How to avoid being fooled by percent changes

What the board room can learn from the shop floor or, how to avoid being fooled by percent changes By Ben Jones http://dataremixed.com

Meet Jim

(Jim says Hi)

Jim runs a company selling…tractors.

Tractor Sales aredown 3.6% this year -3.6%

Jim wantsanswers…

Meet Jim’s two sales guys, Joe and LarryJoe Larry

Larry’s numbers are up 2.9%… +2.9% Larry

Joe’s numbers are…not. -8.3%Joe

What should Jim do?

(Jim is polishing up his resume…)

but what if it was all just a big misunderstanding?

Instead of justlooking at % change “Year Over Year”… -3.6%

…what if we plottedunits sold by month?

and what if we applied some brand new techniques?Walter Shewhart written in 1939 http://amzn.to/dOWKBw

to understand thevariation in the data: “Special Cause” variation UCL – Upper Control Limit “Common Cause” variation x-bar (or average) LCL – Lower Control Limit “Special Cause” variation

So wait, only LAST month is a “down” month…

…and WHO do you think caused THAT?Joe Larry

Probably Joe, right? -8.3%Joe

But if we look at Joe’snumbers over time… 2009: 96 Units -8.3%

But if we look at Joe’snumbers over time… 2010: 88 Units -8.3%

We see no statistically significant change! “Common Cause” variationJoe

But Larry can’t be thereason, his numbers are up, right? +2.9% Larry

Let’s look at Larry’snumbers over time… 2009: 69 Units

Let’s look at Larry’snumbers over time… 2010: 71 Units

Looks like Larry has some explaining to do about December… “Special Cause” variation Larry

These two approaches telltwo very different stories… Percent Change Control “YOY” Charts

Blaming Joe would bemistaking NOISE for a SIGNAL

Rewarding Larry would be missing the opportunity to identify a SIGNAL

Either way, Jim’s business loses an opportunity to LEARN and GROW…

…and the fate of oursales guys’ careers hangs in the balance… Joe Larry

The Morals of the Story:• DON’T just compare % change• DON’T assume a % change isstatistically significant just because youdon’t like it.• DO use a Control Chart to filter outnoise in a data set and identify signals• NEVER adjust the y-axis to cross thex-axis at anything other than 0 (did youcatch that trick? The column chartsgrossly over-exagerate the changes)

For bar charts, always set the y-axis to 0y-axis starts at 157 y-axis starts at 0 Appears to be 4X less

Got all that, Jim?

More about Control Charts (in business) • Understanding Variation – Donald J. WheelerPresentation by Ben Joneshttp://dataremixed.com

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How to avoid being fooled by percent changes

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