Baseball and banking

I wrote this article back May 2014 about the role of data in decision making.  I believe the concepts still pertain today.  

Baseball and Banking:
Lessons Learned from the Book Moneyball
By John Byrnes, idea5

If you like baseball, chances are you have heard of the book Moneyball: The Art of Winning an Unfair Game by Michael Lewis - or at least seen the movie starring Brad Pitt. The book is based on the Oakland Athletics baseball team and its inquisitive general manager, Billy Beane, portrayed by Pitt in the film released in 2011. The central premise of Moneyball is the team’s analytical approach to assembling a competitive baseball team, despite Oakland’s disadvantaged revenue situation compared to other high revenue teams.

The reality that teams with bigger budgets have an unfair advantage is universal – whether on the baseball diamond or in banking. The book taught us that the playing field can be leveled when we acquire the right facts to support decision making. 

But acquiring data is difficult and time-consuming. In addition to acquisition, the data must be cleansed and tested before analysis can begin. And this assumes we have the right questions and the right approach to doing what is now hyped as “Data Science.”

Not long ago, this was the realm of the “Quants” - people who typically held advanced degrees and possessed the knowledge to acquire, analyze and answer challenging questions. What about you? What if you could fill the role of the “Data Scientist” at your institution by collecting, aggregating and analyzing data in a timely manner? What would you need?

Decisions Start with Questions
Your approach should start with questions and objectives. Facts come from data. You should understand what data you require and its source and limitations. If you acquire data from a third party, it is recommended to perform due diligence on the company before relying on them as a trusted source. Once you have a source of reliable and properly vetted data, it’s time to determine the role these facts play in your decision making. Facts help guide us to smart decisions.

In the book The Thinker’s Toolkit, author Morgan D. Jones explains the roles facts and judgments play in our decision making. Jones breaks problems into four categories based upon the role of facts and judgment required to make a decision.

Source: The Thinker’s Toolkit: 14 Powerful Techniques for Problem Solving

Role of facts and judgments

Simplistic: We solve “simplistic” problems every day. There is only one answer and it can be easily determined. For example, “How many branch locations does my main competitor have?”

Deterministic: “Deterministic” problems also have one answer, but they require the correct formula. For instance, “Which financial institutions have the highest penetration of residential lending in my market?” 

The fewer facts we have available, the more we rely on what we have experienced throughout our careers. Problems where we have fewer facts and require more judgment fall into the following categories:

Random: These are problems that are more oddly distributed and where different answers are available, but the answers can still all be identified. For example “Where should I open my next branch?”

Indeterminate: The last group of problems is “indeterminate.” Different answers are possible, but they are conjectural. Worse yet, they are not all identifiable and incur more error. This is where we rely on our gut feeling. “What effect does local vacancy trends in my market have on future delinquency rates for my institution?” Here, we can gather facts and extrapolate an answer that best matches what we think will happen.

Gathering a lot of economic and customer data doesn’t directly translate into actionable information. You need to know what business problems your teams are looking to solve and how to use the data to find the solutions to those problems. Many companies make illinformed strategic decisions because they do not have clear visibility into their customers, products and business segments. Just like with the Oakland A’s, there will always be competitors with larger budgets and more resources. To stay competitive, it’s critical, therefore, to get your arms around the data available to you, translate it into meaningful information, and distribute this information across the organization to drive informed decision making.

May 2014