compile opinion from experts in the field or
knowledgeable people and forming consensus from these opinions.
Basic element of consensus involves:
• collaboratively generating a proposal,
• identifying unsatisfied concerns, and then
• modifying the proposal to generate as much agreement as possible

Aim of consensus methods is to determine the extent to which experts or lay people agree
about a given issue  Means of dealing with conflicting scientific evidence  Primarily
concerned with deriving quantitative estimates through qualitative approaches  To assess
the extent of agreement (consensus measurement) and to resolve disagreement (consensus
development)  Seeks to control the effects that can often bias the process of expert
discussion.

Consensus Techniques
§ Face to face meeting technique
§ Delphi technique

Face to face meeting technique

Meaning
• Interactive technique of decision-making where panel discuss issues and listen to
opposing viewpoints on the issues, and work together for consensus.
Forecasting is made through discussion process. Decision is made base on consensus

Advantages & Disadvantages of Face to Face Meeting Technique for Policy Forecasting
• Meetings provide a time and place for face-to-face contact and two-way
communication-
• Meeting help break down barriers between people and the agencies that serve them
• Through meetings, people learn that an agency is not a faceless, uncaring
bureaucracy and that the individuals in charge are real people.
• Meetings give agencies a chance to respond directly to comments and dispel rumors
or misinformation

Advantages and Disadvantages of Face to Face Meeting Technique for Policy Forecasting
• Meetings help monitor community reactions to agency policy, proposals, and
progress.
• Meeting provide formal input to decisions
• Decision may be inaccurate due to personal considerations and interest, and at last
become the result of one or few experts’ views only.
• It assumes that forecasting by a group of experts is better than any forecast made by
an individual expert
 2. Delphi Technique
A Group expert (penal of experts) brainstorm decision making technique
• This technique uses a cautiously selected panel of experts in a systematic and
interactive manner.
• It is to overcome problem that might occur during face-to-face meeting.

Delphi technique principles

• Anonymity of participants
• Iterations (process of repeating)
• Controlled feedback
• Statistical group response summaries of questionnaires
• Expert consensus

Delphi technique procedures and process

• Select group members base on their expertise.
• Separate members to avoids the negative effects of face-to-face discussions and
avoids problems associated with group dynamics.
• Ask members to answer separately an open-ended questionnaires, surveys, etc. in
order to solicit specific information about a subject or content area.
• Ask members to share their assessment and explanation of a problem or predict a
future state of affairs.
• The facilitator (panel director) controls the interactions among the members by
processing the information and filtering out irrelevant content.
• Panel director gathered, summarized, and then send fed back to all the group
members.
• Ask members to make another decision based upon the new information.
• Repeat the process until the responses converge satisfactory, that is, it yields
consensus.

Advantages and Disadvantages of Delphi Technique for Policy Forecasting

• The success of Delphi process depends upon the member's expertise and
communication skill.
• Each response requires adequate time for reflection and analysis.
• The major merits of the Delphi process are:
• Elimination of interpersonal problems.
• Efficient use of expert's time.
• Diversity of ideals.
• Accuracy of solutions and predictions.

GENIUS FORECASTING
Meaning:
• a subjective approach where intuition or gut feeling are used in making decision
about future direction
• an unspecified set of processes used by geniuses to arrive at statements about the
future.
• The processes need not be the same for any two geniuses.
WHO IS GENIUS
• a single expert or expert panels with considerable experience
• They forecasts the future based on knowledge, intuition, insight and luck.

Genius Forecast Process

Theodore J. Gordon argues
• "Somehow an individual, seasoned by experience and history, integrates all that is
obvious and implicit - through internal processes that are not necessarily obvious -
and argues for a particular future or set of developments.
• How do they do it? Not by decision trees like computers, but by some other “internal
genius processes."

Basic assumption of genius decision-making

Assumptions lie behind intuitive approaches:
• one whose brain processes knowledge more rapidly and more often than others and,
therefore, is more likely to guess correctly about the future than one who does not
• some guess correctly more often than others therefore, they are a source of reliable
judgment even without knowing why this is so.

Advantages and Disadvantages of Genius Forecasts

• Not all statements about the future by geniuses are genius forecasts, only those
pronouncements in their areas of expertise for which they have proven insight.
• Genius forecasts can also come from people who's IQ is less than genius, but who
have proven great insight in some specialty.
• A genius is limited to a particular field of knowledge
Genius A who is good in chemistry may not make genius' judgments in social sciences.
Only if government wanted to forecast the future of chemistry, then Nobel Prize winners
in chemistry would make’

• Genius forecasting cuts time and costs. It is much easier and less costly
• The problem is how do we find them? How do we find a reliable one?
• How do we know when to trust one intuition? What if two genius forecasters
contradict? How do we know who's judgment to follow?

