DELPHI IN THE CLASSROOM: A DEMONSTRATION OF FORECASTING ECONOMIC ACTIVITY New Horizons in Simulation Games and Experiential Learning, Volume 4, 1977 263 DELPHI IN THE CLASSROOM: A DEMONSTRATION OF FORECASTING ECONOMIC ACTIVITY Herman S. Napier William C. House Ajit P. Paralkar University of Arkansas A key aspect of the typical business game played in Business Administration courses is the economic forecast which provides the basis for making strategic marketing, production, and financial decisions. One game which has been widely used in such cases is The Executive Game developed by Henshaw and Jackson. In an attempt to enhance the effectiveness of instruction with The Executive Game, a demonstration was conducted with selected student teams who used the Delphi technique to develop economic forecasts. Other teams used traditional trend extrapolation methods to forecast economic activity. The Delphi technique is a group discussion process which avoids the problems of face-to- face confrontation of group members. Opinions are polled in a series of “rounds" and fed back to participants along with comments made by respondents. After several rounds, a “consensus” is ordinarily reached by participants. The Delphi technique has been widely used with expert participants to estimate future trends. In this case, the Delphi method was used to estimate likely economic conditions in terms of the economic index of business activity. Methodology Used in the Demonstration A class of undergraduate students in Administrative Theory and Practice was selected to demonstrate the results possible with the use of the Delphi method. Nine teams in the class were playing The Executive Game. Four of these teams were selected to participate in the Delphi exercise and four other teams were given instruction in the use of a simple, straight-line regression technique for estimating trends. Group nine in the selected class and three groups from another class which was also playing The Executive Game were used as “experts” for the Delphi respondents. The game decisions covered eight periods of play. During period two, a general orientation was given to the first four groups on the use of the Delphi technique and to the second four groups on the use of a computer oriented regression program. In period three, the Delphi respondents completed the first round of their economic estimation process. Specifically, they were asked to predict during which period in periods 5-8, the economic index would be the highest. The trend extrapolation groups developed an estimation formula from available data during period three. In period four, a second Delphi round was completed and the trend extrapolation groups developed another estimate. Periods 5-8 were used as test periods and no New Horizons in Simulation Games and Experiential Learning, Volume 4, 1977 264 further instruction was given to any of the groups during this period. Results of the Demonstration Exercise The ratio of net income/sales was selected as a representative indicator of performance of the teams participating in the exercise. This ratio is affected by pricing, promotion, production, and financial decisions made by each team as well as by the index of economic activity. It provides rough measure of managerial effectiveness in the use of available resources (including information) and cost control. Figure 1 shows the average income/sales ratios from the two groups during the period of play. The Delphi groups had a higher income/sales ratio than the trend extrapolation groups during the first four periods. However, during the last four periods, the net income/sales ratios were not significantly different for the two groups. In only one period was the income/sales ratio higher for the Delphi groups than for the trend extrapolation groups. The actual economic indexes were 104, 100, 95 and 99 for the preliminary periods and 103, 107, 112, and 112 for the test periods, and average company sales were actually higher for Delphi groups during all eight periods. It is interesting to observe that the trend extrapolation groups achieved somewhat higher income/sales ratios despite lower sales in the last four periods. These results could be partially explained by a tendency for the Delphi groups to concentrate more time and attention on the forecast of economic activity and a tendency for the trend extrapolation groups to place slightly more emphasis on net income. Another factor which probably had some effect was the fact that the economic index declined in periods 1-4 but increased markedly in periods 5-8. The trend extrapolation groups demonstrated a greater ability to exploit the profit potential of an upturn in the business cycle than the Delphi groups. Another possible explanation for the convergence of the re- suits of the two groups is the likelihood that the groups using the linear regression technique had a longer learning curve to achieve facility in the use of the technique than did the Delphi group. No doubt both groups benefited in the last four periods from increased experience with the game situation. Continuation of the experiment for a longer period would shed further light on any significant performance differences. Summary and Conclusions Even a simple game situation such as this one, the results appear to be caused by the complex interaction of a number of factors. Group decisions on sales prices, sales promotion levels, research and development expenditures, production levels, and other factors as well as New Horizons in Simulation Games and Experiential Learning, Volume 4, 1977 265 New Horizons in Simulation Games and Experiential Learning, Volume 4, 1977 266 forecasting skills help to determine the results. In addition, with