Craving for a number

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Politicians, boards of companies, controllers, risk managers, investors; among all these professions many people are craving for a number. The idea to have to make a decision without a quantification of the input, even knowing that the numbers used are wrong or meaningless, seems to be impossible to them.

Boardroom examples of this craving are budgets and investment plans. The set of assumptions to be able to generate these projections is in many cases too large and has to many unknowns to be very meaningful. In case of budgets, quite often the last year is used as a base and existing trends are extended here and there, whereas in many cases the real drivers of sales or costs for the next year cannot be properly forecasted. In case of investment plans the hockey stick pattern of profit projections is famous.

Politicians use numbers provided to them by for instance budget offices, lobbyists and civil servants, to serve as 'strong' support for their point of view or as the basis for their decisions. In political debates the person who can show the greatest command of data (regardless of whether the numbers are right) has a big advantage. There is very often neither time nor resources to check these numbers, so anyone can use them as they see fit.

In the investment community people for instance use numbers like alpha and beta as real hard data to use in optimisation models, comparison tables and as the basis for investment decisions. The fact that it is scientifically proven that these concepts are wrong is subordinate to the fact that a number is always deemed to be better than no number.

The best entrepreneurs, CEO's and investment managers are the ones who take decisions on the basis of proper data, and when these are not available (which is most often the case), gut feel and instinct. Knowing that most numbers, especially in projections, are useless, these people do not rely on them. They use other (often soft) indicators to base their decisions on. They are also said to have 'a nose for good opportunities'. However, by not using bogus numbers as facts, but merely as possible outcomes, and by estimating probabilities of various outcomes, their gut feel and instincts are fed by more than just a 'hunch', even though that does not appear that way to others.

It takes courage to let go of the craving for a number, as it is easy to hide behind a number. However, bad data yields bad decisions. (As an aside: it can only be imagined how much money would be saved if we stop producing the numbers that are used without being useful input.) Finding comfort in a number is in the human nature. Being able to withstand the craving for a number will lead to better decision making, but is not something that will come easy to most people.