Estimates and Anchors


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Sometimes you will be asked a question and you won’t know the answer…

  • How many customers will call?
  • How many products will you sell?
  • How much will the project cost?

Sometimes you have to start with an estimate.

How do we estimate?

Let me explain with a question: how many people live in my home city, Nottingham?

When we estimate we always start with what we know.

The American perspective

If you are reading this sitting in California (I have readers in California, why they are reading this when they could be surfing is beyond me) you will perhaps know that…

  • Nottingham is a provincial city in England
  • Robin Hood once lived here (So did Kevin Costner, Prince of Thieves)
  • It is smaller than London
  • The population of London is about eight million people

So what is your guess? Smaller than eight million, but big enough for me to have heard of it, let’s say…

One million people.

The British perspective

If you are reading this sitting in Mansfield (an English town and somewhere that if you are from California I recommend you avoid at all costs, particularly if you like surfing) then you will know that…

  • Mansfield is the second biggest town in Nottinghamshire (after Nottingham)
  • The shopping is a whole lot better in Nottingham (we have a branch of Waitrose, not that I am a snob, just socially superior)
  • The population of Mansfield is about one hundred thousand people

Now what is your guess? Bigger than one hundred thousand, better shops, let’s say…

Two hundred thousand people.

The power of the anchor

The point of this little exercise is to show that your estimate is always anchored to your starting point, so your starting point introduces a bias.

  • If your point of reference is London, then chances are you overestimated the size of Nottingham
  • If your point of reference is Mansfield, then chances are you underestimated the size of Nottingham

The answer (which depends on your definition of Nottingham and there is a whole other debate) is about six hundred thousand people — six hundred thousand and one when Kevin is in town.

So how could you improve your estimates?

If you are going to estimate something — and sooner or later you will — you should always write down your assumptions, and get somebody to sense check them.

And use at least two anchors

Particularly if you are a Californian who is estimating how far he can surf off Nottingham’s golden sands.

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Nottingham Riviera

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Image by Simon Collison

Republished with author's permission from original post.

James Lawther
James Lawther is a middle-aged middle manager. To reach this highly elevated position he has worked for many organisations, from supermarkets to tax collectors and has had multiple roles from running a night shift to doing operational research. He gets upset by operations that don't work and mildly apoplectic about poor customer service.


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