What Is An Influence Model And Why Is It Useful?

Friday, 5.39am

Sheffield, U.K.

My dad used to say, ‘Just because you dress up in a coat and tie, it doesn’t influence your intelligence.’ Tiger Woods

A project can often be overwhelming – there are so many options, so many things that could happen.

How do you go about making sense of it all and coming to a point of view?

Most people are not trained to do this – I don’t remember going on a single course that formally taught how to think about situations and problems.

It seems to be the domain of specialized researchers, people who learn it in particular fields but we all really need to understand the basics of analysis, the chain of cause and effect and the range of things that can happen.

I was going to write this post from the point of view of mathematical modeling but I realized that it may also be useful with another problem I’m facing, so I’ll describe both – you never know, that might be useful as well.

Let’s start with modeling with spreadsheets.

You’ve all probably had to create a spreadsheet model – they are the universal medium through which business communicates information.

They are also, most of the time, wrong.

That’s because a spreadsheet model is really a very powerful programming platform that gives users access to capability without requiring any controls or good practice.

So you end up with monster spreadsheets that are poorly designed, hard to maintain, riddled with errors and that don’t really help you understand a situation.

And there is almost no information out there that tells you how to do this better.

Perhaps the most useful books on this that I’ve found are The art of modeling with spreadsheets and Modelling for insight and the most useful thing in the books is the idea of an influence model.

Now, if you’re interested in the process of modeling itself I’d suggest getting one or both of these but in this post I want to look at the influence model as an object of interest.

The easiest way to get started is with an example.

One of the things I’m interested in is the idea of daily profit – a measurement every day of whether you’re on the right track or not.

So, how would you work that out.

Well, there are factors that influence the calculation of daily profit, and an influence model helps you work out the factors that matter.

For example, you need daily income and daily costs to work out daily profit as the difference between the two.

Daily income and daily costs, in turn, have other factors that influence them.

What you do is draw the factors that you come up with in a chart, as in the image above, and keep working back and decomposing each factor until you can go no further.

That point, the point at which the process stops, is actually your starting point.

Those factors are your parameters, the things you have to enter into your model to start everything off.

From those parameters come a series of calculations, as you work down your branches of the model.

For example, you have to add sales, commissions and investments in the model above to get daily income.

You have to work out the difference between daily income and daily costs to work out daily profit.

So, you have parameters and calculations that then calculate a result.

Now you have a what you need to build a spreadsheet model that you can actually play with – what happens if your sales go up 50%?

What impact does that have on profit.

Have you built a link between sales and costs – when you make a sale, have you calculated how much you’re going to pay in fees or extra hours for that sale?

If not, then create a link between those elements in the model and update your spreadsheet.

And, of course, if your end result is not the actual result, you can extend the model.

For example, your daily profit is a measure but how do you know if it’s good or bad?

You might need a target that is, in turn, calculated from other factors and that helps you work out a variance, which when you factor in time lets you get a cumulative variance.

Now there are two things to note.

The first is that once you have an influence model it makes the job of building a spreadsheet much easier.

You just need to have an input section for the parameters, a calculation section for the workings and a results section to show you the answers.

Read the books for suggestions on how to do this elegantly – but one tip is that if you put the input parameters and the results close together and the calculations below then when you change a parameter you’ll see the result straight away rather than having to go somewhere else.

And that will make your model more interactive – something you play with to see what happens and that’s going to help you think through the situation.

The thing that makes the influence model approach so powerful is that you work backwards from the result you want to the things that matter.

Doing the opposite – starting with what you have and trying to understand the possibilities is too hard to do – you feel like your model has to take everything into account.

Now, that’s useful in its own way, when you’re thinking and exploring and expanding your view.

But when you decide that you need to do something then you have to focus on only the things that matter so that you can get on and do the work.

Which is where this approach also might help.

I mentioned in a previous post that I was finding it hard to get into editing my first book project’s content.

This is because when I wrote it I was in expansive mode, I worked through topics and structure and wrote it all out, with a few diversions along the way.

Now, at editing time, I need to focus, to cut out anything that isn’t helping with the main message.

Which, of course, means I need to be very clear about the main message.

And the things that influence it.

I need to work out the factors that matter, structure those as an influence model, make sure my content maps to that structure and ruthlessly edit out anything that doesn’t contribute to the message.

Will that work?

Well, it might help me get over my first editing block and go from that “shitty first draft” to a version with a bit more structure.

And then, of course, there is the chipping away and polishing and finishing.

But here’s the point about using an influence model.

When you think about things in this way the one thing that you can soothe yourself with is that you’re thinking about things that matter.

What you’re working on is directly related to the result you want to get and so it’s going to help.

And that’s something that’s going to help you keep going, whether it’s a model or a project.

An influence model is intensely practical – it’s there to help you do a specific thing.

You need a different kind of model when you need to think about everything.

Let’s look at that in the next post.

Cheers,

Karthik Suresh