Wednesday, September 19, 2007

Good ole Jolly ole Scientific Method

Decision-making in business needs a ton of help. This field, fertile for improvement, may very well give us a decade of productivity gains ... if we can get it right.

The tools are 99% there to have data-based, risk-based, results-based, analysis-based decisions instead of the current brainstorm and committee approach employed today. They're new, so I forgive execs for not using them ... but the grace period will be up shortly. Once the first domino falls, we're likely to see a tidal wave of change in corporate decision-making models. We see hints of juvenile attempts at this in the hedge fund industry. These hints are actually just an outgrowth of the whole risk-math fad that blazed through banking in the nineties.

Here's a novel thought for you: The Scientific Method. Yes, the one from 8th grade. Need a refresher? Okay, just this once:

1/State the problem

2/Record Background Research

3/Construct a Hypothesis

4/Do the Experiment to test the Hypothesis

5/Draw a conclusion

In a corporate environment, this could be soft-sold using concepts already familiar: "Hypothessis" can be re-named "top-down analysis." The difference is recognizing that this is only one step in a longer process. Conclusions cannot be drawn from top-down analysis ... no, not even in whatever case you've just imagined.

"Do the Experiment" can be re-named "bottom-up analysis." The hypothesis must be tested against actual data, using actual logic and generating actual statistical results.

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