A manager I respect a lot was fanatical about understanding financial data. He refused to get any analysis started without sitting down with the data provider and asking all the basic questions. “Why this number? What exactly does it mean? Do the numbers make sense to you?” Here’s why – you often begin by making simple assumptions – oh sales must refer to gross sales and very soon, you build on these assumptions and make a few more of your own. As you begin looking at the data in various ways, your initial assumptions become embedded.
When Disney were building their theme park in France, the projections always assumed there would be 3 million people/year visiting the theme park – the same as the Orlando theme park. At the end of the first year, the projected 3 million people had shown up but the revenues were significantly smaller. Why?
The theme park in France was smaller than the one in Orlando. As a result, most people just made it in and out with just a day trip. This wasn’t possible in Orlando and people stayed for 2-3 days when they visited. This assumption about size just got embedded within the numbers until no one questioned it. It took Disney a year or so to modify assumptions and fix this problem by adding attractions.
D’oh? Well, yes and no. If you are an analyst who has made financial models and projections, you know that such errors can happen to anyone.
The lesson I’ve taken away is – if you are inheriting data, a tool, or a framework created by someone else – don’t assume anything. Go through each and every part of it with the creator making sure you understand everything where possible. Once you ask and understand the ‘why’, go crazy with the ‘why not.’
A Learning a Day 