The Flaw of Averages

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The Flaw of Averages by Mind Map: The Flaw of Averages

1. "Plans based on average assumptions are wrong on average"

2. Probability Management: makes risk and uncertainty more clear

3. Give me a number

3.1. profit will on average be less than profit associated with average demand

3.2. on average, costs will be greater than the costs associated with the average demand

4. Statisticians to the Rescue

4.1. Fixating on a single number average lessens one's thought of possible risk

4.2. with an average, people expect things to stay close to that number, and not deviate drastically from it

4.2.1. ex) stock market crash

5. The Reds

5.1. Red Lobster's Endless Crab: went off averages, didn't expect customers to consume so much

5.2. The Red River's average crest level gave people a false sense of security by going off the average

5.2.1. "The tendency to overlook uncertainties, margins of error and ranges of probability can lead to damaging misjudgments." (p.29)

5.3. Red Ink in Orange County says that considering a range of uncertainties rather than just going off the average, can prevent future problems

5.4. Colonists planned for the Red Coats to arrive either by land or sea, examining a wider range of uncertainty, which proved to be successful

6. A Problem of Dilbertian Proportion

6.1. Even if a manager gives their boss the correct forecast, often the manager will use that forecast incorrectly for other related aspects

6.2. The Flaw of Averages often arises because of left-brained analysis thinking and its fixation on a single precise answer