RISK of Not seeing risk (standard deviation)

Many people focus only on the amount (such as average revenue, time and costs etc.) itself.

On the other hand, average hides how the set of original data looks like (distribute).

Here is an example:


If you look at only average sales revenue, you may conclude that you have no issue as the revenue is constant.

But Standard deviation reveals that deviation of the data (daily sales revenue in this case) went higher, which means that the busines risk is growing.

Standard deviation shows how the value of the individual data diversified in the data set. The more diversified, the higher the standard deviation will be.

In the business world, it is RISK.

Therefore, you may need to look at both average and S/D at the same time to understand the characteristics of the data.



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