the passage of time, as team members gain experience with the game operation, results can be expected to improve in accordance with the learning curve phenomenon. In spite of this, the importance of forecasting economic activity several periods in advance to long-run results in business games has been well recognized. The forecasts of the Delphi groups followed the actual economic index more closely during the demonstration period than the economic forecasts of the trend extrapolation groups. On the other hand, the trend extrapolation groups showed greater improvement in net income/sales ratios. One factor which possibly influenced the results achieved is that the trend extrapolation groups learned in period three a technique they could immediately begin to practice, while the Delphi groups obtained outside information only for periods 5-8. A tentative conclusion is that the Delphi technique can, in many cases, contribute to more accurate forecasts of economic activity than more conventional forecasting methods but that Delphi-developed forecasts do not necessarily ensure higher levels of profitability. The small sample size, the limited scope of the experiment, and the presence of a number of complex, interacting factors prevent any clear conclusions to be drawn as tc the statistical difference in effectiveness. The inclusion of more teams, lengthening of the time period covered by the study, and more careful consideration and isolation of the effect variables other than forecasting techniques on team results are needed if definite results are to be achieved. Nevertheless, the present demonstration may provide an outline and ideas for further experimentation and development with these techniques in the environment of business simulation. REFERENCES 1. Henshaw, R. C., Jr. and Jackson, J. R., The Executive Game (Homewood, Illinois: Richard Irwin, 1966) 2. Martino, J. P., Technological Forecasting for Decision Making, (New York: American Elsevier Publishing Company 1972) Table of Contents Volume 4, 1977 Double Play for Gaming Effectiveness Adaptive Rule Changes in Computer Simulation Gaming Œ A Means of Pedagogical Reactive Interchange Monte Carlo Simulation in Personnel Management Training Teaching About the Implementation of Job Redesign Using Simulation and Group Discussions An Interactive Simulation of Private Sector Collective Bargaining Leadership Evaluation and training through Behavioral Simulations: Method, Results and Future An assessment of the Effect of Experiential, Simulation and Discussion Pedagologies Used in Laboratory Sections of an Introductory Management Course An Experiential Understanding of the Trust Dimension Using Consulting Cases to teach Business Policy An Experimental Testing of Teaching Methodologies in Marketing Interpersonal Skill Development: The Experiential Training Unit (ETU) and Transfer of Training An Analysis of the Relationship between Personality characteristics and Preferred Styles of Learning Analysis of Effective Communication Skill Development in Graduate Business and Engineering Experiential Education Changing Perceptions of Learning in a Simulated Environment Student Perceptions: Simulation and the Corporate Policy Course Degree of Uniformity in Achievement Motivation Levels of Team Member: Its Effect on Team Performance in a Simulation Game Channel Conflict, Cooperation and Control: an Experiential Learning Exercise Differences in Experiential and Non-Experiential Learners' Reactions to Conflict between Individual and Organizations Behavior The Evolution and Evaluation of a Required, Senior-Level Course in Experiential Business Applications Building Management Skills through Problem Solving A Live-Case Approach to the Business and Society Course Experiential Learning: Toward the Development of a Theoretical Base and the Identification of Variables and the Hypotheses to Guide Research The Role of the Administrator in Experiential Learning and Simulations Some Thoughts on a Theory of the Use of Games and Experiential Exercises Three Applications of the Management of Learning Grid An Analysis of ABSEL: Its Past Achievements and Future Prospects New Horizons in Simulation Research Prediction of Academic Achievement in a Simulation Mode via Personality Constructs Sex Differences in a Bargaining Simulation COM-GAME: A Commodity Trading Game for Use in an Introductory Business Statistics Course A Financial Institution Management Game with Direct Participant Interactions A Non-Computerized Marketing Planning and Strategy Game Delphi in the Classroom: A Demonstration of Forecasting Economic Activity The Potential of Programmable Calculators for Processing Small Business Simulations Can a Small Predominantly Clack University Incorporate the Computer Simulation Gaming Teaching Methodology into it Curriculum Measuring the Effect of an Experiential Exercise Experiential Learning - Analysis of a Partial Success Predicting Participants' Performance and Reactions in an Experiential Learning Setting: An Empirical Investigation A Simplified, Non-Computerized Marketing Channels Game Manufacturers and Retailers: A Negotiation Game for Beginning Management Students Petroleum Management Game A Securities Dealer Simulator SIM ECO SOC with Business Curriculum Modules: A Simulation for Business Ethics and Morals The Picnic: A Perceptual Errors Exercise Salt III; an Experiential Exercise to Highlight the Interpersonal Dynamics Involved in the Negotiation Process Experiential Exercise on Values, Attitudes and Conflict Resolution in Organizational Behavior Kick'N Go: A Product Management and Social Responsibility Dilemma The Use of Self-Assessment Work-shops in a school of Business Administration The Dilemma of Self-Perception