Always Take Projections With a Shaker of Salt

by July 24, 2019
Looking at projections for a company or an industry? Here are a few things to keep in mind. (Credit: Pixabay user Robert-Owen-Wahl)

Covering business means you’re always hearing estimates, projections, and predictions from companies, industry analysts, think tanks, and others. The view as to where things might go can be helpful in developing and indicating a bigger context for a story.

Reporters frequently eat it up. An analyst firm thinks the stock price for a specific company should be worth some astronomical figure. Here’s the projected size of an industry market in five years. The following are sound investments. Reporters love such information because it lets them and their readers be in the know.

More accurately in the thought-you-knew. Forecasts receive much more credulous attention than they deserve because of their very nature. That isn’t a dismissal but more of a cautionary tale.

Trying to predict the future of a single company or an industrial sector is wickedly difficult for fundamental and understandable reasons. Here are some:

  • The forecaster may not have the modeling, statistical, or analytical expertise necessary even though that’s what a firm pays them for. Or they might have learned the skills but are deficient in their understanding or application.
  • Technology can turn existing expectations upside down. (Netflix started in 1997 and Blockbuster ceased operations in 2013, roughly 16 years later.)
  • Data and methods, even when generally sound, are always imperfect.
  • Those projecting the future have their own agendas and unconscious biases.
  • Regulators may upset what seems a clear path.
  • Strategic decisions are often about doing something not tried before, meaning that historical data can be useless and misleading if watched too closely.
  • Any projection or estimate employs a degree of confidence and potential error, not single hard numbers.
  • As time passes, more data can help improve a forecast, but the numbers previously published are still out and in use.

There are still good reasons to consider projections, so long as you handle them in a reasonable manner. One point is to push the source for the limitations of the prognostication. Ask if the number is an attempt at specificity or if a series is more indicative of the speed of a path or transition. Inquire if there are ranges or confidence intervals or some other limitation on the interpretation. Also, ask how they generated the information and what  formed the basis of the conclusions. Look at prior fortune telling by the individual or organization and compare them to the actual results they estimated. How far off have they’ve been in the past should give you some sense of the accuracy of their current guesses.