Thursday, 26 February 2009

Data shortages turn decisions into gambles

Analysers prefer to have the facts in front of them before they make a decision. However, many business decisions hang on unknowable information and will have unpredictable impacts.

Some information is knowable or predictable (say, details of a hotel in Scotland).
Some is unknowable or unpredictable (the weather when you get there).
Sometimes, however much time you have and effort you make, the costs and/or benefits of a decision are so difficult to predict that your decision will remain ill-informed.
For many projects, the immediate costs are relatively predictable but long-term benefits are unpredictable.

Don’t search for data that doesn’t matter. Make an educated guess based on assumptions about the unknowable. Change the assumptions, and if the answer changes (that is called sensitivity analysis), then try to firm up the information.

Since (be it for lack of time or lack of data) some management decisions are educated guesses – even gambles - you can regard them as leading to random changes in the fortunes of the manager and the organisation. Thus the forces of evolution start to work, which brings us to the main points of our essay.

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