time horizon

A time horizon is a fixed point of time in the future at which point certain processes will be evaluated or assumed to end. It is necessary in an accounting, finance or risk management regime to assign such a fixed horizon time so that alternatives can be evaluated for performance over the same period of time. Although short term horizons such as end of day, end of week, end of month matter in accounting, generally it is mere summing-up and the simplest mark to market processes that take place at these short term horizons. No scenario analysis or mark to future activities are usually undertaken for such short periods, except for very large portfolios. The most common horizons used in planning are one "quarter" (a quarter year, or three months), a year, two years, three years, four years (especially in a representative democracy where this is a quite common term of office and election cycle), five years (in corporate planning), ten years, fifteen years (sometimes considered equal to a single human generation), twenty years (likewise), twenty-five years, thirty years (especially in mortgage contracts and treasury bonds, e.g. the long bond issued by the U.S. Federal Reserve), fifty years and one hundred years (sometimes considered equal to seven generations, a time horizon often cited by the ancient Iroquois and modern Greens). There are Japanese corporations rumoured to have five-hundred year plans, which amount to a sort of official science fiction story or myth to which the company commits itself - these are highly secret and perhaps don't exist. Agreeing on a common time horizon for action is particularly important in global policy, as each participant will have very different time horizon habits. Achieving simultaneous policy is quite difficult without an agreement, as those taking action early may be seriously disadvantaged in competition with those taking action late on a regulatory matter.

Time Horizon

See also