What Leaders Should Know About Forecasting
By all accounts there was a sombre mood among Davos regulars last week, as grim-faced world leaders mulled over the dismal state of the global economy and how to fix it.
In one sense this is perfectly understandable -- we are in the midst of economic crisis, so business and government leaders are applying themselves to finding practical solutions.
On another level it's profoundly disturbing, because leaders should be doing more than merely responding to situations. The present situation as a whole is the result of key decision-makers operating on a poor view of future. Many of those who gathered at Davos were responsible for the financial crisis.
As a group, their mental model was not open to bad outcomes, or even just alternative outcomes to what was commonly expected.
You can't delegate it Crisis management is part of a leader's job. But their real job is thinking ahead effectively to avoid crises and, on the positive side, develop opportunities.
Not all forecasts are created equal Nobody can predict the future. But it's common knowledge that there were those who foresaw the mess -- this writer identified at least 10. As senior executives might now be forced to agree, some forecasts are clearly better than others.
Learn from failures Leaders can learn from the foresight field and particularly the history of failed predictions. Everyone relies on predictions for their guide to the future and there's never a shortage of them -- they are frequently published in the media, offered by consultancies and think tanks.
Prediction's only half the battle It's not the predictive ability that differentiates a leader, it's the ability to tell a good one from a bad one -- that's what turns a forecast into a strategic resource. That is what leads to better decisions, better plans, and better actions.
It's perfectly possible to assess a particular or consensus-held view of the future and identify its strengths and weaknesses. Here are some considerations worth bearing in mind when you are testing a prediction:
- Motivation -- who is speaking and what might be their agenda? Do they have an interest in maintaining a current system or shaping the emergence of a new one?
- Are the tools being used appropriate to the level and type of uncertainty the business is facing? High-uncertainty situations and long-term views require different approaches to standard modeling.
- What are the alternative outcomes not covered by the consensus model? All foresight is swayed by "zeitgeist" (the spirit of the times). Good forecasts swim against this tide.