In the last week or so, the International Monetary Fund released another of its major economic outlook statements. Business and financial media all over the world earnestly pored over the numbers as if the future had been foretold by some all-knowing wizard. The strong sense was that, with this new-found certainty, decisions could finally be made.
Which would all be well and good except for one thing: the IMF is a false prophet.
Even a cursory review of the IMF’s fortune-telling performance reveals that their predications are, at best, a reasonable guess. IMF forecasts typically come close to the mark during relatively stable periods. But they nearly always fail to predict major economic adjustments which is, of course, when they would be most useful.
Mistaking complexity for accuracy
We have an unfortunate tendency to reward complexity with excessive authority. To think that because the IMF numbers have been compiled by experts using impenetrable models, they must be right. It is the mistaking of complexity for accuracy.
The same problem frequently rears its crystal-gazing head in business.
About this time of the year, many managers spend more hours than usual parleying with spreadsheets. For an intense month or so, these documents are judiciously filled in, cell by cell, as the next year’s budget takes shape. Eventually, after the requisite amount of argy-bargy between departments, the financial crystal ball is given a last spit-and-polish and displayed to one and all.
This enormous collective effort, along with its underlying level of detail, give the budget impressive influence. More than any single person in the organisation, the budget will drive major decision making during the following year. Levels of employment, levels of output, sales targets, purchasing decisions. All will be governed by this soothsaying set of spreadsheets.
Which would all be well and good except for one thing: the budget is a false prophet.
In most cases, the budget will be out of date before its year begins. External forces change things. Competitors come up with special deals and deplete market share. A new product takes off much better than expected leaving capacity sorely strained, while last year’s star product gathers dust (and ties up cash) as it sits forgotten in the warehouse.
But again, because the budget looks accurate in all its complexity, and because so much blood, sweat and typing went into its compilation, it is given more credence than it deserves.
A widespread weakness
The mistaking of complexity for accuracy is widespread. It could be argued that it played a role in triggering the global financial crisis. Undue faith was put into labyrinthian financial instruments, into unfathomable risk management models, into convoluted – not to mention corrupt – ratings systems.
Which is not to say that budgeting, forecasting and predicting should not be done. But when they are done, whether on a small scale in your office or an international scale, their projections need always to be washed down with a hefty dose of scepticism. No matter how complex and sophisticated they appear.
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I've been work- ing in business, one way or another, for the last 20 years, and writing for the last ten. My main interest now is to get messages across - yours and mine - in a readable and approachable fashion. 
