Category: Economics

One cliché revolves around the word assume. As it goes, when one assumes, one makes an ass out of you and me. Throughout my current employment, I have witnessed how valuable hard cold facts are, where facts could later translate to accurate decisions. While research does produce highly appreciated facts, from time to time, demand for facts may be impossible to fulfill. The danger of assumption cannot be understated but assumption it does tremendously help in the art of projection, where facts are absence.

Planning and projection have its merits and indeed, for it to be sufficiently credible, it has to some extent based on facts and from that facts, relevant assumptions. The tighter a plan is, the more facts the whole exercise requires. Sadly, not all facts are easy to come by. Furthermore, fact gathering activity may be costly and to some point, its cost outweighs its benefit.

Fact gathering, especially in a fast paced situation, may require more time that one could spare. Worse, sometimes, facts are simply not available. Any projection requires some basis and in the absence of facts, assumptions have to be made if one wishes to move on with the exercise.

On top of that, projection cannot be entirely based on facts for projection itself is dependent on at least one major assumption: the facts which those projections rely on are assumed unchanged as time goes by. For a simple plan that stretches by a few days, weeks or months out, one may get away with that assumption. When a projection stretches to years, especially when it is Nostradamus-like, it will inevitably incorporate error.

Error may be costly but it is a risk one must take. If one is forever in search of facts, commitment cannot be made. Without commitment, there can be no progress.

More often than not, after a projection is made, certain information will be available. When this happens, it is only natural to modify the projection to accommodate new facts. There are people that cringe against any revision made against any projection. I cringe when they cringe, expecting those projections to be some kind of crystal balls revealing future with great clarity.

In times of rapid changes, historical facts may even be irrelevant. Frequently, the only relevant historical trend is that of seasonal in nature, meaning, if I may, the frequency of changes. By the frequency itself, cycles are dependent on certain factors that do not necessarily occur cyclically. As for amplitude, projection requires more than historical data. It requires plans which by themselves are based on both facts and assumptions. Chartists for one rely too much on historical data without regard to change. Mainstream economics may be too static to describe our world but at least economics understands how changes affect projection. Chartists do not.

We live in a world of incomplete information. The future is full of uncertainty and so too projection. In the face of uncertainty, assumption has an important role to play. As new information is available, the projection has to change for it to stay relevant. Any person that requires a planner to do a projection for him or her must understand the limitation of projection.

In fact, one question one should ask is this: to what extent a projection is useful?