Basic Math Concepts

5 Basic Math concepts you absolutely need to know in business

Math is really quite important in business.

WARNING: This blog post contains maths and may cause math-related psychosis and may trigger disturbing repressed memories from high school.

It seems that very few people like math and even fewer people are good at it. At work, if I start talking about math I quite often see managers drift off to their happy place until the horribleness subsides.

But Math is actually really important. Your teacher wasn’t lying. The good news is, the math you’ll use regularly in business was probably things you studied in Primary School.

We’ve focused on Operational maths here that would be generic to pretty much all operations and excluded things like financial or actuarial maths. So here are our top 5 Math concepts you absolutely need to know in Operational Management:

1. Weighted Averages

Process X happens 100 times and takes 10 minutes each time. Process Y happens 10 times and takes 5 minutes. What is the average processing time?

It’s not 7.5 minutes… This is because that average fails to account for the volume of each process. The Weighted Average is worked out like this:

((100 x 10 minutes) + (10 x 5 minutes)) / (100 + 10). The answer is 9.5 minutes.

2. Grossing Up A Net Amount

When you need to add a percentage to a number to get a whole new population, you have to ‘gross it up’. We most often use this when looking at shrinkage or efficiency.

Let’s say you calculate you need 100 people to process work. But that’s only true if they work 100% of the time and never have a break, holidays, sickness, training etc… So you need to uplift that number to work out how many people you need. If your shrinkage is 50%, how many more people do you need?

The answer is not 150 people. If I take 50% from 150 people, I’m left with 75 – far fewer than the 100 I require. The answer is 200 people and it’s worked out like this:

100 / (1 – 50%) = 200

3. Median

Sometimes, taking the average, even the weighted average of something doesn’t tell you what you really want to know. The Median is quite simply, the middlemost number in a set of numbers. Averages can sometimes give you a skewed idea of what is actually happening.

Let’s look at the following salaries:

15,000 15,200 15,300 15,300 16,000 22,000 24,000

The average salary is 17,536 – but we have 2 senior people here who earn a lot more than the rest. So the average doesn’t really give us a clear picture of what people earn. The median of this data is 15,300.

4. Simple Calcs

Ever wondered how some people can do relatively accurate math in their head quicker than you can pull out your calculator? It’s probably not because they are a savant, but more likely they know a simple trick to making calculations easier.

Let’s say something costs £62 to complete today and you’re going to reduce it by 15%. 15% is not easy to work out, but 10% and 5% are. 10% is £6.20 and 5% is half that again, at £3.10. So 15% is 9.30. Easy! Percentage shifts are one of the easiest things to calculate in your head because you can almost always break it down into easier components.

5. Confidence Intervals

Ok. So this is actually quite a complex probability formula, but the advice here is that you need to understand what this means, rather than how to calculate it. Whenever you are taking a sample of something and only measuring that, you can calculate how many you need a sample to ensure your results are valid.

A confidence interval is simply how certain +/- you can be of results.

This is really important when measuring something like quality, as in business we often only measure a sample of work completed. For example, if you had 1000 pieces of work in a month, how many would you need to check for quality to be sure that your results represented the whole 1000?

For a Confidence Interval of +/-5, you would need to check 278. This means that if your quality checking results indicated that performance was 92%, you could be confident that the real results would be somewhere between 87% and 97%.

You don’t have to calculate this yourself – there is a range of free tools available online – just google ‘Sample Size Calculator’.

Math is really quite important in business. These are the top 5 concepts that we use regularly in business that is the most poorly understood.

There are many more of course – what would you have included in this list?