Why Forecasting has Become Very Difficult for Individuals, Firms, and Nations

Why are we being blindsided by Black Swans ?

Whether you are an individual or a decision maker in a big corporation, or a policymaker in charge of planning for nations, it is a fact that forecasting has become very difficult in the present times.

Indeed, the fact that big businesses and nations alike are finding that whatever planning they do for the future immediately is contradicted and overridden by fast-changing events and happenings.

While this can have severe repercussions in terms of an inability to see ahead and therefore, become “blindsided” by what the famous management expert, Nicholas Taleb, mentioned as “Black Swans”, it can also have more immediate effects such as firms going bankrupt and loss of lives in countries that fail to anticipate natural and human-made disasters.

Astrologers and Think Tanks

On a lighter vein, many of us have seen the way in which Astrologers have become quite popular in recent times for individuals anxious to know what the future holds for them.

Also, we have also seen countless firms turning to management consultancies and experts to help them navigate the future.

Apart from this, we are also privy to the sight of policymakers hosting regular conferences on how to plan for the future and have a better grip on the present by looking at the past.

Convergence of Globalization and Technology Making Forecasting Difficult

So, what are the reasons for this overall failure in forecasting and planning for the future gone awry? The answer lies in the convergence of globalization, technology, and our models to assess risk wherein each of these factors feeds into each other leading to high-risk events and Perfect Storm scenarios that leave everyone befuddled.

For instance, most of the experts predicted that Hillary Clinton would win the presidency and instead, the opposite happened. In the same manner, most experts predicted that the Brexit referendum would result in a No vote and as we know, the opposite happened.

Thus, we contend that there needs to be a better approach to forecasting by examining the reasons and the factors that are making our planning go haywire.

Globalization and Localization

To start with, globalization has made the world integrated and interconnected to the extent that what happens in one part of the globe has impacts on other parts of the world. Given the fact that most corporations operate on a globalized basis, it is clear that what happens in the United States and in Europe has a direct and indirect effect on firms located in Asia.

For instance, the Manufacturing sector in China and the IT (Information Technology) Industry in India were both affected by the election of President Trump and the real-time flow of information since the election with all the unpredictability and uncertainty matching that of a high voltage Cricket match that “goes to the wire”.

Thus, in a globalized world, decision-makers have to stay ahead of the curve in anticipating and reacting to events and happenings around the world.

Accelerating Technology

Next, technology has accelerated the world so much that real-time responses are needed to the fluid and ever-changing world events.

The key point to note about technology is that in the last few decades, exponential increase in computing power and the accelerating use of technology has resulted in Smartphones having the computing power of Supercomputers in the 1960s and hence, with all this capabilities in one’s hand (literally as well as metaphorically), it has become the norm for everyone to see their lives quicken and speeded up.

For firms, it is clear that whatever planning they do for the next year often becomes redundant within no time since technology would have accelerated to such an extent that change happens at breakneck speed and real-time events often catch the decision makers by surprise.

We Need a New Approach to Risk

Third, and perhaps the most important aspect here is that we need a new approach to measuring risk since the existing models are outdated and not serving the purpose for which they are intended.

For instance, we now have to factor in globalization, technology, new and old media, demography, and localized events into the risk matrices so that we have a better grip on the present and are confident about the future.

Indeed, the fact that globalization intersects with localization and that technology intersects with inequality, and the intersection of demography and politics are all factors that should go into our planning and models should be the basis for forecasts.

Hear the Signals Talking and Separate the Signals from the Noise

Thus, the future belongs to those who can “hear the signals talking”, and intuit future events, and sense which way the wind is blowing.

This is an important lesson not only for corporates but also individuals if they have to make wise career decisions as well as important personal decisions. Indeed, the fact that we need to separate the “signals from the noise” in addition to understanding how the technology works means that unless we have a sense of where we are headed, we will end up in the same place where we started.

Lastly, decision makers everywhere have to necessarily take into account highly local factors along with politics if they are to make informed decisions about the future. It is no longer enough to focus only on the Global or the Local alone, and one must have a broader vision. In addition, unless we factor in political risks, there is no way in which we would be able to plan for the future and be aware of the present.