Dealing with big numbers

Man in red looking confused with curved arrows and a question mark

A few months ago, I had the opportunity to travel to Minsk in Belarus to speak at a conference.  I had never been to Minsk before, and I have to say I thoroughly enjoyed it there.  The city was beautiful, and I was fortunate enough to have time to explore the sights as well as attending the conference.

 

Man in red looking confused with curved arrows and a question markOne thing I found rather confusing as a visitor was the currency.  At the time of writing this article, the exchange rate between the UK Pound and the Belarusian Ruble is 1 to 13,075.  Or put another way, £1 is worth over 13,000 Belarusian Rubles.  As you can imagine, this led to me doing some mental arithmetic every time I went to buy something and it meant that the banknotes were issued in very large denominations!  And with so many significant digits (zeros), it would be easy for a visitor like me to make a simple error – after all, prices like 135,450.00 and 13,545.00 start to look similar if you stare at them for long enough.

 

Reflecting on this experience reminded me about how it’s often difficult to contextualise large numbers generally.  In this example, I dealt with that challenge by converting the large numbers to something that I understood (£s).  In business, we deal with large numbers all the time.  But do we really understand them?  Isn’t there a risk that a number like a million, a billion or ten billion just looks “large” and without any context it’s difficult to understand how large?

 

Let’s explore an example.  Back in December 2012, there were a number of news articles explaining how the US Air Force had cancelled a major software project that had cost $1 billion dollars and taken six years.  Clearly $1 billion dollars is a big number – but how big?  Knowing the absolute number is useful, but having some kind of frame of reference for that number is also useful – particularly for people who aren’t familiar with the US Air Forces budget. Otherwise it just sounds like “a lot”.

 

What about if we considered that number in the context of salaries.  According to information published online a senior airman in the USAF can earn up to $28,840.  That can be used to put the $1 billion into context.  We can expand the headline figure:

 

“The cancelled US Airforce project software cost $1 billion, to put that into context, that’s enough to pay the salaries of 3,500 senior airmen for a decade.”

 

That’s a scary and sobering thought.  $1 Billion just sounds like a big incomprehensible number.  When you chunk it down into what it actually means or what else it could have bought, many people will find it easier to comprehend.

 

Why does this matter?  Within all organisations, whether mid-size or multinational, executives are making decisions every day.  There’s normally a cost associated with adopting a new strategy or initiating a new project, and these costs might be large.  Contextualising raw data and raw numbers in terms of how many products you have to sell to fund it, or how many new customers you have to convert, can really help.  Clearly in a project environment a business case is a key input into this process.  It’s also important to consider whether your organisation knows the cost of client acquisition, as this can be a very useful metric to compare against.

 

In summary, large numbers can be made more comprehensible by comparing them with something that is readily understandable.

 

 


This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. I’ve been compensated to contribute to this program, but the opinions expressed in this post are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

 

IBM Logo

 




tumblr tracker


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.