Our ability to predict the future is really only a guess

On April 16, we had a snowstorm.

Every weather report I saw called it a disaster. They showed flowers popping up through the snow and pontificated it shouldn’t snow in April. From where did they get this? In my short life span, I’ve seen snow in May and even once in June. Even two or three times in October.

When I teach problem-solving courses using statistics, I use examples to help people understand the universality of the normal curve. There’s an annual contest to predict the ice-out date on Winnipesaukee. As guidance, I use the ice-out dates since 1887. They show Mother Nature is nearly in perfect statistical control. There’s a lot of variation, but it’s essentially a bell curve.

So I would contend there’s nothing even remotely unusual about a snowstorm in mid-April.

In his book, “Against the Gods: The Remarkable Story of Risk,” Peter L. Bernstein explains that in forecasting weather, economics or anything else, the science only goes so far. There’s a mysterious unknown that confounds many forecasts, which explains why meteorologists, economists, financial analysts and others can be wrong so often. All indications can point in one direction, yet the actual result often turns out to be different.

OK, so maybe you don’t really care about all this. Let’s talk about your budget. Yes, I know, it can be the company tyrant, but it’s only a forecast. None of us have a crystal ball.

Our ability to predict the future is very limited, a guess. Yes, there are great techniques to improve the accuracy, but the best we can say is that it can be an intelligent, educated, highly scientific guess, but it’s still just a guess based on assumptions that can never be certain.

My father used to say, “There’s nothing more uncertain than a sure thing.”

Any idea how many budgets Covid-19 blew up in 2020? I think the answer is all of them. So why can’t we learn something from all of this?

Most managers hate the budgeting process. They must develop predictions, which will often be used against them. If the number isn’t high enough, it won’t be accepted. If it’s too high, you’ll never make it.

The most important number is estimated sales. It’s the number that governs all the others. So every salesperson goes through an exercise to estimate how much their customers will buy next year. In some industries, it’s pretty simple and fairly accurate, but there are still surprises. Like the weather, the future is highly variable.

Whether you’re in sales, engineering or manufacturing, you have to predict how much money you’re going to deliver or how much you’re going to need. Heaven help you if you don’t deliver your sales forecast. Everyone else has to worry about running out of budget money.

Regardless of where you work, the Sword of Damocles hangs over your head. Even the CEO must worry. Miss a forecast and your job could be on the line.

As the year goes on, we learn more and more, but the budget seldom gets revised unless we’re cutting expenses because sales aren’t coming in. In some cases that makes sense, but we can’t grow by cutting expenses. Sometimes, we need to have the courage to make an investment.

On the other hand, let’s say sales exceed all forecasts and business is booming. We find ourselves scrambling to deliver. What we often fail to do is look at some of the things we left on the table when we thought money was tight. Yes, showing a much greater than expected profit is tempting, but all too often, this is your best, maybe your only, chance to invest in the future.

You can still exceed expectations while trying to increase the likelihood of exceeding future expectations. The upside often has opportunities of which many fail to take advantage.

Ronald J. Bourque, a consultant and speaker from Salem, has had engagements throughout the United States, Europe and Asia. He can be reached at 603-898-1871 or RonBourque3@gmail.com.