The Simple Analytics Equation: Data + Gut > Gut = Better Decision Making

Over the course of my career, I have authored and reviewed hundreds of business cases. And nearly every one of them included the same qualitative benefit: “better decision making”. For most of them, this was nothing more than filler – an additional bullet point in a list of items that really didn’t matter.

But Analytics is different – better decision making is the entire point of it! How this is achieved can be defined by the simple equation below:

Data + Gut > Gut = Better Decision Making

Let’s start by defining the two variables involved:

  • Data – represents the quantitative analysis performed on a relevant set of metrics
  • Gut – represents the cumulative experience, functional/industry knowledge and instincts of the decision maker

Now as a decision maker, let’s assume that you have a choice between alternative A and alternative B. Consider the two scenarios below:

  • Scenario 1 – Your gut/instinct/experience tells you that alternative A is preferable. Perhaps you’ve seen it be successful more often – maybe you have personal experience in a prior similar situation. Or maybe alternative B has never been tried or proven in your field or industry. Regardless, alternative A just feels like the right decision.
  • Scenario 2 – Same as scenario 1, but you also have data to support your decision. After analyzing the appropriate data set, using advanced quantitive methods, your analytics support team advises you that alternative A has a higher probability of a successful outcome than alternative B with a high confidence level.

Scenario 2 clearly represents a approach that will drive a better decision-making process. You’ll have more confidence in your decision, as will your boss, customer, and business partners.

There are two additional questions to think about:

  • What if analyzing the data takes too long or costs too much?” – This is a valid concern an done that the decision maker needs to assess. Is there timeliness or urgency to your decision? How big of a decision is this – a $25k or $25M opportunity? What are the risks of making the wrong decision? In cases where the risk is small, urgency is high, and cost/duration of analysis is also high – then the decision maker should strongly consider going with their gut. But even in this example, you’ve explored the option of using analytics and determined that it was not optimal due to these other factors. 
  • What if the data doesn’t show a pattern or indicate a higher probability outcome?” – This is a common fear, but in reality, not a concern. Even if your analytics team comes back and tells you that “there is no pattern in the data” or “we cannot recommend alternative A or B” – this is still information and improves your decision making process. You’ve looked at the data and determined that is will not influence the decision – the probability of success with either option is 50/50. So go with your gut. Knowing this is still better than simply going with your gut and after the fact, wondering if the data might have helped you make a better decision.

But there is a catch – there is no guarantee that alternative A will in fact turn out to be the better choice. It very well may end up being alternative B. Business happens. Unexpected events occur. Surprise variables influence the outcome. Or it is just a matter of probability – sometimes the long shot beats the odds.

Regardless of the actual outcome, A or B, scenario 2 (data + gut) is clearly the better process. You’ve leveraged your gut/instinct/experience and used it effectively and you’ve also leveraged additional information. You’ve been more comprehensive in your assessment. You’ve made a better decision.

Now you can feel good about that bullet point in the analytics business case…and move it over the the list of quantitative benefits (more on that in a future post)!

Published by davecherry

I am Dave Cherry

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