In my job here, it is common for us to have to “undo” back of the envelope calculations that reflect more on an individual’s beliefs than on any well founded analysis.

One of the greatest examples that springs to mind was the announcement that Melbournians managed to cut their water consumption by 20% in the first weekend restrictions were introduced. “That’s amazing,” everyone cried. “A true example of how the community can come together under great leadership!”
Well, almost. You see the first weekend of restrictions happened to be a long weekend, when typically about one in five families shoot through to other municipalities for a holiday. Yep, one in five disappear off the radar.

I recently heard of a company’s quest to cut their overheads, something that will probably become more prevalent as the Global Financial Crisis kicks in. The team there had taken the outgoing cashflow records, and were looking for bits to attack with a razor. Anything that sat out from the crowd would do.

One account heading regularly had large outgoings. In fact, one member of the sales team was consistently recording outgoings under 4-3128 “Cost of Sales” far and above anyone else.

Here is an example of the low-hanging fruit regularly attacked first when budgets need to be cut. This particular salesperson was sent an email telling them to curtail their expenditure and the problem was solved as they promptly resigned and account 4-3128 returned to “normal” levels.

What went wrong? Some of the sales staff were on commission, and the cost of sales account was where these payments were recorded. By only looking at one half of the data set, the analyst missed the fact that there was a very strong correlation between the high outgoings, and even larger inflows. This Company’s best salesperson, who happily worked on commission, now works for the competition.

Love your work, boys :-)