Bad Data is Killing Your Profit!
How much does it cost? We ask this question all the time. Most of the time, we have a pretty good sense of whether it is a good deal or way too much for our wallet. Buying is easy. There’s a little tag that says $19.99, or a quote for $125/hr, or a BOGO deal: 2 for $10.
What do you do when you have no idea what it costs and no way to know? Some decisions we make come with a hidden cost that we never think of. A lousy restaurant meal ruins date night. It disappoints both of you and wastes precious time. These intangible costs are way more than the check total.
You Never Know the True Cost of Bad Information
MIT/Sloan estimates the cost of bad data equals 15-25% of total revenue for most companies.
Bad information. We all have made decisions with it, and when they don’t go well there is an obvious cost. The excuse for making a bad decision? “I didn’t know.” “I had bad information.” As the progression below demonstrates, bad information starts with bad data:
So why is there so much bad data out there? There are several reasons:
Humans are, well, Human. Individuals design and enter information into business systems. It requires attention to detail and training. And the information can be incorrectly recorded in separate systems.
Data is Not 4-C Diamond Quality. Good data is clear (understood), correct, current, and complete. Dun & Bradstreet determined that correcting a data error costs 100 times more than preventing an error.
Information is Mistakenly Created. Cause and effect relationships can be tricky to discern. Think of the question, what does that have to do with the price of eggs in China?
We Do Not Recognize the Cost. Rarely can we point to an exact cost of bad or unused data. The impact is in angry customers, lost productivity, wasted time, and rework.
Hidden Costs Are Hiding in Plain Sight
If you know what to look for, you can see and hear the cost of data as you walk around your company. Here are five things to listen for.
#1 – I Know My Customers as Well as Amazon Knows Me.
Every sales team believes they know their customers. But too often, this collective perspective is never validated. Packages get delivered to the wrong address, customer contacts are out-of-date, credit gets extended when it shouldn’t be.
And if you have tried to develop an ideal customer profile or create groups of customers by their low-medium-high value, you know how hard it is. Data from separate systems may not be consistently structured, or the expertise to do the analysis does not exist.
#2 – My Data is Right, Yours Is Wrong
Even at the C-Suite level, there are frequent questions about what the information represents or even who is right. Are those Sales with or without returns? Is that total employee turnover or just regretted turnover that excludes dismissals? What is included in the Facilities expense? Is that profit gross or net?
After the meeting, someone will drop other priorities, rework the information, and schedule a follow up meeting. Another leadership discussion to assess is the right information is available.
#3 – We Have to Make the Numbers
Results matter. Unfortunately, balance between numbers can be lost. For example, deep discounts offered to meet quota will destroy margins, bad inventory data leads to stock outs or excess inventory. Operational inefficiencies will spill over into employee frustration and disengagement, further increasing costs.
#4 – There They Go Again - Anecdotes Explain Results
Every business leader has thought to themselves, “There they go again.” The stories of why the forecast was missed, why margins are down, or even why sales are flat. I once heard a Sales Regional Manager mutter, “It’s just quiet out there.” Information is available, but it is often not readily available or a pain to analyze.
#5 – Leaders Never Demand to Prove It
Ultimately, if leaders fail to require detailed information or do not question it when presented, the cost of poor data will never be reduced. Information available to the business will never be used because of the underlying quality issues.
Renew A Commitment to Quality Information
If Garbage In/Garbage Out is accepted, change will never happen. Fortunately, change can start with a new leadership expectation: Learn something new from your system. It is a paradox, your data is too bad to use, but will not improve until you use it. As it gets better so will the decisions, sales, and profit you make.
For business leaders, a few take-aways and next steps to start your journey:
Become aware of the hidden costs of bad data and how they impact your success.
Invest in the systems, information, and work processes to ensure accurate and reliable information is available for decision-making.
Make continuous data quality improvement an imperative for everyone.
Your engagement is required to build a culture of data quality and accountability.
Trust your gut but verify! The quote below is one of my favorites.
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Please do not go it alone. Work with someone who uses information to align business strategy, capability, and culture. Give Lynn, our Data Magician and Fractional CFO, a call.
