Intuition is behind most decisions we make. One reason is because it’s easy: When you’re relying on intuition, you can make decisions quickly and without much work. However, intuition alone is not enough to always guarantee good decisions. As much as we all like to say that our gut feeling is always right, our intuition can sometimes lead us astray. Our opinions are based on past information and experiences. Implicitly, we simplify decision-making by sometimes projecting past experiences and information to inapplicable situations. In such cases, our gut feelings can be wrong. Unfortunately, we find that out only after we suffer the consequences of our decisions. In any business, there are many moving pieces and decision points, which makes operations uniquely susceptible to bad decisions.
In contrast to our opinions, analytics can consistently provide objective advice. Introducing analytics to your decision-making has two benefits among many that intuition can’t compete with:
1) Analytics can reduce unnecessary business costs due to cognitive biases
Cognitive biases can be one reason, if not the main reason, why our intuition can be wrong. Cognitive biases are mental shortcuts we take to simplify decision-making. Biases speed up the decision-making process but they can also cloud judgement. Analytics, however, can make up for shortcomings that arise from our biased intuition.
For example, status quo bias — defined as a preference for keeping things the same — can hinder process improvement efforts. However, data analysis and visualization can convincingly point to process improvement opportunities. It’s easy to overlook 15 minutes of lost time due to hidden inefficiencies. But analytics can point out that, 15 minutes lost by 100 employees in a course of a year can amount to about $130,000 of unnecessary costs. Knowing that hidden inefficiencies costs you $130,000 is a good motivation to invest in process improvement. Such a convincing justification to improve processes can be hard to believe without analytics.
Having an evidence-based decision-making framework at all decision points in your business can reduce costly implications of biased decisions.
2) Analytics can give you confidence in your decisions
When making business decisions by intuition, managers and executives always run the risk of facing potentially unpleasant results. Analytics can confirm or disprove your intuition and give you confidence that you are making the right decision. The power of analytics is such that, even if you make a terrible decision using bad analytical insights, you still get the benefit of doubt because you exercised due-diligence to sense-check your gut feeling.
For example, when deciding whether to acquire a new business facility, you can base the decision on optimisms that sales will increase to justify the new facility, or you can rely on a comprehensive industry analysis that clearly justifies strong indications of sales growth. If the optimism is confirmed by a comprehensive industry analysis, you can confidently undertake the decision to acquire the new facility. With the analysis in hand, the decision-maker has something to point to if sales don’t grow as expected, rendering the need for a new business facility obsolete after the facility has been acquired — it was just unpredictable bad luck. With intuition alone, however, the unfortunate decision maker looks incompetent if sales expectations don’t materialize.
Analytics inform decision-making
It is easy to make decisions on the go. There is a certain level of flexibility and speed that comes with intuitive decision-making. However, your gut feeling can be biased. Analytics can give you confidence and reduce biases in decision-making. Moreover, a data-driven decision-making framework can provide objective insights that can improve business outcomes.
But, analytics has its limits. The full value of data can only be realized if the analytical process is solving a problem that is clearly defined and deeply understood using the correct methods. Analytics can successfully improve decision-making if you use data to solve the right problem the right way.
Efficiency is an important competitive advantage for any business. One way to improve processes is through analytics, which is why business giants invest heavily in analytics. Analytics give business giants an advantage when it comes to efficiency, but how are they leveraging analytics to improve their processes?
Firstly, because they invest in data collections systems, they collect data on all aspects of their operations no matter how small. Take a warehouse for example; in a typical sophisticated warehouse, you will find a data system to track inventory movement, MHE usage, labor hours, productivity, and inbound and outbound loads. Secondly, they combine data from various systems and analyze it to formulate process-improving insights.
So, what are the benefits of analytics?
1. Identifying and reducing hidden idle time
Small windows of unnecessary idle time are productivity’s silent killer. More often than not, businesses experience small windows of idle time. These windows of idle time can go unnoticed, but over the course of a year, they can add up to a lot of wasted time. For example, 15 minutes of hidden idle time a day for a team of 100 people can add up to 6,500 hours wasted in a year, which can amount to losing between $120K and $150K. Analytics can help identify these small windows of idle time.
2. Identifying and avoiding possible bottlenecks
In most cases, bottlenecks get noticed after they occur. These backups usually start slowly. Analytics can help you identify a dislodge in operations processes ahead of time by using historical or real-time productivity data. For example, if two subsequent operational functions have different processing speeds, the likelihood of a bottleneck is high if the first function is the fastest. Analytics can help you identify subsequent processes that are susceptible to dislodging so you can reallocate resources from the faster function to the slow function and avoid a possible bottleneck. Without analytics, you might not be able to identify and prevent an impending bottleneck.
3. Ability to control operations
Analytics can give you an objective overview and understanding of your business activities. Having an objective understanding of operations enables you to optimally allocate team members to job functions, postpone non-core functions during peak times, and call for optimal overtime or time off. Poor allocation of team members can result in bottlenecks or additional operational costs. Failing to call for sufficient time-off during slow periods can result in unnecessary additional costs, while failing to call for enough overtime can render you unable to deliver orders to customers on time.
4. Improve asset purchasing practices
Analytics can shine a light on how you use assets and thus can be crucial in your purchase decisions. If you don't analyze assets usage, there is a possibility of over-investing in assets, which leads to idle capacity, or under-investing, which can slow down your operations. Analytics help you to systematically optimize asset purchases as well as maintenance schedules to reduce downtime.
5. Ability to set objective targets
Analytics encompass demand planning to inform your inventory, hiring, and capital investment decisions. These types of decisions take time and resources, and analytics can give you a head start in the planning process.
In conclusion, consider investing in analytics as you would consider any other business investment decision: If you pay $80K a year for analytics, but in return you gain more than $80K, then it is a worthwhile investment. Big industry players invest in analytics because it gives them a competitive advantage and furthers their growth.