MBAs Rejoice: Traditional Forecasting Methods Have to Be Reinvented
February 27, 2023
The excitement among the blue chip consultants will be building in the next few months. The Financial Times (the orange newspaper) has announced “CEOs Forced to Ditch Decades of Forecasting Habits.” But what to use? The answer will be crafted by McKinsey, Bain, Booz, Allen, et al. Even the azure chip outfits will get in on the money train too. Imagine all those people who have to do budgets have to find a new way. Plugging numbers into Excel and dragging the little square will no longer be enough.
The article reports:
auditing firms worry that the forecasts their corporate clients submit to them for sign-off are impossible to assess.
Uncertainty and risk: These are two concepts known to give some of those in responsible positions indigestion. The article states:
It is not just the traditional variables of financial modeling such as inflation and consumer spending that have become harder to predict. The past few years have also provided some unexpected lessons on how business and society cope with shocks and uncertainty.
Several observations:
- Crafting “different” or “novel” forecasting methods will accelerate the use of smart software in blue chip consulting firms. By definition, MBAs are out of ideas which work in the new reality.
- Senior managers will be making decisions in an environment in which the payoff from their decisions will create faster turnover among the managerial ranks as uncertainty morphs into bad decisions for which “someone” must be held accountable.
- Predictive models may replace informed decisions based on experience.
Net net: Heisenberg uncertainty principle accounting marks a new era in budget forecasting and job security.
Stephen E Arnold, February 27, 2023
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