Rich Wagner is CEO of anticipatethat helps business leaders forecast their company’s future performance and plan for tomorrow.
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Not surprisingly, Covid-19 has been the primary cause of enormous market and economic volatility, much of it beyond the control of individual organizations. From inflation and rising material costs to supply chain disruption, the unprecedented times of yesterday continue to linger on the business uncertainties of today.
Now the pressure is on business leaders to help their organizations get through it.
For decades, business leaders have relied on forecasting methods based solely on historical performance and internal projections in an effort to plan for the future. What The Economist Notes, these methods generally involve “charting various futures, deciding how to respond to them, and identifying early signs that they might be coming.”
However, in today’s economy, where decision-making can feel like playing the lottery, these methods are no longer able to keep pace with the extreme uncertainties of today’s unprecedented world, ultimately resulting in missed forecasts. and blind spots in the market.
As new classes of intelligence and algorithms become more advanced and more accessible, business leaders can now “future-proof” their strategic plans and forecasts by moving away from legacy forecasting models and incorporating predictive analytics and artificial intelligence (AI). ) in their planning processes. With this approach, business leaders can mobilize internal data and external global data to develop accurate forecasts and better navigate worst-case scenarios.
Untangling economic intelligence
For the past two years, the world has been continuously affected by unforeseen economic factors that business leaders must now consider in their planning processes to keep up with the anomalies of today’s society.
Fortunately, there is an endless supply of data sets that analyze these dynamic market metrics such as specific industry trends, macroeconomic trends, and consumer behaviors for business leaders to use. However, with all this information available, it can be difficult to identify and pay attention to the correct leading indicators without letting personal judgment, bias, or peripheral factors cloud the forecast.
AI can provide an agile way to sort through these extensive data records to quantify unique sets of market drivers for any given business. From thousands, perhaps millions, of external market signals, AI can help business leaders identify the top five, top 10 or top 15 indicators that contribute the most impact to their organizations and then incorporate these indicators into their planning models. .
Taking a look at the multiverse of business scenarios
Machine learning and AI can essentially do all the heavy lifting, providing a simple way to create, simulate, and refine thousands of models on a large scale based on permutations of the aforementioned leading indicators. Business leaders can then use machine learning algorithms to find the model with the highest predictive accuracy that will serve as a guide to market-validated short-, medium-, and long-term forecasts.
Perhaps one of the most important uses of AI in business planning is continuous monitoring of market changes, as forecasts are only as good as the predictive accuracy of the model at that time. If any of the underlying data contributing to that model changes, such as inflation rates or government relief policies, the model’s accuracy score will also change.
To maintain confidence that market-validated forecasts remain valid, business leaders can use AI to constantly monitor their business model, update the model, and then refine the business plan based on the latest input data. .
On the outside looking in
One of the best ways business leaders can embrace AI-powered scenario planning is to strengthen their consulting teams with experienced economists to better plan through market volatility.
The importance of the economic context cannot be underestimated in scenario planning. The Covid-19 pandemic created a global business disruption that spanned industries, audiences, and oceans. Today’s market recovery is nothing like what we’ve seen in the past, and experienced economists can help layer complex changing economic signals into various scenarios to give business leaders better, more actionable insights.
With scenario planning backed by experienced economists, business leaders create more flexible business performance models that project business outcomes under different macroeconomic scenarios. While sophisticated software is needed to make sense of the multitude of data, custom models coupled with economic expertise can help companies maintain success even in times of extreme market volatility.
Enhance and Modernize Smart Forecasting
Regardless of the event, today’s unprecedented disruptions will continue to disrupt business forecasts and plans for the foreseeable future.
As business leaders look to the future, having visibility into external economic factors and being able to consider how their organizations will fare in the ever-changing economy will be paramount. Now it’s up to you to modernize how your business leverages this data to maintain unprecedented levels of readiness during unprecedented times.
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