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Timing Decisions in an Uncertain World

January 8, 2021

In the face of uncertainty, how do businesses know when to time certain decisions? Catch our newest TrendsTalk episode with ITR President and Speaker Alan Beaulieu for guidance on the upcoming year.

 

 

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Transcript by Rev


Hi, everyone. I'm Alan Beaulieu from ITR Economics. Awfully glad to spend some time with you today. I want to talk to you about a fairly common problem as all of us at ITR talk with clients and people we run into. It's an uncertainty. It's, "How do I know that this is a time to gear up, time to invest, time to spend money?"

And it's not as simple as you might think. If you're living it, I certainly understand it. It makes perfect sense. There's all kinds of conflicting things going on. There's noise, there's uncertainty brought to us not only from COVID, but from what's going to happen politically, what's happening around the world, what's happening in the UK. And it's all rather unsettling. It makes perfect sense to me why there is uncertainty out there.

I would encourage you to settle in on your main point of uncertainty and try to assess the risk. You know that. You're leaders. But just encouragement to do so. If it's COVID, we have the vaccine that's coming. And as they are coming, the latest objection that we hear is, "Well, what about the different strains?" Well, Dr. Fauci and others have said that the RNA, the mRNA versions are going to be able to handle the different variations of different strains because they attack at a level that is sufficient to deal with some mutations.

So that's certainly of some help. And there's some progress being made there. I think that the risk of a government-led shutdown is diminishing as the vials go out, as people get their shots, certainly not gone. But you can measure that risk and you can assess whether what you want to do is worth the risk. Is it worth taking the risk of buying that new piece of equipment so you can automate your process or so that you can innovate your product so you can innovate your service, so you have time to get it in and be more productive on a labor sense? What's the real cost?

You're going to have some cash that's going out the door perhaps earlier than it has to by six months, but you'll be ready for what comes in the other side versus waiting. If you wait until you know, then it's too late because by the time you get it in, others will have a jump on you. The innovation will have occurred elsewhere, the efficiencies will have occurred elsewhere, or they will have the production edge on you because they've automated. There will be some competitors out there who have gone ahead of you. So please weigh the risks of not waiting with what you will gain from going forward.

Now, if you're like most of us, the risk of failure looms larger than the risk of success. By that, I mean, if we have a choice between taking a risk and facing a 10% decline or taking a risk and getting a 17% gain will pass, because the fear of the 10% decline is greater than the joy of a 17% gain. But we're leaders of businesses. We're paid to take measured risks. And as we measure what's going on around us, and as we measure our businesses, it usually comes down to cash and client-customer demand.

Cash? You have to decide that one. That's a spreadsheet and that's a function, that's something you're going to be doing. But when it comes to customer demand, that's where we come in and our dashboard is lit up. If you're using rates of change and I certainly hope that you are, if you're not go to our website. You can learn a lot about rates of change and how to use it there, and we don't need to get into that today. Then you have an internal dashboard that's helping you with the customer demand. Look at the markets that you serve and look at the rates of change for those markets.

And as they're moving up, you're going to feel that there is this need, this urgency, and that might mitigate the fear of the risk that you're feeling, seeing, sensing. And allow you to move forward and accepted as a mitigated calculated risk so that you can make more money in the rest of '21 and in the years to come.

I like to think of it in terms of something I learned from my father-in-law, which is there's two types of flying as we all know. There's visual flight rules and there's instrument flight rules, IFR. And what he taught me was you can be a really good flyer flying by the seat of your pants. You can be top-notch. And that's when the economy is clear, everything's understood and there are no storm clouds, it's not raining and winds are mild. I mean, it's easy to fly then.

But the IFR, the instrument flying comes in when it's storming out there, when you just can't see, when things aren't going right. And with the use of instruments he taught me, you slowly learn to ignore the seat of your pants. You have to do that, he would instill in me. Because if you don't, if you just trust in you and what you're feeling and thinking and not trust the instruments, that's when pilots find themselves in the ocean. That's when pilots find themselves way off course or worse yet, they find themselves meeting a mountain head on. Use your instruments, my friend. Use your instruments that you can use.

Look at the risk and assess what the gains would be because the economy is going to keep going and spend the money on yourself if you possibly can. Now, I know not everybody can. Cash is at a premium in a lot of companies, but if you're one of the blessed, one of those that have access to capital, your own or better yet go borrow it. I encourage you that it is time to go. It's time to move forward. It's time to get ready.

Thank you very much for letting me be part of your day. I hope it's a great one.

About

Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.