Forget the Forecasts
At the start of a new year, thousands of forecasts are made of what the next 12 months will bring. Virtually all of them will prove to be wrong—many hopelessly so. Organizations indulge in the same pointless game. They call it budgeting and demand that managers deliver results to match the forecasts or face the consequences. That process accounts for almost all the ills of today’s management, from stress and burnout to lousy ethics and criminal fraud.
This is the time of year when a myriad pundits make their forecasts of what the new year will bring. The evidence is simple and clear: they will all be wrong. Even a casual look at forecasts of the past is sufficient to provoke laughter. As Louis Menand wrote in the New Yorker magazine, in one study of forecasting, based on 284 people making 82,361 forecasts over 20 years, the pundits proved to be “poorer forecasters than dart-throwing monkeys.” [via]
Most managers are compelled to get into the forecasting business on a regular basis (it’s called budgeting), with no better results than anyone else in actual forecasting terms.Why should this be relevant to today’s dire state of management? Most managers are compelled to get into the forecasting business on a regular basis (it’s called budgeting), with no better results than anyone else in actual forecasting terms. However, there’s a major difference between forecasts from the various political and economic pundits that appear constantly in the media and those made in organizations: managers in organizations are tasked with making their forecasts come true. It’s known as “making the numbers,” and is the Holy Grail of those organizations infected with Hamburger Management.
Since it is clear that even experts whose professional lives are spent developing forecasts are extremely poor at doing it (nearly all highly-paid managers of financial funds, for example, fail to match the returns from the market as a whole), it seems inconceivable that tens of thousands of ordinary managers should be any better at the job. Their forecasts will, therefore, be inaccurate; some merely a little off the mark, others wildly out. But since they are compelled to make good on their budgets, they must bend reality, one way or another, to make it all work out.
Setting high expectations isn’t a panacea for motivation. Unless those expectations are solidly justified by reality, it’s stupidity on a massive, corporate scale. You don’t motivate anyone by trying to force them to accomplish the impossible, and punishing them when they fail.Crazy expectations and inaccurate forecasts lie at the heart of our management malaise. The continual pressure from above to “make the numbers” fuels 99.9% of overwork, stress, and burnout. The much-publicized descent of managers into unethical and criminal behavior is mostly due to seeing no other way to square the circle and make their forecasts come true. And the continual demands by Wall Street for ever more optimistic forecasts, plus the instant punishment that institution gives to any business honest enough (and foolish enough, in their terms) to forecast lower numbers, merely fuels the madness. Setting high expectations isn’t a panacea for motivation. Unless those expectations are solidly justified by reality, it’s stupidity on a massive, corporate scale. You don’t motivate anyone by trying to force them to accomplish the impossible, and punishing them when they fail.
It’s reasonable to express hopes for the future, and to try your best to turn those hopes into reality. But even hopes need to have some basis in fact and probability. If they don’t, you’re setting yourself up to experience disappointment and frustration. And since that yawning gap between expectation and actuality is the basis for burnout, you’re probably putting yourself at risk of that as well—especially if you respond to the gap by trying to bridge it by sheer hard work and ever longer hours in the office.
Budgets and forecasts have become part of the unchallenged orthodoxy of management. It’s high time they were challenged and seen for what they are: at best, expressions of hope; at worst, the creation of crazy expectations doomed to crash and burn.
6 Comments:
Unfortunately I see little change coming on the horizon. Despite the cling to the former command and control style of management by many older managers, the problems you list are exacerbated by the curriculum at the myriad business schools.
After having obtained an Masters and working on a PhD, It seems the MBA, where many new young managers halt their education, only serves to reinforce the current model of management. Budgeting and forecasting methods mention the inherent complexity of decision making but in the end rely on a standard 5-10% increase or decrease over the previous years numbers forgoing any semblance of human capital management, systems thinking and activity costing.
Thanks for your comment, Anthony.
You are so right. Business schools are bastions of conventionality. I know — I used to teach in one.
Still, all we can do is to keep pointing out the foolishness of such ideas and hope that others will eventually get the message.
Keep reading, my friend.
By accident came across your blog.
Have read what you've posted in the last month or so. Has been a real "help" to read your musings. Best "thing" I've encountered in the last year. Thanks for your considered, patient, kindly and helpful reflections. I'll be visiting every day.
Bruce Grindlay
Thanks you, Bruce.
I'm glad you found it helpful. Your comment is a great start to a new year.
Keep reading, my friend.
I don't think there are too many businesses who forgo systems thinking, etc when it comes to making predictions going forward. Such predictions are based on 'reality' but that reality is obviously not going to be the same in the future - and yet we tend to hold to our purported future in the face of mounting evidence to the contrary and that's when things need to change and variations to expectations filtered into the system so that targets remain aligned with reality as it unfolds. Strategy maps are useful for this - since delivery of a larger goal is broken down to incremental deliverables. If aspects related to those change then the overall impact can at least try to be gauged.
I'm just trying to understand what you propose to do? Not try and project what might occur? play it as it comes?
I'll do my best to respond briefly, Despotic Manager.
There's a massive difference between an aspiration (or even a plan) and a budget forecast someone is going to hold you to.
Aspirations set down your focus and what you hope to achieve through your best efforts. Plans allow you to set priorities and try to anticipate potential problems and needs. Both need to be flexible, since none of us can ever know what the future holds. Yet both allow for reasonable and sensible anticipation so that we are as prepared as we can be.
And if things don't happen as we expected and hoped, neither having an aspiration, nor a plan, that didn't work is any cause for punishment or guilt.
Budget forecasts, as I said in my post, come with a very different message: "Achieve this or you have failed in a culpable way." Indeed, in Hamburger Management organizations, the message is: "Acheive this (or better) or you're toast."
That's the killer: the threat that you must control the uncontrollable (the future) or suffer the consequences. That's what drives people over the edge into burnout, dishonesty, or outright criminal behavior.
Would I do budgets? Did I do them when I was in charge of a company? No and no. Did we have aspirations? Of course. Did we do the best planning we could? Naturally. Was anyone punished if it didn't work out? Certainly not.
That's what I mean by my suggestion that budgets — especially combined with Hamburger Management — are an unmitigated curse.
P.S. I hope your nickname for your comment is ironic. If you really are a despotic manager, I'm wasting my time with this reply.
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