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.