Business Intelligence Blog from arcplan
13Mar/120

Analytics – Not Gut Feeling – Should Drive Business Decisions

by

You know the gut feeling that leads you to take a different route to work or accept one job over another? Those gut feelings may have led you on the right path, but they're personal decisions where you have only so much information (a traffic report on the radio or both companies' financials) and you would expect to make your decision based on gut instinct. These personal choices affect only you and potentially your family in the case of a new job. But relying on gut instinct alone in your business life is a mistake – there's simply too much supporting evidence to take into account when making business decisions (decisions that affect much more than just yourself). Why play Russian roulette with these decisions when you're surrounded by analytics?

Sound business decisions are based on facts, data analysis, trend spotting, or other complex calculations, and yes – a bit of intuition. But your instinct should be used as an indicator, not the basis for your decisions. In every business there are variables and unique scenarios that make planning and analysis imperative; neglecting these factors could have serious implications. Consider this example: The 2010 Report of Anton R. Valukas examined the demise of Lehman Brothers, a formerly dominant global financial institution that went bankrupt during the recent financial crisis. It revealed that the company excluded some assets from routine stress performance calculations (meaning the company couldn't know how much money it was in a position to lose because it was not performing what-if analysis) and valued some real estate investments on a combination of financial projections and "gut feeling" according to a Lehman Brothers vice president. In essence, the company's business practices lacked analytic insight, or at least the will to get it. There is no doubt that Lehman Brothers had access to multitudes of data on its assets, on the market, and on its level of risk. Armed with this information, I'd hope executives would have made better choices, taken on less risk, and valued their assets more realistically.

The hope is that the everyday decisions you're making at your company will not have the ripple effect that Lehman Brothers' choices had. Not many people would argue that Lehman Brothers' bankruptcy intensified the credit crunch and made it harder for businesses and consumers to obtain credit, loans, and mortgages. And just 6 days ago, the company's liquidation plan took effect, finally bringing about the end of this saga as it sells off its remaining $28B in real estate, loans, and investments. It may be a simplification, but just think about how things could have been different if Lehman decision makers had relied on their analytic tools and what-if/best/worse case analysis rather than gut feelings.

Perhaps you also remember last summer's blockbuster Moneyball, based on the book by Michael Lewis, in which data analysis superseded gut instinct in baseball. The Oakland A's success (well, marginal success anyway) was based on extensive analysis, planning and strategy and became a template for how future teams were built. Billy Beane's evidence- and metrics-based approach to team building went against the prevailing method, which was subjective and based almost solely on the collected wisdom of baseball insiders. This sabermetric approach leveled the playing field (literally), allowing the A's to compete with teams that had much larger budgets. Think of what this idea could do for your business, especially if you're just starting out or working within a saturated market space. Finding your sweet spot in these cases often involves evaluating market data and predicting trends (and sure, a little instinct and some luck).

Now I'm sure you can think of a few cases where your instincts have been spot on – I can too. However, the growing need for analytics is evidenced by increased spending on BI software used to monitor performance, take action, and ultimately make better, faster business decisions. Of late, big data analytics has been the buzzworthy trend in the BI world, where users harness volumes of structured and unstructured data and turn it into meaningful insight for their business. Analytic tools, from single-user or departmental dashboard tools to enterprise-level BI software, are within reach for most knowledge workers, especially with the advent of collaborate BI tools like our own arcplan Engage, which aims to reach the masses by making analytics accessible to all users with a simple search function.

The point is, it's easier than ever to get your hands on tools that enable better decision making. Regular business users, not just hardcore data analysts, can access and analyze data to answer critical business questions and take the fate of their company into their own hands backed by more than just instinct.

And just for kicks, here's some interesting limericks that further explain the Benefits of Business Analytics. Enjoy!

Monique Morgan

About Monique Morgan

I'm the Marketing Project Manager at arcplan and work out of our Wayne, PA office. I'm originally from Jamaica but came to the US for college and I've been here ever since. I'm the voice behind a lot of arcplan's videos on YouTube - check them out here: http://www.youtube.com/arcplan.
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