Top Four Questions For Better Data-Driven Decisions
In today’s technologically advanced society, data is a driving force behind most if not every single industry. In fact, data is big business that is predicted to reach over a quarter of a trillion dollars by 2022. That’s not to say that the industry is wrought with failure. While there is no definite solution when it comes to such a new and unpredictable industry, here are four questions we can ask to analyze and potentially improve data-driven decision making.
How was the data sourced? Ultimately data is messy business, and data has a great potential to be entirely inaccurate. There is the element of human interaction, which is typically troubled by mistakes made when entering data like inventory, product purchases, etc. Lastly, and often the most overlooked, is the use of outdated data. Using a list or report from the wrong quarter or even wrong fiscal year can lead to disastrous consequences for businesses.
How was the data analyzed? Besides being misinterpreted by the people handling the data, accurate date can be misrepresented by computer models. Traditionally, we trust a spreadsheet/model to predict accurate results based on data input. The problem is twofold though: these models are not always entirely foolproof and even worse, some models contain enormous bias. Simply put, some models are entirely too simple and misrepresent data, while more complex models can muddle the data. In both cases, the claims of such models are often overly dramatic in either direction.
What doesn’t the data tell us? Data may be massively helpful to businesses in predicting shopper behavior or tracking performance, but it is just that, predicting. Humans cannot be entirely represented by data. This is called availability bias, and basically explains the phenomenon where decisions are made based only on available data or models and does not account for information that is not represented by what is not immediately available. Typical examples can include basing the amount of labor hours to give employees on hourly sales or extending loans to people based on established credit data. These are not always entirely representative of the entire situation, and ultimately reflect the danger of not asking this third question.
How can we use data to redesign products and business models? In other words, how do we utilize and/or apply data in business today to affect change in the way products are created, marketed, and sold as well as how businesses operate? This is multiple questions in one, but it is one of the most important to consider, because without an aim or goal for the data, it’s pointless to interact with it.
Data is such an incredibly valuable asset to business today, and utilizing it correctly and to its full potential can yield incredible results. It can be the difference between maximum efficiency and blatant inefficiency.
From technology-based accounting solutions to management information, analysis, and reporting, Talley LLP is the premier business consulting firm for entrepreneurs and their closely-held businesses. For more information on how to leverage your business’s data technology, contact Talley today.