The Problem That Has No Name

May 17, 2011
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Do you know or do you think you know? What do we call this problem? It certainly involves uncertainty. Maybe it involves being too confident. Possibly a dash of ignorance.

Do you know or do you think you know? What do we call this problem? It certainly involves uncertainty. Maybe it involves being too confident. Possibly a dash of ignorance.

In the book Analytics at Work: Smarter Decisions, Better Results by Thomas H. Davenport, Jeanne G. Harris, and Robert Morison, the authors claim that 40% of decisions by executives are made on gut feel and intuition. Are executives always correct? Are you?

Let’s take a simple geography test. Rank order these five USA cities from the East to West coast: Reno, Nevada; Detroit, Michigan; Philadelphia, Pennsylvania; San Diego, California; and Boulder, Colorado. Did you list San Diego as the furthest west? You were wrong. Get out a map. Reno is located west of San Diego.

I learned of this simple test from Thomas Coghlan, a faculty member of Villanova University. It is admittedly a trite example, but it makes the point that making a decision without the facts can lead to an error. Organizations face questions every hour of every day. Consider these questions:

— In retail merchandising which product in a retail store chain can generate the most profit without carrying excess inventory but also not having periods of stock outs?

— For any business which customer will generate the most profit lift from our least effort tailoring deals and offers to them?

— For any organization which employees will be the next most likely ones to resign and take a job with another company?

What is the solution to answering these types of questions and overcoming the uncertainty? Of course it is the emerging trend toward applying analytics of all flavors, such as segmentation and correlation analysis.

Sports fans and sports organizations have been applying statistics for years, and they are getting more sophisticated. The Boston Red Sox claim that using statistics gives them an edge in scouting the best upcoming ball players and making strategic decisions such as should the hitter bunt or hit away. It is now clearly time for organizations to apply analytics – especially predictive analytics. Data mining of the past is certainly valuable to gain insights, but projecting what can happen in the future, often by understanding the past, is even more valuable. Decisions only impact the future. The past is the past.

So this problem may have no name, but it has a solution!