Numbers may be the prime element within FP&A.  FP&A is relied upon to provide numbers like operating income, net cash flows, and earnings per share.  Do numbers like these and others mean anything?

This question has been part of my life since reading Moneyball by Michael Lewis.  This book is seen as a story about a Major League Baseball team, however, the story goes much deeper; chapter 4, Field of Ignorance, serves as excellent reference material for FP&A practitioners.  This chapter focuses on the work of Bill James, a writer who questioned the understanding of baseball.   One of the questions he raised was how fielding, i.e. defense, was judged.  The judgment of fielding was based on the number of errors made by players.  Bill James considered this form of judgment to be misleading because it was an opinion rather than a fact.  This consideration is described on page 67 through this statement: “fielding statistics made sense only as numbers, not as language.”

I have used this quote to establish a basis for information quality, however, I recently found another example about information quality from another book by Michael Lewis, The Undoing Project.  This book describes the collaboration between Daniel Kahneman and Amos Tversky; two individuals who have made significant contributions to the fields of judgment and decision making.  The book describes the work of Daniel Kahneman during 1974 to determine the probability of war between Israel and Syria should negotiations fail which, based on experts, was 10%.  He presented this number to the director-general of Israel’s Foreign Ministry and was stunned due to the director-general’s reaction: “10 percent increase?-that is a small difference.”  Daniel Kahneman was stunned because this number, based on the best estimate, was overlooked by another probability calculation, the director-general’s gut instinct.  This situation was when Daniel Kahneman gave up on decision analysis because in his opinion what was needed to make a decision was a story.  The statement that has expanded my work in information quality appears on page 250: “the understanding of numbers is so weak that they don’t communicate anything.”

Our work as FP&A practitioners relies on the use of numbers.  We use numbers for income, cash flow, and earnings per share (EPS) projections.  We use numbers for profitability, liquidity, and solvency assessments.  We must, however, do more than rely solely on numbers.  We must rely on numbers as a starting point for telling stories.  We must use numbers as a foundation for telling stories about the effectiveness of delivering products or services, fulfilling value propositions, and creating wealth.  What the work of Bill James and Daniel Kahneman has given us is a guide for adding value to our work.

Numbers are an important part of our lives.  We rely on numbers to guide our actions.  We must remember however that in order for our actions to be helpful we must incorporate numbers as one element to project meaning in how we act.