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Established 2009

The Power Of Estimating When Making Business Decisions

Many business managers put off making important business decisions – or they make such decisions much too rashly – simply because they feel they lack the sufficient facts upon which to base a reasoned or calculated decision.

After all, there are a lot of intangibles in business. For example, whereas it is fairly easy to measure things like past sales revenue, units sold, or website visits, it is much trickier to measure things like:

* how satisfied are your customers?
* how likely is your new advertising campaign to result in new business?
* how much time should your salespeople ideally spend on the phone with new prospects before moving on to the next?
* how many customers will you acquire next month? next year?

According to Douglas W. Hubbard, the author of ““How To Measure Anything: Finding the Value of Intangibles in Business, you can truly measure anything – often by resorting to making educated guesses or estimates. To measure business intangibles that affect your most important decisions, one of the most powerful tools you have is your own experience (and that of your trusted associates).

For example, think of an important business decision you face but for which you feel you lack sufficient data. Be sure to pose the question in terms of a range of possible values, using this pattern:

“What is the lower limit and upper limit of [intangible], with a 90% chance of certainty.”

For example, you may say:

“I am 90% certain that my company will acquire between 12 and 25 customers next year.”

Initially, most people who are inexperienced with making such an estimate are over-confident, thereby assigning lower and upper limit values that result in a range that is too narrow (and therefore, more likely to be incorrect). However, with the proper training (what Hubbard calls “calibration”), you can learn to make such statements with surprising accuracy. The take-away here is: you know more about your business than you give yourself credit for.

Rather than putting off the major business decisions you are currently facing merely because you do not have access to the hard data you need in order to answer them, trying this handy technique. You will suddenly find yourself much more empowered, and much better-informed, as you move forward in facing a (less) uncertain business future.

90% confidence interval, making business decisions, power of estimating