Saturday, November 22, 2014

Numbers Don't Lie

While looking a few things up for the last post on the ubiquity of advertising, I tried to find a good estimate of the number of ads, on broad average, we Merkins are bombarded with every day.  There are studies, going back decades, but the results ranged from 74 to 600.  So I couldn't really use any of those figures as they are all over the place.  Other than Mr. Silver's accuracy in surveying voters before the last presidential election, surveys and studies are often so biased by their purposes and agendas, as well as being compromised by small samples, that you might as well pull numbers out of a hat.

If you're paying attention, you can likely figure out what is going to happen yourself.  But people will try to make things happen their way by misusing numbers at every opportunity.

Let's look at a corner of the business world that is somewhere between the financial sector and used cars on the shadiness scale: hotels.  As you, my longtime reader, know, I had the eye-opening experience of working for a Marriott franchise hotel for five years as chief engineer.  Number one number: send $5000 a month to Marriott for the franchise fee.  With business travelers in the winter and tourists in the summer often filling the place up, as well as a convenient and safe location, that was no problem.  I watched my departmental budget numbers, and justified overages or highlighted under-spending with the best numbers I could, not made up but from the actual prices of parts, supplies and the probable life and usage level of each.  No problems until we were sold to a real estate investment (cough, exploitation) firm from Florida.  Then, my new budget according to those shiny, tanned folks with a resume of white collar crime and a stash of drugs in the Mercedes arrived, with numbers that did not correspond to reality at all. 

I.E., commercial washing machines and dryers work nonstop at least two shifts all day, every day, at hotels, and the parts are quite expensive.  If you buy exotic imported machines (which I would not have done), the price for anything is always several hundred dollars apiece.  My new laundry machine maintenance budget was $40 a month!  And soon enough, we received the instruction that profits were to be increased by double digit percentages monthly, while expenses were to be reduced similarly.  In what world is that possible? We had an 11-building campus, 5 acres of grounds, three parking lots, all of which when new might have squeaked by with a lower budget, but at halfway through its life and having been notoriously badly built (my predecessor said he saw them cutting the 2x framing lumber with chainsaws, and there were gaps in some roofs), it was a no-brainer that maintenance and replacement was going to get more expensive, just as with anything over time -- roads, buildings, cars or even your own self.

The actual amount of the fees and charges levied on your retirement or investment accounts seems to as closely guarded a secret as any of Merlin's spells or potions, especially if it's a 401(k) from your employer.  It's a complex arrangement, designed to obfuscate, like the closing on a home sale or buying a new car -- but at least in those two situations the numbers are sprung on you at the last minute, not off in a fog somewhere.

Other number games, past and present:

Remember when Secretary of Defense McNamara said that by any quantitative measure, we should surely win the Vietnam War?  That was what he was going by, and it was completely irrelevant.  But he had also been head of Ford, so he must have been an authority -- and highly educated authorities must know their facts and figures better than we ever could, right?  Numbers are only one tool, not the only tool, that is necessary to understanding a problem or situation.  Recently, I saw a program on the war where it was stated that 300,000 North Vietnamese turned 18 each year, and you can bet most, not just a few, were drafted.  That figure may be just pulled from thin air, too, but it's a number that we never heard at the time.

In the current noise about the Keystone XL pipeline, the usual suspects are claiming that its construction will mean 300,000 jobs.  Mmm hmm.  First, figures like this, hyped in the media, are made up.  An earlier estimate, when the project was more in state of limbo, was for about 35 to 350 full-time jobs after it was built.  And my numbers sense tell me that's probably a fanciful highest estimate, because the Koch Brothers and their buddies do not go in for pipeline maintenance (since there are 5000 leaks or breaks a year or more due to postponed or ignored maintenance requirements).  There will be a lesser number of on-call contractors, not legions of full-time employees gleefully spending their paychecks and enjoying their wonderful benefits in Small Town USA.

A few years ago, Hershey dropped two new products because they did not meet projected figures.  Both were selling and profitable, however, and many things take a while to develop an audience and grow; remember "Seinfeld" was ignored its first season, and "It's a Wonderful Life" was a disappontment at the box office.  But someone blinded by numbers pulled the plug, and all that R&D and production run-up was wasted.  Mr. Hershey discarded a lot of products as tastes changed over the years, too, but he had intuition and instincts that his successors probably disdain, while poring over the numbers.


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