Advantages and disadvantages of Qualitative Methods

• Although qualitative method can be costly (to pay for expertise), it may ultimately
yield the most accurate and unbiased results
• Allow human input in the decision-making process,
• Subjective

PROBLEMS OF FORECASTING
1. In-accuracy of info / data
2. Data is expensive & difficult to access
3. Limitation of forecasting methods and techniques
4. Invalid experts opinion
5. Personal bias
6. In-accuracy of forecast
In-accuracy of info / data
• The extent of accuracy of info / data limits accuracy of forecasting policy future.
• For example, the Treasury may underestimate the federal budget deficit based on
extrapolation of trends using single variable or models incorporating hundreds of
variables.
Data is expensive & difficult to access

Limitation of forecasting methods and techniques

Quantitative method
• Highly dependent on data and model to predict future. Forecasting models
are develop base on assumption. Assumption may not be true, data may not
sufficiently available
Qualitative method
• Highly dependent on personal opinion to predict future. Experts and genius is
not easily available, and if they are available within the policy making
institutions, their numbers may not be enough

Invalid experts opinion

• if the opinion of one person is incorrect, the forecast is incorrect.
• the most recent situation / can overly influence individuals, who then create overly
pessimistic or optimistic forecasts

Personal bias
it's difficult to eliminate the forecaster’s personal bias from the data that underlies the
forecast.
Example,
Panel, who tend to be optimists, will likely develop a forecast that is overly optimistic

In-accuracy of forecast
• all qualitative forecasts assume that certain characteristics that existed in the past
will exist in the future.
• Unfortunately, sometime unexpected occurrences happen, such as changes in
weather, social and economic factors
• Each of these occurrences can affect decision and the accuracy of a forecast.
• For this reason, the longer the forecasting period, the less accurate the forecast will
be

End of Forecasting
• Once forecasting is done, administrator will starts formulating / drafting the
relevant policy options / courses of action to resolve problem

POLICY FORMULATION
Meaning:
• Process of formulating (drafting) / developing acceptable courses of action / options
for the selected policy agenda
• It involve 2 main elements / activities:
Policy Formulation

Analysis + Authoriation Policy

Valid Formulatio
Implementable Acceptable n
Efficient Drafting
course of
Administrators action
Politicians
Administrators
Policy maker

Analysis:
Which policy option to choose?
• In deciding which courses of action / policy option to choose for a selected policy
agenda, policy maker (administrators) will be doing 2 main tasks:
i. Analyzing the courses of action
ii. Deciding which type / category of policy option to introduce

i. Analyzing the courses of action

In analyzing the courses of action, administrator would want to know whether or
not and to what extend the options are:
• Valid to solve problem
• Implementable
• Efficient (financial cost)
Refer Anderson p. 108

Analysis techniques:
Cost benefit analysis:
Refer Anderson (2011, pp. 292-297)
• Consider the direct & indirect benefit of addressing the problem(valid)
• Consider the direct & indirect benefit should new policy is introduced or existing
policy is modified (valid & implementable)
• Consider direct & indirect cost (financial and non-financial) for the actions to be
taken (implementable & efficient) in addressing the problem
• Discount future net benefits – to reduce future direct & indirect benefit and cost to
the present value
 • Compare direct & indirect and present and future cost and benefits of policy
alternative

ii. Deciding which type / category of policy option to introduce

• one or combinations of the following types of policy options will be determine:

TYPES / CATEGORY OF POLICY OPTIONS

• Inducement: either positive such as tax credit holiday or negative in nature such as
fines and charges impose for pollution.
• Regulatory: to control and regulate behavior of people such as regulation governing
pollution.
• Enforcement: involves giving (enforcing) certain people rights or duties they
deserve. For example, human rights legislation.
• Allocation of power: where certain body is charged with power to improve certain
situation, e.g. Parliamentary legislations, executive orders, judicial decisions etc.

Analysis is done
• Once analysis is done, administrator will proceed to drafting the policy (legislation /
administrative rules for the courses of action chosen)
Refer Anderson pp. 112-114

Authorization:
Which courses of action to accept?
• At this stage, assuming the course of action is able to resolve problem and is cost
effective, now the political actor / policy maker will be deciding on which policy
recommendation / causes of action proposed to be accepted / authorized.
• This is done through political process (first reading)

Questions to address at authorization stage

• To what extend the chosen course of action able to get political support
• To what extend the chosen course of action able to get administrative support
• To what extend the chosen course of action able to get public support

Reflection:
Who are actors involved in policy formulation stage?
Two groups of actors:
• Analyist (policy analyist) / administrators
• Decision maker (policy maker)
Who are the policy makers?

List of policy makers

Malaysian context: Refer Ahmad Atory Husain, (2000) & INTAN publications
• Individual (PM)
• Selected Few (Cabinet, Committee / Councils / )
Example.
National Economic Action Council)

Refer Anderson pp. 109-112) – US context (Refer Anderson)

• President
• Government agencies
• Presidential organizations – presidential commissions, budget committees
• Legislators – members of Congress
• Interest groups