Are your reports deceiving you? – time for a check!

We all agree we are bombarded with tonnes of data – The key challenge is how to convert this data into true useful knowledge.
Last May in the post Definitions: Data to Information I outlined these differences between Data and Information (and some other interesting bits on analytics):

  1. Data – (1) Values of qualitative or quantitative variables, belonging to a set of items. (2) Output from a sensing/measuring device and may include both relevant and redundant values
  2. Information – Knowledge communicated or received concerning a particular fact or circumstance
  3. and for today – just to add one extra:

  4. Knowledge – Acquaintance with facts, truths, or principles
That is a heap of definitions; but getting the context here is important – because now I am going to get controversial!

Even in the English language definitions of information and knowledge, as you can see above, are a bit convoluted – information relies on knowledge and knowledge on facts/information…..
Data forms the basis of reports and reports exist to support good decisions and actions (by ‘good’ I mean those decisions and actions that drive positive outcomes)
With the colossal amount of data available today why is business not driving more profitable decisions? – the opposite seems to be almost true if we look at the current GFC.
 







 

How can this be when data is plentiful?

Truth is that although the data may be entirely factual, it gets collated, interpreted, analysed, summarised, graphed and compared by humans (or methods and systems developed by humans).
Usually the steps data goes through are:

  • Firstly collection and storage
  • Secondly we take data, or a subset of data, from its source and review it
  • Thirdly we interpret that data
  • Finally we use the data to support a decision to take some kind of action

Usually the action taken is founded on some kind of prediction – “what the data is showing from the past will happen in the future”, and/or “this action will change the data in the way I want”.
Human minds don’t store independent pieces of data; we connect fragments then reassemble them to remember things. Therefore to create a memory, we need to make connections to the data.
And to make a prediction we need to make a memory!
I suspect this is where it all goes astray!
So, while data doesn’t lie, using it does allow people to deceive themselves and others
Following along the lines of my last post,
LINK http://smartaccounting.com.au/when-is-dumping-your-goals-ok/ –

How often do we, or our reporting methods create “FALSE” predictions to protect ourselves, our company, our job, or our boss ???

Perhaps the answer is too often; we succumb to the need to be right – we put on our rose-coloured glasses. “If I put forward positive results and information about this being OK – then I too, as a person, am OK “.
Recent research by has shown most predictions fail. So if we take our “rose-coloured” results and STAND BY THEM people believe!
According to Nate Silver in his new book ‘The Signal and the Noise: Why So Many Predictions Fail’ overconfidence is often the reason for failure. I wonder if it is overconfidence; or an inability to separate self-image from failure?
Silver’s book continues with assertion that the more humility we have about our ability to make predictions, the more successful we can be in planning for the future.[box type=”info” style=”rounded” border=”full”] Prediction Paradox
If our appreciation of uncertainty improves, our predictions can get better too.[/box]  

So as you look at your next report – take off your rose glasses, and remember to be genuine about your interpretations and predictions.

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About the Author

Eve Blackall Smart Accounting image
Eve Blackall the small business answer to The Supernanny.
At Smart Accounting you work one-on-one with Eve who has already assisted hundreds of business owners increase cash-flow, grow profits, also ensuring those businesses fetch the highest price when it comes time to sell.[/box]