I recently ran across a statistics book and began to think about similarities to strategic planning.
Statistics: a mathematical science pertaining to the collection, analysis, interpretation or explanation, and presentation of data. It also provides tools for prediction and forecasting based on data.
Until this week, I had not thought statistics had as much in common to strategic planning.It became evident there is far more linkage then seemed.
In strategic planning we analyze probable outcomes with the uncertainty of the future – this is a constant challenge. We make decisions with limited data. Our reliance on past experiences and our hope for the future deeply colors our ability to predict and plan. As it remains hard to sample the future, we constantly sample the present and the past to guess about the future.
Some statistics terms:
- Decision theory: the theory of deciding what to do when it is uncertain what will happen
- Statistical inference: inferring a global estimate from a sample of data
- Statistical analysis: putting information into the service of decision-making and influencing the degrees of belief we hold about probabilities of future events
- Decision making: deciding what to do when it is uncertain what will happen. Making that decision is the first step to manage risk
- Forecasting: to predict the probable outcome
- Utility: the strength of usefulness, desirability, or satisfaction
- Statistical inference: developing a hypothesis from a limited set of facts
In statistics, mathematical odds are used to estimate the probability of outcomes. Since outcomes are in the future they are unpredictable. Collecting raw data is intended to help decide what to do. Statistics attempts to use samples to help make decisions. As it is beyond usual effort to collect 100% of the data available we sample from a population and that data is presented with a numerical value of confidence – called a confidence interval.
In strategic planning we sample the unknown. We try to project from what we know. However, who do we count on to know the unknown: senior executives with deep industry knowledge; folks with vast life experience (grey hairs); our own past success; our fears? Ultimately we project uncertainty. We speculate from current-state pressure, demand, or pain and usually build hope. Hope is not a strategy.
Statistically, forecasting, probability, and profits each depend on informed judgments. All risk involves the objective facts and a subjective desire of what is to be gained, or lost. Both are essential and neither is sufficient. Compound the human challenge that we must wade through individual and collective wants, needs, values, bias, motivation, and other barriers of understanding, can we expect to plan anything with even a 50% likelihood of success?
With statistics stacked against us, human nature continues to drive us to develop plans. We believe only others fail. This explains gambling: the casino pays the winners with the money collected from the losers.
The Project Management Institute defines risks as any outcome that has a positive or negative effect. Positive risk is called opportunity. Maybe we should begin to call strategic plans, risk management plans.
I found “Against the Gods, The Remarkable Story of Risk“, by Peter L. Bernstein, a great read and of immense practical interest for anyone in business.
Follow Along: