Stepping Back for a Broader View

As we’ve seen, there are very many reasons a business will want to look forward to the future. There are a variety of decisions to be made, depending on the situation and the desired outcome. Each of these decisions has its own different needs in terms of accuracy, precision, and the distribution of error. Without knowing the business need, it’s not possible to know how to satisfy that need with an appropriate estimate. It’s important to find out what those needs are and recognize that they may require different estimates.

It’s important to remember that estimates are different from calculations. There’s nothing exact about them. Given that error is expected, you’ll want to do your best to keep that error from causing damage. Often, accuracy and precision are not very important if you can constrain the error in one direction. Other times, the distribution of error is not important because the need for precision is not great. It’s only when the decision is close that you need to worry much about accuracy and precision. When that’s the case, you should realize that the risk of noticeable error is greater. That risk may help make the decision. There’s little cause to incur a large risk for a small return on investment.

Next, let’s look at how to develop an initial estimate to meet these needs.