Biz performance: Statistical Thinking Concepts

- August 22, 2014 3 MIN READ

Statistical thinking is about understanding concepts that have a huge bearing on how quickly you reach your business goals. Here are four of those concepts.

1. All things vary

Every result in your business varies, or goes up and down seemingly erratically. Sales vary because of: the economy, your marketing messages, your marketing activity, your target market, even the weather.

Every measure, including the following, will go up and down:

  • Website visitors
  • Monthly expenses
  • Customer satisfaction
  • Revenue
  • Profit
  • Billable hours
  • E-newsletter subscribers
  • E-newsletter unsubscribes
  • Sales conversion rates

Because everything naturally varies, it means we need to be careful about how we interpret our monthly business results. Most differences are just part of natural variability.

2. Where things vary, there is uncertainty

We can’t ever really know something with 100% certainty. Statistics is not like mathematics, where you get exact answers when you combine numbers.

Statistics is the study of uncertainty – or variability – and its core purpose is to draw patterns out of that variability in data.

We don’t know exactly how many sales we’ll get next week because we don’t know how all the causal factors will play out. But when we look at our sales data in the right way, we can see patterns that are signals that tell us how sales performance is going, despite the natural variability.

Want more articles like this? Check out the measuring success section.

3. Find measures of uncertainty to make signals stand out

We can look to the past to see weekly sales variations so we can estimate next week’s sales within a likely range.

This is why the concept of variation is fundamental to statistics, and why statistical thinking is fundamental to managing our business performance.

Variation is a measure of the uncertainty. This routine variation is fundamental to how we can draw knowledge from data because it helps us gauge the amount of uncertainty inherent in whatever it is we want to measure and manage. And what we’re managing is the pattern of variation, not the points of data!

4. We cannot find knowledge in individual points of data

Knowledge can come only from patterns in data, and these patterns are patterns of variation. If the variation reduces or increases or moves, it generally is a signal that something happened to cause a change.

Sometimes when the pattern of variation doesn’t change, it’s also a signal that our efforts are having no effect!

You cannot manage business performance without statistical thinking. When you ignore variation and uncertainty, you react to every fluctuation from month to month (or week to week) as though it means something significant happened.

But more often than not, nothing significant happened! Those fluctuations are just a natural product of complex and interrelated causes; a product of natural variability.

So how do we know when something significant happened in a business measure?

How do we know when we need to take action to improve performance? We need to distinguish the routine and natural variation in our performance data, from the abnormal or non-routine variation that signals a change.

And it’s easy to do this – even though most people don’t even know about it. It takes just your measure’s data, a few easy statistical calculations, and one simple graph known as an XmR chart. Google “xmr chart for performance measures” to learn more about these great charts.

Take action

Pay more attention to how you draw conclusions from your business measures, like revenue, sales, profit and website analytics. Are you interpreting routine variation as a signal? Are you ignoring changes in the pattern of variation that indicate there is a signal? Employ statistical thinking concepts and you improve your chances of reaching your business goals faster.

What are your thoughts on these statistical thinking concepts?