Mount Everest and the Exactness of Financial People

This post appeared in my friend Roland Teo's blog and I find it very relevant in today's world especially dealing with the
Financial people, as it goes to show that alot of times, 80% of our time is spent on dissecting and focussing on 20% of the problems which we have successfully managed and arguments arise over the smallest things. So for the post below,credit goes to Roland Teo.

"Mount Everest. I am sure everyone knows it is highest mountain in the world, way above 8000 metres.

I read recently in the newspapers that there are disputes on the height between China and Nepal, given the height of Everest one would assume the dispute must be over at least 100 meters to be meaningful, right? Well read the article, excerpts as follows:

"After decades of argument, China and Nepal have finally found a solution to their long running dispute over the height of Mount Everest. The world's highest mountain lies on the border between the 2 countries and they have disagreed for years over its exact height. Nepal measures the mountain at 8848 metres - insisting it is nearly four metres taller than China's measurements claim.

Officials from the two neighbours have reached a compromise at talks in Kathmandu - agreeing that the two measurements refer to different things - one to the height of Everest's rock and the other to the height of its snowcap. ...."

My thoughts on this argument; it appears China and Nepal does not have any other major problems to deal with but to engage in arguing over this miniscule issue. The difference they are arguing over of 4 metres represents less the 0.05% of the height of the Mountain. Instead of engaging in decades of argument, why not split the difference by averaging it and both agree that the height is 8846 metres, so both are wrong by a mere 2 metres. Again, given the height of Everest how does the 2 parties know they got their height right anyway?? Further other than the officials and scientist does anybody care whether Everest is 8848 metre or 8844 meters?

The business parallel for this is that I find the finance department in organisations will spend huge amount and time plus long hours to work out to the exact last thousand of dollars the business forecasts. Business forecasts are a prediction of the future and there is no exactly right number, the assumptions are more important than huge spreadsheets that churns out an arithmatecally correct number. Every often a "back of envelope" calculation taking less than half an hour gives a better estimate than those generate after many hours of toiling. Yet from my experience, finance department continue to take great pride in their approach and will come out with forecast profits of, say, $17.345 million - and they will get very upset if I round it to $18 million or the business head of that unit rounds down to $17 million!!! Just like the Everest dispute, this kind of difference is not significant enough particularly in forecasting which is a prediction of the future given a given set of actions and events which may or may not hold true.

What's worse is after toiling long hours and coming with the exact profit forecast which adds up nicely, I found out that the numbers usually doesn't hold up to some common sense questions on the assumptions!!!

Anyway, the point I am trying to make here is in forecasts the assumptions are more important, there are no exactness in the numbers so stop spending long hours churning it. Just like the height of Mount Everest most times it is not worth the effort to get that kind of exactness because it is not that important nor critical.

Further, in life we argue over many things and lose our temper in the process - if you look back many times the issue that we fight over is merely the equivalent of the 4 meters difference in the height of Mount Everest!! "