Volatile, uncertain, complex: the 'new normal' for forecasters
VUCA stands for volatility, uncertainty, complexity and ambiguity. Historically, the strategic term was used by the US Army in late 1990s for the post-Cold War world, according to Krungsri Research.
However, VUCA has become a popular term among business leaders in recent years, especially after the 2008-09 financial crisis, as a clear reflection of the modern world. It is even believed that VUCA has become the “new normal”.
The world is undergoing a major structural transformation that has left it in a state of volatility and chaos. The researchers do not recall any other period when economic forecasting was such a difficult task as it is today. This can be seen in the abnormally high frequency of both global and Thai economic-forecast revisions.
The phenomena of today’s VUCA world are most obvious in the following economic, social and environmental aspects:
l The global economic crisis of 2008-2009 continues to have strong ripple effects due to the high complexity of global interconnectedness that stemmed from global economic and financial liberalisation. It has opened the doors for both prosperity distribution and systemic risk regardless of location.
l Risk of global political instability has been heightened as a result of both geopolitical disputes and social unrest. Decades of inequality have driven grass-roots populations to come out and call for greater social inclusiveness. The trend is obvious, beginning from the so-called Arab Spring and in numerous Asian countries, and spreading to various movements such as Occupy Wall Street in the United States and the recent demonstrations in Hong Kong. For Thailand, it is quite hard to believe that in the past decade, we have had two coups and seven governments.
l Natural disasters due to environmental and ecological degradations, especially those that have resulted from human activities, have occurred more frequently and damaged the economy more severely. Examples include problems associated with global warming and water crises. Thais remember well the great flood of 2011 that sliced almost 10 per cent off the country’s gross domestic product.
Judging from these factors, many are convinced that it is not just our country that is facing a major reform agenda – the whole world is.
In response to the future that is full of the volatility, uncertainties, complexities and ambiguities of a VUCA world, top global businesses are increasingly adopting “scenario planning”, which draws in interdisciplinary experts to brainstorm and discuss a number of potential scenarios.
Through scenario planning, businesses will be equipped with greater flexibility and readiness to tackle incoming risks and uncertainties. Meanwhile, a new generation of economists are beginning to acknowledge that old-school theories and forecasting tools that rely on historical data may not be adequate to understand and forecast the new world, where so many structural changes are taking place that cycles are no longer obvious. Therefore, what we need is more systems thinking, greater room for imagination, and better acceptance of highly varied views and stances.
“We may have to get along with ‘the new normal’ that is full of challenges and opportunities in the span of many new years to come,” the research said.
