Grey Mosquito # 1 — Updates and Versions
In my previous text I tried to draw attention to a phenomenon that I named grey mosquito. I proposed that, in some way, grey mosquitos are the opposites of black swans. In this text I will provide some specifics behind the concept, pointing to an example.
24/7 news channels and all other media vie for your continuous attention. One way of achieving it, and keeping you engaged, is to provide updates.
This along the lines of — if you are not tuned in you might miss a very important update, so stay tuned. I do not intend to write here about this broad subject area. Instead, I want to zoom on a particular type of updates and versions, that of financial projections. These are ubiquitous to our corporate reality are known under a number of names. Projections, budgets, forecasts or latest best estimates, to name just few. Guestimates and lotteries are the terms less often used. They are less used albeit sometimes they would be more fitting.
Updating projections, a reasonable activity in principle, may be degraded into a zombie proxy — a grey mosquito in any or all of the following ways:
- a disconnect between update and ability to act upon it;
- the unproductive burden of reconciliations between the updates/versions; and
- the ambiguity what a forecast, and its updates, are deep down about.
An update? So what? What can we do about it?
One could argue that updates are inherently valuable. This along the lines: updated = more valuable. Let’s look at an example of revenue updates. We might track daily dales and periodically adjust that full month’s projection. You might drill into product details and try to adjust the full month’s expectations based on that product development so far. By digging even deeper you might discover some product-specific circumstances. You might try to weave this knowledge into this product’s updated forecast. The same approach can be applied to a quarterly revenue forecast. When updating the projection of the first month, we attempt to predict the impact of the current developments on the following months. We can apply the same thought process to annual sales or multi-year projections.
I would like to propose that the value added of an update is inextricably linked to the feasibility to act upon it.
If you are not in a position to change your actions with the same frequency to that of the updates, these become nothing more than a trivia.
Building bridges or endless reconciliations
The second point I’d like to make here is that the pointless trivia production carries further costs.
Often multiplicity of updates leads to reconciliations.
Why is the update of this week different from the one from the prior week? Which products brought the biggest variances? What does is spell for those products in the next days? What assumptions have changed? The aggregate variance is drilled to extract the significant component drivers. You might have to reconcile the current update versus the previous one, if you are lucky. If not, you might be asked to do compare it to versions t-2, t-3, etc weaving endless reconciliation web. Those reconciliations are often times as limitless as they are pointless. Yet, they are often presented as sophisticated, insightful and value-adding activities.
Prediction or wishful thinking?
The third point that makes an update/version to a grey mosquito relates to what an update to a forecast, deep down is about. One might say that is obvious — it is an adjustment to previously made projection based on more data available. That obviousness cannot be taken for granted.
Often times an adjustment is not exclusively related to the new data becoming available. Instead we have the wishful-thinking mindset elbowing its way into the arena.
The update falls short of expectations? Let’s see if we can revisit the update so that it will match the expectations. Updates driven by wishful-thinking are particularly dangerous. They might convey the idea of relentless work to update our knowledge about the uncertain future along the lines: the more updates -> the better, the thinking goes.
However, if updates are driven by wishful-thinking we than operater on the principle: the more updates — the more illusion of control.
Conclusion
There are many ways that can derail a legitimate and value-adding activity. One way is to transform it into a grey mosquito — a value-devouring activity that does not appear as such at the face value. I propose that there is a value of watching out for grey mosquitos and attempting to prevent them from occurring. I will be following up with more examples in following texts.
