How to Estimate, and Why you Really Should Know

Speed will gain you competitive advantage

Speed in business is gained by making decisions quickly

Decisions are delayed because we need information to inform those decisions

So anything that can give us numbers quickly is a source of competitive advantage

Being able to do a quick estimate is a very valuable thing

So how do you estimate?  The Nobel Prize winning physicist Enrico Fermi was an expert.  He would challenge his students with questions like this:

How many piano tuners are there in London?

I bet you think you have absolutely no idea.  I bet you think you are clueless.  Well you are not as clueless as you think.  Have a go at answering these questions:

• What is the population of London?
• What is the average number of people to a household?
• What proportion of households have regularly tuned pianos?
• How many times do you tune a piano a year?
• How many pianos can one tuner tune a day (including travel)?
• How many days a year does a piano tuner work?

What do you think?  I went for the these answers

• What is the population of London?  About 5 million
• What is the average number of people to a house hold?  Say 2.5
• What proportion of households have regularly tuned pianos? Somewhere between 1 in 20 and 1 in 50
• How many times do you tune a piano a year?  About once
• How many pianos can one tuner tune a day (including travel)? I’d guess about 4
• How many days a year does a piano tuner work? Maybe 200

So, with the help of a calculator, I think there are somewhere between 50 and 125 active piano tuners in London

Now, I’d be the first to admit that my estimate is a bit rough, but does it help?  Yes in a couple of ways:

1. I am certain there aren’t 20,000 piano tuners in London.  I am not that far off.  If I needed 20,000 for an investment to fly I could pack up now
2. More importantly I know what my estimates are, where my uncertainty is, I’ve been explicit in my assumptions. You can challenge them.  If I needed more certainty I know where I’d start to narrow things down

So if you need some numbers and you have no idea what they are, start with what you do know.  Work through some logic and be explicit about your assumptions.  Then throw stones at your answer.  You will be surprised how far and how fast you can get when you are clueless.

P.S. If you really need to know, the answer is here.  How close were you?

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Image by Stig Morten Waage