The Cost of Bad Data is the Illusion of Knowledge

Your Career
January 30, 2013


I saw this article in LinkedIn today  by Tomasz Tunguz which talks about the effects of bad data:

Each time I open Salesforce in my browser, I think of Steven Hawking. It’s because of an aphorism an entrepreneur shared with me a few weeks ago. He said:

> The cost to fix a data error at the time of entry is $1. The cost to fix it an hour after it’s been entered is $10. And the cost to fix it several months later is $100+.

Take for example a venture capitalist’s CRM tool. If I mistype an email address or the details of the last fund raise, it might cost me a minute or two to fix it at that very moment. A minute of time is worth about $1.

If I’m lazy and don’t correct the error, later on that day one of my colleagues might search our CRM for the company and comes across the erroneous record which he suspects is inaccurate. First, he will check his notes, then he will call me to verify and then he will change the record. The rigamarole has undermined his trust of my data and the ten minutes he spent correcting my data entry are wasted.

Worst of all is if I contact a startup to inquire about an upcoming fund raise with incorrect data. As a result, I could miss an opportunity to partner with a great company because of incorrect timing or lose credibility with the startup’s executive team. The cost to the firm could be in the tens of millions of dollars.

All because I was lazy updating the CRM record.

Data promises compounding returns. The more data you have on a customer or prospect or your own business, the better the insights you can draw and the better decisions you can make. But these returns are blind to the quality of data.

Bad data has equally great compounding effects. And as Hawking so succinctly put it:

“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.” – Stephen Hawking

I agree. Data which is incomplete, incorrect or misplaced can cost a company a lot of money to fix. Decision makers need to have the highest quality of information all the time to make good judgements based on the information they are provided.

Can you imagine a CEO making decisions on how many employees to layoff without the knowledge on how much his company is making? Or a Marketing campaign without knowing who the target market is? How about a war general planning an attack without information on the coordinates of the mission and how much resitance he/she will face?

Some data is good but a complete set of information is better because it gives you better insights. The more information you have the better decisions you can make.

A colleague once told me “Data is King”, I agree, Data is King and misrepresentation of the King can cost you your head. 🙂

p.s: You know whats worst than bad data? Accepting bad data and making yourself believe it is good data.

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