100%(4)4 out of 4 people found this document helpful
This preview shows page 236 - 238 out of 387 pages.
same for both companies ($1 million), the relative change is very different (1 per cent versus 20 per cent).For this reason, it is often assumed that relative change expressed as a percentage of the base value is a more accurate metric. As we demonstrate in the example below, however, this is not always the case.A pharmaceutical company has tested a new, experimental drug for Parkinson’s disease. Compared with drugs currently prescribed, the new drug decreases symptoms such as tremors, limb stiffness, impaired balance and slow movement by 30 per cent. However, compared with the existing drugs, the mortality rate of patients taking the new drug (those dying because of serious side effects) has increased by 200 per cent. Would you decide to bring this new drug to the market?Most people will be inclined to say no, because a 200 per cent mortality rate increase sounds pretty dramatic. However, this depends on the base value. If the mortality rate of the existing drugs is only 1 in 350,000 patients (0.000003 per cent), a relative increase of 200 per cent means an absolute increase of only 2 in 350,000 patients (0.000006 per cent). In all, the new drug sounds like it has better outcomes, especially as a patient’s improvement in health would be substantial.Example
Evidence from the Organization206Whenever changes or differences are presented as percentages, we must make clear whether these differences are relative or absolute. Ideally, both types – including the number of standardized units they represent – should be reported.Finally, make sure whether the data concern ‘per cents’ or ‘percentage points’. If the unemployment rate last year was 4.8 per cent and this year it is 6.0 per cent, is that an increase of 25 per cent? (6.0 – 4.8 = 1.2 and 1.2/4.8 = 0.25, which equals 25 per cent). Or is it just an increase of 6.0 – 4.8 = 1.2 per cent? We can use either, but to avoid confusion, the latter is referred to as a percentage point. In this case, the government would prob-ably use 1.2 per cent, whereas the opposition would prefer 25 per cent. There is no rule here, so always ask about the underlying data.9AveragesMuch of the organizational information used by companies is expressed as averages. Like percentages, averages look simple, but that simplicity is deceptive. In fact, there are three ways to calculate an average and each yields a different number. For this reason, we avoid the term average and use instead the more precise terms mean, median and mode. In some cases they are identical, but often not. In addition, when the word ‘average’ is used, this usually refers to the mean, but unfortunately not always.Five people are sitting in a bar, each earning about $100,000 per year. Here are their earnings:Person 1: $96,000Person 2: $96,000Person 3: $99,000Person 4: $104,000Person 5: $105,000!list ends!]The mean is calculated by simply adding all observations (for example, reports, metrics) and then dividing the outcome by the number of observations. Here the mean is exactly $100,000. The median is the middle number in a set of numbers. In this case, the median is $99,000. The mode is the most frequent number in a set. Here the mode is $96,000.