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• Michael Hunter

Updated: Apr 30, 2018

The best coaches, and CEOs, create a vision of what's possible, and make decisions based on what's probable.

Even during March Madness, you can stay sane by thinking analytically.

You probably heard that Warren Buffett once offered \$1 billion to anyone who could fill out a perfect bracket for the NCAA basketball tournament. He might as well have made it \$1 trillion, because no one even came close. As the Wall Street Journal reported, “There would need to be 15 trillion brackets, or 48,000 for every American, for there to be just a 1% chance of perfection.” The Oracle of Omaha understands probabilities. But many otherwise smart people don’t, making innumeracy — or incompetence with numbers — as big a problem as illiteracy.

How does this relate to your business? Well, let’s say we’re a marketing, sales, or leadership team tasked with projecting revenue for the upcoming fiscal year. In order to grow the top line by 10%, we assume that 5 key things need to occur:

1. Market continues to grow at a 5% rate.

3. New product launch succeeds, generating \$x in revenue.

4. Competitor’s product launch is mediocre, impacting our revenue by only \$y.

5. Win new key account worth \$z.

Let’s attach a 60% probability to each. In other words, it’s more likely than not that each will occur. What’s the overall likelihood of achieving the plan?

• Some people will say 90% or even 100%. Gotta love those starry-eyed optimists! Every team needs at least one.

• Some will say 60%. Isn’t that what the math is telling us?

• Some will say 50–50, or something close to it. Because this just feels like an even-money bet, right?

Well, the answer is less than 8%.

Here’s the calculation: 0.6 x 0.6 x 0.6 x 0.6 x 0.6 = ~.08

Because all five events need to occur, we have to multiply their individual probabilities. In fact, all five could happen, and we still don’t make the revenue growth target. Why? Because of X-factors not accounted for in the assumptions. For example, we could lose a major account to offset the one gained.

Are you starting to see why your company might not make its growth forecast? And why Warren Buffett is richer than the rest of us?

Allow yourself to be overcome by March Madness. But when faced with growth projections, remain rational.