Why you shouldn’t trust what the numbers tell you unless you’ve taken care to check out your own biases first

It seems that “doing the numbers” doesn’t provide the dose of objective realism that it’s claimed to give — at least according to some research from Wharton Business School.

I believe this is worth thinking about carefully; not just in itself, but because it suggests a wider issue: that all data is subject to interpretation — and all interpretation depends on very human kinds of thinking.

Allowing your optimism to run away with you isn’t just something that happens to entrepreneurs keen to establish the business of their dreams.

Here’s basic summary of what the research found:

Accounting techniques like budgeting, sales projections and financial reporting are supposed to help prevent business failures by giving managers realistic plans to guide their actions and feedback on their progress. In other words, they are supposed to leaven entrepreneurial optimism with green-eye-shaded realism.

At least that’s the theory. But when Gavin Cassar, a Wharton accounting professor, tested this idea, he found something troubling: Some accounting tools not only fail to help businesspeople, but may actually lead them astray. . . Cassar believes that businesspeople — especially entrepreneurs, who bet both their reputations and personal wealth on their ventures — should understand the limitations of accounting estimates as well as how common human tendencies, like optimism, can lead to their misinterpretation.

The “facts” are only as good as the people who use them

There are few, if any, facts that cannot be interpreted to mean whatever that we want them to mean, especially if we are already heavily invested in one particular outcome.

It doesn’t take deliberate misrepresentation to make this happen; nor stupidity on the part of the interpreter. Indeed, the cleverer the person using the facts is, the more likely his or her reading of them will be convincing to others as well as internally.

All it takes is the presence of strong emotions linked to a particular way of looking at the so-called “facts.” I’ll quote again from the summary of Professor Cassar’s findings:

A person who adopts an inside view becomes so focused on formulating his particular plan that he neglects to consider critical outside information, like other people’s experiences in pursuing the same goal.

“Individuals form an inside view forecast by focusing on the specifics of the case, the details of the plan that exists and obstacles to its completion, and by constructing scenarios of future progress,” Cassar summarizes. “In contrast, an outside view is statistical and comparative in nature and does not involve any attempt to divine the future at any level of detail.”

Blinded by our own desires and fears

What we want — or fear — badly distorts our thinking. We fix onto what we desire, because we are seeking it so intently; and we also see what we most fear, for similar reasons. It’s built into us, probably because it once had high survival value, when seeing prey — and spotting lurking dangers — were essential to our hunter-gatherer ancestors.

We may be staring at a spreadsheet today, not scanning the African savanna, but the process is much the same. In the mass of numbers we are instantly alert to whatever points in the direction we want, or indicates what we already fear.

There’s the problem. The dangers we see are the ones we already understand and half expect. What we don’t see are the unexpected problems and the areas of our own ignorance. Then, convinced that we have done our homework well, and buoyed up by false confidence, we step out into danger.

Why this matters even more today

Our world isn’t just increasingly complex; we have more data available at the click of a computer mouse than any generation has had before us. We’re drowning in data, and increasingly rely on mathematical and statistical analysis to reduce it to manageable information we can absorb and act on. So any systematic tendency people have to misinterpret and misunderstand what the figures are telling them has severe implication for success.

If wanting something to work as planned leads to seeing that result in the figures; if fearing a specific outcome, perhaps based on irrelevant past happenings, leads people to interpret data to support those fears; the likely result is that many marginal or doubtful projects are approved, while ones that might well have produced better rewards are killed.

There’s also the matter of the carelessness brought about by overwork, stress, and our obsession with speed. If we can get things wrong anyway, trying to grasp complex information on the run, or while over-stretched by excessive pressure to deliver, is only going to make things worse.

If your future prospects, your bonus, and probably your job, depend on reaching this quarter’s forecast results or better, that’s a powerful source of emotions: desire for the “right answer,” fear of failure, and the need to shine can all come together to build a mental script focused on the expected success. You want that script to be the one that plays. You want it so much that you don’t even let yourself consider any other outcome.

Indeed, many motivational gurus encourage just this blindness through trite sayings like: “problems are what appear when you take your eyes off the goal.” In truth, taking your eyes off the goal may be exactly what you need to do to stand any chance of arriving there.

There’s sometimes little distinction between tight focus and blinders

My “thought for the day” is that being too focused may sometimes be the same as putting on blinders and shutting out all the little warning signs and alternative interpretations that you need to make sure you don’t go feet first into some mess. The more you want things to happen — or the more you fear that they might not — the more important it becomes to take time out to stand back and try to allow your emotions to subside, before looking at the data.

Slowing down isn’t about taking it easy. There are many times when it’s tougher and more demanding to slow down to look at all the details and alternative explanations than it is is rush ahead with optimism leading you by the nose, or your pre-set fears clutching at your chest.

Sadly, our culture tends to over-rate decisiveness as a leadership trait. Coming to a swift conclusion and sticking with it may play to the general demand of people to be told, clearly and unequivocally, what needs to be done; but it’s the very devil if that instant conclusion turns out to be the wrong one.

Demanding answers can be foolish if none are possible

We want our weather forecasters to tell us definitely whether it will rain tomorrow, and become derisive at statements about probability. We want our leaders to produce firm answers, not tell us about all the alternatives, or appear “wishy-washy.” In neither case are we being realistic about what is possible.

I’m not a big fan of most management planning processes, especially budgeting and forecasting. There are too many incentives to make sure the figures show what is wanted and ignore “outliers” and “aberrant data.” It’s rare that such procedures are done with anything approaching objectivity, given what often depends on the outcome. In today’s macho, hard-driving corporate cultures, the likelihood of emotional bias getting in the way — or overwork leading people to cutting corners — or expectations of decisive action forcing premature decisions — is only increased.

So do yourself a favor. Slow down whenever you can. Make a practice of deliberately stepping away both from what you desire and what you fear. It won’t guarantee that you’ll never make a mistake in interpretation, but it will surely help to minimize the likelihood of constructing a trap for yourself out of all those numbers.

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