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## University of Stellenbosch Business School Executive Development

Skip to 0 minutes and 5 seconds Sometimes, not always, a futurist problem lends itself to being analyzed from a very quantitative point of view. In other words, using numbers, measuring something. It’s not always appropriate. But it’s particularly useful in the world of economics, and perhaps demography. Now, the way quantitative forecasting works is essentially we first examine the past. We look at as much data as possible pertaining to the history of this particular variable. Let me give an example. Maybe we’re going to look at economic growth for the next 20 years. A starting point would be to take a look at economic growth in the past, in let’s say South Africa, and to find and to probe the factors that contribute towards economic growth. These we will measure.

Skip to 0 minutes and 55 seconds We typically then model that, come up with a set of equations, enabling us to describe the link between other variables, such as interest rates, such as the inflation rate, such as the balance of payments, and how they impact on economic growth. We come up, as I say, with a set of equations. Then, with a view to the future, we take that same set of equations, and we plug in new appropriate variables. And we come up with a number. For argument’s sake, our model might show us in 10 year’s time, given these inter-relationships, the growth rate could be for arguments sake 3%. That is an example of quantitative forecasting.

Skip to 1 minute and 34 seconds Its benefits are, it’s fairly simple, fairly straight forward, not too time consuming. The disadvantages are, it does not give us enough richness. It does not take into account, it cannot take into account, a whole range of what we could call qualitative variables. It doesn’t take into account the possible impact of policy changes by government. It doesn’t take into account changes in politics, as such. It doesn’t take into account, necessarily, changes in social values. So quantitative forecasting has a role to play. But perhaps a rather limited role. In addition, it’s probably not all that useful when we’re taking a long term view.

Skip to 2 minutes and 18 seconds It might be doable and usable for short term issues, maybe up to the next five years, but beyond that, a very good chance that historical relationships would start changing, and then the model becomes less valid and more inappropriate. It’s often used. It has a role to play. It can be useful. But it’s not the end all and the be all. It’s not a panacea for all kinds of future’s thinking.

# Quantitative forecasting

Sometimes the future lends itself to being analysed from a quantitative point of view. Let’s take a look how.