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Numbers In Business

Updated Tuesday, 21st June 2005

There's more than pounds and dollars at the heart of how business uses numbers, says Kevin McConway.

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Buying and selling prices, profits, accounts, balance sheets and the like are what business is about, aren’t they? Well, up to a point. Businesses do generally aim to make a profit, in money, for their owners, and a business that ignores money altogether will not prosper. But sums of money are not the only numbers involved in business.

For example, businesses need to plan for the future. How could the business operations be changed, to make them more efficient in terms of the way they use resources? How might changes outside the business - the economic position in the country, or new Government regulations, or new competitors - affect how the business performs? Money does come into this, of course, but that's only one aspect of the operation.

Decision makers in business often set up quantitative models - descriptions of the business involving numbers, or more likely, descriptions of just some part of the business - to help them understand how things might turn out in the future.

These models might be very simple, just a few numbers on paper or in a simple computer spreadsheet, or they might be very complicated mathematical constructions. They might well involve money, but are very likely to include other things that can be counted or measured. They might involve probability, because the future is uncertain, and probability is a way of describing uncertainty in numbers.

The Honeybee Factory, Shenzhen, China. Image: DC Master under CC-BY-NC licence Creative commons image Icon DCMaster via Flickr under Creative-Commons license
Can numbers help you choose to build a new factory? The Honeybee Factory, Shenzhen, China. Image: DC Master under CC-BY-NC licence

One reason for using quantitative models is that they can take account of things in the future. Another is that it is cheaper and quicker to investigate changes using a quantitative model than it would be to do in real life.

For instance, suppose a manufacturing company thinks that it may be able to change its production processes in a way that will reduce waste. The company could set up a small-scale plant using the new processes, and see what happened.

But this might be expensive and complicated to do, and it might all turn out to be in vain if the changes do not actually reduce waste. It would typically be far cheaper and quicker to use a quantitative model to investigate the effect of the changes, and only to build the new plant if the model indicates that the changes will work.

Of course, none of this can happen unless the quantitative models do provide a reasonably accurate description of the way the real-life business actually works. From the start of the 20th century (or perhaps even before), much effort and research has gone into better ways of developing and using such models. This general approach to business goes under various different names, such as management science, operational research (OR) and quantitative analysis.

Numbers come into business in other ways too. Many businesses make wide use of some of the numbers discussed elsewhere on this website - statistics and surveys, for example.

Businesses may need to consider things other than how much money they have made - for instance, they might need to report the environmental impact of what they do. Some of this may well be expressed in numbers - for example, levels of carbon emissions or percentages of recyclable material in a finished product.

Business isn’t all about numbers, any more than it’s all about money, but numbers are important in business in all kinds of ways that you might not have thought about.





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