The only certainty is uncertainty – that goes for human life as well as for the life of organisations. In coping with uncertainty Man has created models and methods to explain what has happened and to predict what is coming. But science about Man and Society only triflingly differs from magic and many of the models we use have considerable similarities to what we would call incantation in primitive cultures. The financial system is an example where sophisticated methods based on scientific models have failed when applied for forecasting the future. The unknowable cannot be calculated, despite everything the finance sector does and says! Models are based on assumptions about reality and the less one knows about reality the closer the assumptions come to guesswork—or incantations.
Hypothesis is a word used to describe an assumption about the state of things. Today hypothesis has nearly been displaced by the word model that somehow does not carry with it the sense of human involvement and responsibility that is conferred by the partially synonymous hypothesis. Obviously the idea of a model appeals to the human mind as it suggests abstraction and control of a large, complex subject like an organisation by means of smaller, easily manipulated, and totally fabricated mechanisms like business models.
A business model is part of a business strategy aiming at creating value for customers and owners and based on assumptions about market development, how competitors will act and how revenues and costs will balance. There is a variety of unknown factors that must be answered through assumptions and guesswork. But how do we know that we include he most relevant factors in our assumptions, and can we be certain that priorities between factors are reasonable? Or – this is perhaps the most critical question we will have to ask – could there be factors of which we are not aware but which have in reality decisive impact on the business process? Such factors are for example working conditions and management attitudes. Lack of awareness restricts the opportunity of discerning other decisive factors – absence of evidence is not evidence of absence.
These and similar issues are raised and discussed in the book Monitoring Business Performance – Models, Methods and Tools, published shortly by Routledge. The
book illustrates with examples how well-known models for forecasting, strategic
planning and cost accounting fail because of assumptions based on ignorance, unrealistic optimism or simply naivety. Taking transport systems as an example shows that 9 out of 10 transport projects have considerable cost overruns which, in spite of new models and methods has been going on for the last seventy years!.
Criticising models does not repudiate business models but should rather emphasise the fact that a model is based on assumptions by somebody about a reality that may look different in different contexts and from different perspectives. Awareness that models are never objective should be obvious and also considered by every decision maker.