VUCA (Volatility, Uncertainty, Complexity, Ambiguity)

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VUCA (Volatility, Uncertainty, Complexity, Ambiguity)

The volatility in the stock market, retail industry, big data, and the complexity in the digital universe, patient health, and global trade have all been increasing. Uncertainty is also growing for global trade and global policy, but it's decreasing for weather forecasting. Forecast ambiguity for hurricanes and tropical storms has also been declining. More details are outlined below.

Volatility

1. The CBOE volatility index is at its highest level

  • The Chicago Board Options Exchange (CBOE) volatility index or also known as VIX is now at its highest level. This means that there's a high volatility expectation for the stock market in the coming month. The graph below shows the volatility index in the past 25 years. This shows growing volatility in the stock market.

2. Retail industry volatility has increased by 250%

  • According to Deloitte, the retail industry volatility increased by 250% since 2010. This has resulted "in $200 billion more of retail sales being traded among competitors." The Deloitte study "measured retail volatility by looking at how the distribution of retail market share has changed for the top 100 retailers in terms of revenue." This shows increasing volatility in the retail industry.

3. Massive changes in the field of big data

Uncertainty

1. Weather forecasting has become more accurate

  • Based on the 2019 research findings of Richard Alley, Fuqing Zhang, and Kerry Emanuel, three geoscientists from Massachusetts Institute of Technology (MIT) and Pennsylvania State University, there is currently an increased accuracy on weather forecasting as compared to 30 years ago.
  • The geoscientists claim that weather forecasters have grown more accurate, saying that today's "five-day forecast is as accurate as a one-day forecast in 1980." Also, the "72-hour hurricane warning today is more accurate than a 24-hour warning was 40 years ago." This points to a decrease in uncertainty of weather forecasting.

2. Increasing uncertainty in global trade

  • According to the International Monetary Fund, the world trade policy uncertainty index has been increasing after two decades of being stable at low levels. This increase coincides with the escalation of the trade war between China and the US.
  • The image below shows that the uncertainty index started increasing by the 3rd quarter of 2018, which coincides with the increase in the US and China's publicized tariff series. The uncertainty index then decreased by the 4th quarter of 2018 when China and the US announced a halt in tariff escalations. It spiked again in 2019 upon the significant "expansion of American tariffs on imports from China." This points to increasing uncertainty in global trade.

3. Global policy uncertainty is growing

  • The graph below shows the trend of the global policy uncertainty and the UK-based uncertainty. It reveals that the global uncertainty outweighs the UK-based uncertainty. Since 2009, the global policy uncertainty was at an all-time high in 2019. This points to growing uncertainty in global policy.

Complexity

1. The digital universe has been rapidly expanding

  • The digital universe refers to the massive amounts of created, consumed, and replicated data in a year. In 2005, the International Data Corporation (IDC) estimated that the digital universe's approximate size is 130 exabytes (EB). In 2017, the digital universe rapidly expanded to about 16 zettabytes (ZB) or 16,000 EB. In just 12 years, it has rapidly grown from 130 EB to 16,000 EB. This massive expansion shows that the complexity of the digital universe has been increasing.

2. Patient complexity has been growing

  • In a study conducted on England's emergency hospital admissions, it was revealed "that one in four patients admitted to hospital as an emergency in 2015/16 had five or more health conditions, compared with just one in twenty in 2006/07." The study reveals that there has been a 362% increase in patient admissions for over ten years. This points to increasing complexity in a patient's health condition.

3. Global trade has become more interconnected

Ambiguity

1. There's a rapid decrease in forecast errors for hurricanes and tropical storms

  • The image below shows a graph of the improvement in hurricane prediction. The data were taken from the NOAA National Hurricane Center (NHC), revealing a rapid decrease in forecast errors for the Atlantic basin's hurricanes and tropical storms over the past decades. The decline in forecast errors further points to an increase in accuracy, which is also a decrease in ambiguity, for weather forecasting.

2. Infectious disease forecasting is struggling in its accuracy

  • According to BMC Public Health, "the use of infectious disease forecasts for decision-making is challenging because most existing infectious disease forecasts are not standardized, not validated, and can be difficult to communicate to non-scientific audiences." This non-standardization points to an increase in the ambiguity of infectious disease forecasting.

3. Election forecast is subject to various errors

  • According to Biemer and Lyberg, election forecast is subject to various kinds of errors, and "polls are far from being perfect predictors of election outcomes." Research studies also reveal that "the empirical error of polls is about twice as large as the estimated sampling error." There is no increase in the accuracy of election forecast through the years. This points to an increasing ambiguity in political election forecasts.
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