The Flaw, Not The Law of Averages
That’s right, the heading is the flaw of averages not the law of averages! These were some of the opening words used by the presenter of a webinar I recently participated in on the topic of risk analysis and how to improve risk modelling. The words come from a Forbes Magazine article titled “The Flaw of Averages”.
I have since accessed this article which starts off with an interesting question which is “if you have one foot in boiling water and the other foot in ice you’re not comfortable, are you?”. I know I wouldn’t be. If I did this, I would probably be in hospital!
The point of this question is to try and demonstrate that taking the mid-point of two extremes, particularly in business and then using this information in isolation, is flawed. While it may be convenient and somewhat useful to consider mid points and reasonable ranges around such mid-points, it is unwise to rely on these alone.
Comprehensive analysis and good decision making processes need to consider not only what is expected, but what is unexpected. Both the good and the bad.
Reference: “The Flaw of Averages”, Steve Parish,http://www.forbes.com/sites/steveparrish/2012/10/03/the-flaw-of-averages/#476d55a4257e
That’s right, the heading is the flaw of averages not the law of averages! These were some of the opening words used by the presenter of a webinar I recently participated in on the topic of risk analysis and how to improve risk modelling. The words come from a Forbes Magazine article titled “The Flaw of Averages”.
I have since accessed this article which starts off with an interesting question which is “if you have one foot in boiling water and the other foot in ice you’re not comfortable, are you?”. I know I wouldn’t be. If I did this, I would probably be in hospital!
The point of this question is to try and demonstrate that taking the mid-point of two extremes, particularly in business and then using this information in isolation, is flawed. While it may be convenient and somewhat useful to consider mid points and reasonable ranges around such mid-points, it is unwise to rely on these alone.
Comprehensive analysis and good decision making processes need to consider not only what is expected, but what is unexpected. Both the good and the bad.
Reference: “The Flaw of Averages”, Steve Parish,http://www.forbes.com/sites/steveparrish/2012/10/03/the-flaw-of-averages/#476d55a4257e