Are business projections always accurate? How often does the market change?
Business projections are a way for companies to predict future income and performance based on current data. However, Stephen Denning’s book The Age of Agile says that using these predictions won’t give you an accurate reading.
Keep reading to learn why you need to be careful with your company’s projections.
Don’t Assume the Future Will Resemble the Past
Denning explains that traditional business relies heavily on analyzing past data to forecast future market conditions. The idea is that, if companies collect and analyze enough data about what has happened before, they can make business projections and pre-emptively invest their resources accordingly.
(Shortform note: While many would agree with Denning that data can’t tell us the future, some business experts argue that forecasts are still useful in guiding decisions. However, they contend that rather than assuming forecasts will come true, business leaders need to embrace uncertainty and think through the probabilities of a range of possible outcomes. One way to do this is with technological forecasting—attempts to predict which technologies are poised for rapid growth and which sectors of the economy will be most impacted. Though these forecasts are never 100% accurate, business leaders still rely on them to steer their investment decisions.)
Why It Doesn’t Work Anymore: Unpredictability
Denning explains that this approach falls short because data can only tell us what has happened before—not what will happen in the future. Data cannot predict disruptions and innovations, which are hallmarks of the modern business landscape.
Advancements in technology, communications, and interconnectedness translate into high levels of unpredictability and constant change. To remain viable, businesses must adapt swiftly to changing conditions, often by pivoting to tap new markets, create new products, and adopt new technologies.
As a result, companies can no longer depend on their analysis of data from the past to steer them into the future. For example, a company might develop a five-year strategic plan, only to find that within two years, a disruptive innovation has rendered their product obsolete, and now they have to pivot to a completely new product. Their strategic plan, though well-researched and supported by data, may turn out to be useless.
(Shortform note: In The Signal and The Noise, Nate Silver agrees that the complexity of the world has made prediction more difficult—but not necessarily because things change more quickly. Instead, he argues that the sheer volume of information has made it more difficult to distinguish between signal (information that will help you make an accurate prediction) and noise (irrelevant information that will mislead your prediction). Silver argues that because we now have access to more information than we’ve ever had before, we also have more noise than ever, making accurate predictions increasingly difficult.)
