Tag Archives | projections

The Next 100 Years: Forecasting the 21st Century

I just read a thought provoking book about forecasting the 21st century. It is titled, The Next 100 Years: A forecast of the 21st Century, by George Friedman. Friedman is the CEO of Stratfor a private intelligence and forecasting company located in Austin, Texas. Barron’s has labeled Stratfor the “Shadow CIA”. They have a web site and paid subscription news blog that post several times a day events happening around the world. I have been a subscriber for several years now and read more insight into what is happening in the world than what you get out of the best newspapers.

The Next 100 Years: Forecasting the 21st Century

Mr. Friedman has written a scenario of how the world might look over the next century. It is a very good book and will help you put things into perspective from a geopolitical basis. The major take aways for me are as follows:

First, a lot of the major issues in the news today will become background noise over the next 100 years. For example, the jihadist movement and Afghanistan.

Second, there will be a population bust in the developed countries. As a country transforms into a manufacturing and technology economy from an agrarian one, the birth rate declines. The world needs 2.1 births per woman for a stable population. Per the United Nations in 1970 there were 4.5 children born worldwide. In 2000 the number was 2.7 children born worldwide. In 2050 it is projected that there will be 2.05 children born worldwide. Less than the 2.1 births required to maintain the worlds population. For the U.S. this means that immigration will take up the slack in the low birth rates.

Third, space based weapons will be the next big thing. And finally, Mexico will be a major global power and will go to war with the United States.

All these scenarios and a few more get you to thinking about how important are the issues of the day when looked through a longer lens. He may not be right, but, he can’t be all wrong!

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Forecasting the 21st century

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Forecasting the 21st century

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Durability Bias in Business

Durability bias in business is the tendency of people to project recent trends or occurrences into the future. If it happened in the past, then it must happen in the future. The term is often used in behavioral science and forecasting.

Durability Bias in Business

How does durability bias apply to business? Often business professionals project short term trends into the future. They believe that the recent good times will last forever, conversely, they also believe the bad times will go on indefinitely!

The stock market is a good example of durability bias in action. When the market is booming you start seeing books titled, “Dow 20,000”, hitting the bookstores. People started buying stocks and an euphoria took over. Last fall the opposite happened. Stocks started dropping and soon we were in a financial crisis.

For the past six months the stock market has gone from maximum pessimism to the beginnings of optimism. Stocks have risen 21% in the past six months and over 39% since the low on March 9th. Right now the durability bias is on the downside, however, as these gains continue the bias will shift to the upside.

So what is your durability bias telling you? Are you running your business as if the tough times are going on forever or are you investing in your people and infrastructure to take advantage of the recovery?

Durability Bias in Business

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Forecasting and Your Business

Do you manage your business looking backward or forward? Are you preoccupied with looking at how last month compared with the budget instead of where your business is headed? While examining actual performance against the budget can be a very useful approach to identifying areas of improvement in your organization, it can also take your focus away from planning for your future business needs.

Forecasting and Your Business

It is important to develop and maintain a running forecast model of your business, one that incorporates trends (in sales, COGS, and overhead) as well as other information (addition of a significant new customer, loss of a substantial current customer, anticipated large changes in raw material prices and/or other expenses, or a new building lease, for example). This will help you estimate your upcoming needs for cash and give you the time to adequately prepare.

Connecting Your Financial Statements

You need to have an income statement model. This projects sales based on expected items or services sold and the prices received, as well as expected gross and net margins. Then, tie your income statement to a projected balance sheet and statement of cash flows. You should also consider a running working capital forecast as well as a capital expenditure forecast.

Being able to anticipate future capital needs months in advance can go a long way to improving your company’s performance by allowing you the time to seek out the best terms (in cost of capital as well as other terms). Such a forecast will help you establish credibility with prospective lenders and investors as well as provide an easy means of communication with them.


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Forecasting and Your Business

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Forecasting and Your Business

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