Why Standard deviation is NOT used in the daily business operations

If you are not living in the acadmic world but in the business world, you may not see Standard deviation so often.

As I mentioned in my previous post, you should be fully aware of your business risk and standard deviation will help you.

The issue using the standard deviation is that “standard deviation itself does not tell you anything”.

For example, if you get the value of standard deviation, say 50 ($000), in your calculation, it would not mean anything. You will be lost how to practically use it.

 

You might try to evaluate it by comparing it with other benchmarks. But if the compatitors store has 10000($000) average revenue/ month while your that of your store is just 500($000), the same standard deviation of 50($000) means different. (i..e 50 against 10000 vs 50 against 500).

In such case you cannot simply compare the value of 50 with different conditions.

 

This complexity makes standard deviation less useful in your daily life.

 

In the next post, I would like to address how to get around this issue….

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s