Decision-Making

The Dangers of Analytics

 

Five smart women were sitting around the table, planning a social enterprise (SE) for a local nonprofit organization. There was a thorough business plan, complete with market analysis and income statements. We were busy discussing the business model for this new enterprise, when it occurred to me that we hadn’t really discussed why (aside from the start up grant money available) we were pursuing the idea of social enterprise.

So I asked, “what is the problem we’re trying to solve with a SE?” The answer was that the agency needed money. Unfortunately, needing money is usually a symptom, not a problem itself. In fact, money is a solution to a problem. After an extended discussion, we realized that there were a number of external pressures on the agency which would likely form a perfect financial storm in the next couple of years. To deliver a meaningful level of service using our current model, we would likely need to almost double our current revenue base, about 15 times the $20K a year that our optimistic business plan projected in profit for the social enterprise. .

We came to the conclusion that starting a social enterprise was a dangerous distraction from the real issue, organizational viability. Once we identified the real problem, were were able to identify some key analysis that would help us validate the problem, and determine possible solutions.

Decision-making involves four steps – 1) asking the right questions, 2) finding the problem or opportunity, 3) identifying and evaluating alternatives, 4) executing the chosen alternative.

You’ll note that gathering information is an input into the process of determining the right question, the right problem, and evaluating alternatives. Analytics are only one input into the decision–making process. In fact, decision-making requires judgment, which includes data/evidence, but also includes a deep understanding of qualitative factors, like mission, people and environment. If you frame your problem as a solution, you’ll end up with an obvious, but possibly wrong answer.  If you manage exclusively by numbers, you risk answering the wrong question, strictly because those are the numbers you have available. You also risk ignoring factors which are not easily measured. In other words, analytics is one of many tools, and it doesn’t replace judgment.

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1 reply »

  1. Right…but it’s not intended to replace judgment. It’s intended to augment it with facts and, hopefully, circumvent some of the more egregious cognitive biases that pass for judgment. Good BD users don’t outsource judgment to numbers; they try experiments to find out what is working, capture the best measures they can, and then add that information to the other inputs that normally affect judgment.

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