Last Updated: December 14, 2022
Originally published on Forbes.com by Rich Wagner, Prevedere CEO.
It’s no surprise that Covid-19 has been the root cause of a tremendous amount of market and economic volatility—much of it beyond the control of individual organizations. From inflation and rising material costs to supply chain disruption, yesterday’s unprecedented times continue to linger in today’s business uncertainties.
Now, the pressure is on business leaders to help their organizations navigate 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. As The Economist notes, these methods typically involve “mapping out several futures, deciding how to respond to them and identifying the early signs that they might be coming.”
In today’s economy, however, where decision-making can feel like playing the lottery, these methods are no longer capable of keeping pace with the extreme uncertainties of today’s unprecedented world, ultimately resulting in missed forecasts and market blind spots.
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 shifting away from legacy forecasting models and incorporating predictive analytics and artificial intelligence (AI) into their planning processes. With this approach, business leaders can mobilize both internal data and external global data to develop accurate forecasts and better navigate worst-case scenarios.
Detangling Economic Intelligence
For the past couple of years, the world has continuously been impacted 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 datasets that analyze these dynamic market metrics, such as specific industry trends, macroeconomic trends and consumer behaviors for business leaders to use at their disposal. However, with all of this information around, it can be difficult to identify and pay attention to the right leading indicators without letting personal judgments, biases or peripheral factors cloud the forecast.
AI can provide an agile way to sort through these extensive logs of data to quantify unique sets of market drivers for any given business. Out of thousands—maybe millions—of external market signals, AI can help business leaders identify the top five, 10 or 15 leading indicators that contribute the most impact to their organizations and then incorporate these indicators into their planning models.
Peeking Into The Multiverse Of Business Scenarios
Machine learning and AI can essentially do all the heavy lifting, providing an effortless way for thousands of models based on permutations of the aforementioned predictive indicators to be created, simulated and refined at a massive scale. Business leaders can then use machine learning algorithms to find the model with the highest predictive accuracy that will operate as a guide for market-validated forecasts in the short-, medium- and long-term.
Perhaps one of the most important uses of AI in business planning is the ongoing monitoring of market change, as forecasts are only as good as the model’s predictive accuracy at that moment in time. If any of the underlying data that contributes to that model changes, such as inflation rates or government relief policies, then the model’s accuracy score will change as well.
To maintain confidence that market-validated forecasts are still valid, business leaders can use AI to constantly monitor their business model, refresh the model and then refine the business plan based on the very latest contributing data.
On The Outside Looking In
One of the best ways business leaders can embrace AI-driven scenario planning is to fortify their consulting teams with experienced economists to better plan through market volatility.
The importance of economic context cannot be understated in scenario planning. The Covid-19 pandemic created a global business disruption that crossed industries, audiences and oceans. Today’s market recovery is nothing like we’ve seen in the past, and experienced economists can help layer complex shifting economic signals into various scenarios to give business leaders better, more actionable insights.
With scenario planning supported by experienced economists, business leaders create more flexible business performance models that project business outcomes under different macroeconomic scenarios. While it takes sophisticated software to make sense of the multitude of data, custom-built models coupled with economic expertise can help businesses remain successful even through times of extreme market volatility.
Smarten And Modernize Intelligent Forecasts
Regardless of the event, today’s unprecedented disruptions will continue to alter business forecasts and plans for the foreseeable future.
As business leaders look ahead, having visibility into external economic factors and being able to consider how their organizations will fare in the ever-changing economy will be paramount. It is now in their hands to modernize the way their businesses leverage this data to maintain unprecedented levels of preparedness during unprecedented times.