Buy a Crystal Ball

People trust software to help them avoid disasters. After the dot com crash, all public and many private companies tightened up internal controls in response to the infamous Sarbanes-Oxley Section 404. Indeed, an entire category of software covering Governance, Risk and Compliance (GRC) grew rapidly to help companies insure that they have the proper controls. If you haven’t noticed, it didn’t help all that much. This CFO article asks why that’s so.

My exposure to Goverance and Compliance is limited. I’ve helped several clients make their system audit ready but I’ve never been an IT auditor and never want to be one. However, I have an opinion about the value of software in predicting the future. It’s not good. “R”isk software is all about making sure that what you’re doing today won’t come back to bite you tomorrow. I tell my clients time that software can be great at telling you what happened. If you’re sophisticated it may even help you identify trends. But it’s NOT good at predicting the future unless the future is similar to the past. Unless you’re selling bread or milk, chances are that your customers probably can do without you and there goes your model. Go buy a crystal ball. At least then you’ll know that you don’t have a real technical solution.

I learned this before I had my first software job. Back in the late 80’s/early 90’s I remember walking with my Dad through a shopping mall. He and his brothers had a chain of men’s clothing stores. It wasn’t a great year partially because of the economy but it was made even worse because sweaters, which had been hot sellers for years, pretty much fell off a cliff that year. Replacing a category that had made up 20%+ of sales isn’t easy no matter what a buying genius you may be.

Could software have solved the problem? They were fully automated. They knew day to day what was selling. Still, they had to make educated guesses months in advance about what their customers wanted and no software can do that. That’s still true today and part of the reason I didn’t go into retail. I’m not cut out to predict what irrational consumers are going to do 6-12 months in the future.

You need to remember that no matter how much you spend on software, you can’t escape this fundamental problem. The interface may be beautiful. The reports may satisfy auditors, executives, and investors alike. The software still needs to assume that tomorrow will be similar to today and that just isn’t so. No matter how you spent.

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