Causality

Year end led to quite a few commentators, pundits, and random other people taking a look at how poorly others…never themselves it seems…were in their predictions for year end business matters. How far off were they about the price of oil, the ending stock index values, the value of this or that company, the success of one or another product, service, or even entire company. It seems that the year ended with large numbers of results that were nowhere near what was expected when the year began.

Everyone commenting has a plethora of reasons for why results are so far off from predictions. Mostly they focus on random things that happened that no one predicted. It turns out in their estimation it had nothing to do with poor planning, poor execution, more successful competitors, or a variety of things that they could have included in their original thinking about what was to come. It was due to random elements rather than lousy thinking.

Werner Heisenberg, one of the pioneers of quantum mechanics, captured the reality of what happened quite well. “In the strict formulation of the law of causality – if we know the present we can calculate the future – it is not the conclusion that is wrong but the premise.”

We find ourselves once again in the time of predictions for the coming year. Again we face a year of all kinds of random events that will impact the predictions in ways unforeseen. In spite of seeing how poorly their acting on the calculations about the future turned out…actually not always poorly since sometimes big mistakes do lead to unpredicted positive results…many will still act on these new predictions without looking at the basic assumptions they sit on.

It’s not just the assumptions themselves that need to be evaluated. Being prepared for what might come also means considering that once your assumptions are set they still can be wrong – really, really wrong. How would it have changed your thinking, and planning, if at the beginning of 2014 you had taken a serious look at the implications for your business of oil at US$50 a barrel? Would you have been ready to rapidly take advantage as soon as you saw the precipitous drop in price begin? Would you have been prepared with plans to cut quickly and so preserve cash or perhaps ramp up rapidly to take advantage of extra consumer spending ability.

As you enter the new year, be warned. As Heisenberg said, it’s the premise not the conclusion that should concern you.