Introduction

How often have you looked at slides in a presentation, heard the words of the presenter and not truly put the two together? There may be three reasons for this. You may simply be one of many who goes blank when faced with numbers. You may hear the numbers but don’t really register them. This is not surprising since we are bombarded with figures every day in the media and our brains can only hold so many. Even if you are good with numbers you will be filtering out those that you believe to be uninteresting or irrelevant. The second reason is that the presenter is lying. Maybe that’s too strong a word for it in a professional industry. Perhaps we should call it manipulating the information or putting a spin on it. However we phrase it, the truth is that the results and the story don’t truly tie together. The presenter is using his skill to deliver a convincing argument based on manipulated graphs, figures and relationships. About a year ago there was a news item that coffee drinkers live longer than tea drinkers. The assumption (and it was a big one since no causal relationship was proven) was that drinking coffee was good for you. The reporter ended by entering a coffee bar and ordering a triple espresso. The third situation is where the presenter doesn’t understand what he is presenting and covers it up by throwing out a lot of statistics. The old blind-‘em-with-science tactic.

I recently came across a worse and embarrassing subset of this group. The presenter started by saying he wasn’t a mathematician (nice and disarming), he then proceeded to talk about the results following the launch of a new credit product. His pitch was full of figures. What was worse is that they were clearly incorrect. For example, he showed a graph showing two lines one was planned sales and the other actual results. The lines diverged with the actual sales approximately four times that of planned. He said “45 percent higher sales”. Before this could be questioned he was on to the next (of too many) slide and said the transactions were 19 times per year compared to the expectation of 17 times. Wow, this was a good one: how was the level calculated? The product had only been launched four months prior and the reliability of the forecast would be impacted by low volumes and the virtuous effect of the launch.

Let’s call people who use statistics - handing them out like sweets to kids - ‘Statisticators’. Some of them love the power that it gives them to spuriously support an argument or tell a story. Others, as in my recent example of the new product sales, use statistics to simply obfuscate. In the credit industry we are surrounded by numbers and it is easy to lose track of what is important, to focus in on the real issue and to make reliable forecasts.      

In 1998 I started a training course aimed at teaching essential statistics to the credit risk community. A group, I thought at the time, was most statistically based and in need of a toolset. I rapidly learned that the need was far wider than for risk and fraud folk. The course was modified to cover all functions and a specific course was developed for marketing after a client pointed out that the extent of their marketing analysis was a graph of results; there was no projecting or testing and no interpretation that helped the business understand its customers and prospects. It would have been easy to write a statistics book but that would have been no fun (to write as well as read). After writing a couple of related articles for credit magazines, I decided it was time to write what I’d promised for a long time.  

Statistics is not just for statisticians (although sometimes it is nice to poke fun at them); statistics is really a scientific way to ask questions about what we see or expect to happen. Each step of answering a question involves statistical methods: designing the experiment or research; collecting the data; organising and summarising the results; analysing; drawing conclusions; identifying limitations; communicating the findings and designing the next business question. Statistics is more than just numbers, it is a process.  

You will find that I have covered the basics of statistics because they are so important to a lot of what we do in the consumer credit business. My objective was to provide the tools so that you can use them appropriately and spot when someone else isn’t! Of course you could be someone who is a Statisticator, in which case I trust you will learn to bluff a little better and watch out for someone else who has read this book. Be careful, they may call your bluff!