In recent months the news has been filled with discussions of problems involving banking, credit, housing, climate change, terrorism, pandemics and changes in energy production and consumption. The future seems less predictable than ever before. Nevertheless, business managers are typically required to make decisions in the face of uncertainty and make forecasts in spite of unsettled conditions.
To deal with these challenges, some people use intuition as their guide. At times they may have some success. However, for most people, the more facts and data available to them, the more their assessments may reflect the actual conditions they confront. While part of the human brain has evolved for quick response, it's also capable of data collection and careful, reasoned analysis. In our personal lives, there's an important place for both types of brain activity.
For instance, most of us have had the experience of driving a car where a split-second response made the difference between avoiding an accident or not. In business settings, however, the more time-consuming analysis activity takes precedence. Warren Buffett has often made the point that his investing success is due in large part to gathering the relevant information, making a careful analysis of the data, and taking the emotion out of his decisions. A recent article in The New York Times about the Hubble Space Telescope offers an example of how proper data collection and analysis can change viewpoints. It reads, “Phenomena that astronomers used to almost come to blows arguing about have now been settled by Hubble measurements, often in conjunction with other telescopes. ‘It's the numbers not the pictures that are Hubble's real legacy value,' said Dr. Matt Mountain, director of the Space Telescope Science Institute in Baltimore.”
Bill James, the baseball analyst for the Boston Red Sox, describes his job as looking objectively at the data, without preconceptions or biases. He makes his recommendations to the team's management with “cold reason, based on hard evidence.”
Three traps. Whether you are assessing the potential for a new product or investigating the success of a marketing campaign, be careful not to fall into one of these traps:
- Holding onto old data and viewpoints as the only basis for decisions.
- Being overly attached to one's previous assumptions.
- Failing to properly analyze the new situation.
The congressional testimony of former Federal Reserve Chairman Alan Greenspan on Oct. 23, 2008, shows that even those considered to be highly skilled in their endeavors can get stuck in certain ways of thinking. The exchange between Greenspan and the committee went like this:
Greenspan: “I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.”
Chairman Waxman: “In other words, you found that your view of the world, your ideology, was not right, it was not working.”
Mr. Greenspan: “Precisely. That's precisely the reason I was shocked, because I have been going on for 40 years or more with very considerable evidence that it was working exceptionally well.”
As we have seen with the recent economic turmoil, it's useful to regularly appraise a situation and re-evaluate the circumstances.
Three requirements. The three traps can be countered by focusing on three requirements:
- The need for accurate, up-to-date information.
- The need for careful analysis of the data.
- The need for an attitude shift.
We're not going to get back to normal — constant change is the new normal. That's why you need continually updated information to run your business effectively. The foundation of a successful decision-making process is accurate, up-to-date information. While the data is essential, meaningful analysis of the data creates the payoff.
A British physician, Dr. Thomas Fuller (1654-1734), had an attitude that could be beneficial to present-day managers in construction and home improvement related businesses: “Get the facts, or the facts will get you. And when you get them, get them right, or they will get you wrong.” A similar sentiment was expressed by the late John Tukey, the famous statistician of AT&T Bell Laboratories, (also attributed to the late W. Edwards Deming, pioneer in quality control): “In God we trust. All others must bring data.”
Many reputable economists and analysts suggest that volatility is the new normal. As uncomfortable as this may be at times, profitable opportunities await those who can keep up with a constantly changing environment.
The technology connection. The most expedient way to review and use data is with software that allows you to develop and quickly customize trending reports for your business. Analyzing data trends is very important when forecasting future business needs or spotting potential hazards. Equally important is the ability to track actual versus target numbers that you establish. Using the features available in business analysis software, you can drill down into the data to more deeply analyze details and determine why trends occur. You can save the information for further analysis or share these trends with your management team via e-mail or other electronic medium available to you.
As an executive, you need to look at how your business is doing at a high level, while having other critical information at your fingertips. By simply pointing and clicking or dragging and dropping fields, you can collect the information that you want and tailor your screens and reports. However you choose to view your data, one thing is clear: Being able to quickly access and analyze your data will leave you better equipped to respond to changes in the marketplace and take advantage of the opportunities ahead.