Why Standard Deviation is important to businesses, and what it means
Standard Deviation (SD) is often mentioned in the financial press with regards to stock returns and valuations, and also internally at companies when talking about risk and the quality of products. It is therefore an important concept for Executives to understand; but what is it? In essence, SD is a measure of how spread out a group of values are - it is a standard way of knowing what is a small spread and what is a large spread. Why is this important? If you want to know how typical the current valuation of a company is, how risky a new product or business line can be, or how accurate your manufacturing machines are, then these can all be measured with SD. Conversely, it also gives you a measure to use when looking to reduce the risk of your business or increase the accuracy of your machines. For example, if something is normally distributed (many things are - eg most machine errors, people's heights, often stock returns, etc…), then we can say that a value (eg measurement, busin...