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Numbers can sometimes be misleading

As a consultant, I was taught to quantify things while giving recommendations to the client.

Here is the reason why – Imagine I am giving a presentation to my client and I tell them the same thing in two different ways:

First, there is high chance you would be generating more revenue as the market is also growing very fast.

Second, your company’s sales increase at average rate of 4% for 8% increase in the market growth. Since research shows that the market will grow at the rate of 8% next year, your sales is most likely to increase 4% next year.

Out of the two, which one do you think is more convincing? Obviously the second one, right? From the second statement, the client has the reason to believe WHY they can expect more Sales!

Hence the consultants heavily rely on Math while drawing conclusions. While math might be true, (if done correctly) it may mislead. Here is an example to illustrate the same. Let’s assume the Revenue of a company to be 10 Million. The immediate reaction would be that, the company is doing well. Do we have sufficient data to recommend it is good? What if the COGS to get this revenue is 11 Million. In this case, the company is suffering a loss which is bad. Hence the revenue of 10 Million alone is not sufficient enough to say whether it is good or bad. OK. Let’s assume Net Income of 1 Million. Math tells the profit margin is 10%. Now, 10% profit margin is good or bad? Again I would say the data is insufficient. Why? What if the profit margin of our company was 17% last year.  In that case, the client’s profit margin is good, but not as good as last year. However, still the data is not sufficient to say if 10% is good or bad because we do not know the profit margin of the competitors. What if the profit margin of competitors is 7% this year.  It means that the entire industry is not performing well and though our profit margin has decreased, our market share has remained constant or it has increased.

Hence the problem is not with numbers itself. The problem is the way we analyze the case using the given numbers. A good consultant is one who asks relevant questions with the given numbers to come with analysis.

bharath

Bharathwaj Mohan

bm@nimble.in

Management Consultant

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