I’m a CMA!

Hi folks! sharing a good news to you all. I m awarded with Certified Management Accountant (CMA) from Institute of Management Accountants (IMA) USA.





Caution : Averages & Percentages

Averages and percentages should be used with caution. Both numbers are technically correct but should be used viewed closely with the underlying data to get a better perspective.

The Problem with Averages is the Outliners. The outliners can throw the average number completely out of its sense and you may end up making wrong decision.

Imagine someone 6 ft tall who do not know swimming wants to cross a river. He will not dare to cross a river with an average depth of 7 ft of the fear of drowning .


However if he looks closely at the depth of river at different points he will finds that at many points the the depth is 5 ft only where he can keep his head above water or atleast nose above water. So whats stopping him to cross the river : few outliners. At only three point out of ten the depth is more than his height. Few outliners have increased the average depth hence deterred our man to cross the river.

The problem with Percentage is Base effect. When the base the of numbers you are comparing is different, the percentage change should be looked in right context.

Imagine two companies A & B with different sales figure in year 1 & 2.


Company A sales increase by 20% compared to 10% of Company B. One might be prompt to think that A did better than B. However if you look closely the absolute increase in Sales of B is 5 times (100/20) than that of A. This distortion is because of base effect, the year 1 sales of A is just 10% of B. Because the base is small for A, a small increase may look bigger in terms of percentage.