Skip to main content

The Flaw Of Averages

Image
By

Yes, this post will be primarily a copy of a Harvard Business Review (HBR) article.  The article is the point of this blog.

Over my decades in consulting, one of the major requirements in our niche was to insure that our clients received the savings we had forecast that they would achieve in a mutually agreeable manner.  In the very beginning, when I started back in 1974, computers were not easily available or accessible as they had to be huge room-size machines and many clients did not even have them.  So we used adding machines with paper tape to the shortly thereafter personal hand held-calculators.  Personal computers starting with the very first Apple or Radio Shack model proved far superior but had minimal calculating capacity.  None were perfect and because of this limitation, a straight line average over a years period was typically used to compare history to current and prove savings had been achieved.  

I found well into my career that straight-line bases had fallacies in them, equipment-wise as well as, and not always being reasonably comparable between the two periods we were looking at.  Over time, I developed and learned many other techniques from seasonal or earned hour versions, etc.  On one project I learned about linear regressions and found this to be very reasonable to use if there was a variety of peaks and valleys in the client's data.  

Later on, I learned from a client about multiple regressions and this also worked if there were not only peaks and valleys but product mix issues.  So my learning continued as well and I went so far as to learn to use the Monte Carlo analysis.

Recently I came across this article in HBR called "The Flaw of Averages" by Sam Savage.  It pretty much explains and illustrates what I am saying above but from a broader perspective.  I hope you learn from this article as it is all very true.

This article on Averages is what over the years I eventually learned and helped me to become quite successful in measuring productivity and performance improvement.  Enjoy and learn!


Bob Jacobson  October 27, 2022

  

 

Comments

Post a Comment

Popular posts from this blog

Do You?

By
 Do you procrastinate?  I know I do it more often than I would like to admit.  We all have a tendency to procrastinate.  Very recently, I saw this photo in a LinkedIn post.   To be legally clear, this is a billboard type advertisement by Nike. They are very famous for their "Just Do It" slogan.   Now they have two and they have combined both into an even more powerful expression. The definition of "procrastinate" from the Oxford dictionary is: "to delay or postpone action; put off doing something."  It is like the old colloquialism "Manana."  Mañana is tomorrow in Spanish.  We all do it to one degree or another.   From a business perspective, to procrastinate is a terrible situation if you or a great many people in a company or organization do it.  If it occurs too often or too much, then what does it do:  it has the probability to DELAY MOST EVERYTHING.  Is that what you really want?  No, I doubt it.  It very we...
Post a Comment
Read more

LISTENING....

By
We all need to do a better job of listening.  Whether it is a political matter, a business matter, a personal matter or something in the news, we all need to do a better job with this important topic. The recent issue of listening certainly came into being with the CEO of the Crossfit brand.  He spoke with numerous people in this business and apparently did not hear, did not listen or did not want to hear what they were saying.  I wasn't there so I don't implicitly know.  But since then he has resigned as the CEO.  Why?  Basically all because he was not listening. My sister and I are basically polar opposites when it comes to politics, but over the last few years we have both tried much harder to listen to the other's thought and ideas on many topics.  Some we will never agree upon, but some, interestingly enough we found that we could agree on with each other.  All it took was some listening. I was recently going through my archive of art...
1 comment
Read more