Fermi Thinking: Creating a Framework for Navigating Uncertainty
As leaders in the sports industry, we’ve all been dealing with uncertainty in recent months as we navigate a range of unknowns related to the coronavirus pandemic. When faced with unprecedented scenarios for which we are relatively unprepared, a lack of prior experience and available reference points can make it difficult to understand potential risks and outcomes.
A Framework for Navigating Uncertainty
In his 2019 book Range: How Generalists Triumph in a Specialized World, David Epstein talks about ‘Fermi thinking’ to show how a sound framework for reasoning can be a powerful tool in situations that take us beyond the comfort of our expertise into contexts where data and certainty are sparse.
Named after Enrico Fermi, the Italian-American physicist who created the world’s first nuclear reactor, Fermi thinking is designed to help us to make fast, useful calculations with little concrete information. It was Fermi’s belief that the ability to make educated guesses when facing unknowns or complex problems was a crucial skill, not just in science but across many domains.
As our own organizations face the uncertainties surrounding sport in a world shaped by the pandemic, this simple framework can be useful as we consider the potential financial and competitive impacts of the crisis.
Putting Fermi Thinking Into Practice
To show Fermi thinking in action, let me ask you a question:
If the top 10 Forbes businesses donated their annual profits to US universities and colleges, how much money would each institution receive?
Without access to data it feels almost impossible to provide even a rough estimation, but let’s have a go.
Even if we don’t know the list of the 10 largest public companies, we can probably make an assumption that Apple is on it. Given Apple’s cultural prominence, we might know roughly what the company’s annual revenue is ($270 billion), and from there we could make an educated guess that profit margins are around 30%. That would give us a figure of $81 billion for Apple’s annual profits. If we think Apple is representative of the Forbes list, then we multiply that by 10 to get a figure of $810 billion.
Next, we need to guess how many universities and colleges there are in the United States. That’s tough, but if we lived in Florida, for example, we’d be pretty confident that there are well over 100 institutions, maybe more than 200. Given its population, we might decide that Florida has more universities than the average state, so let’s say the average number is 150 per state. Times that by 50 and we get 7,500. Divide $810 billion by 7,500 and we can estimate that each institution would receive $108m.
When I tell you that the total annual profits of the Forbes top 10 are $442 billion and that there are 5,300 universities and colleges in the US, we can see that the answer to the original question would actually be $83.39m. Our guess wasn’t correct, but 23% out isn’t too bad considering we had no data to go on.
The thing is, getting the answer right in this context is immaterial. What matters is that we have given our thinking a clear structure and used what we do know to investigate what we don’t.
Reasoning Across Contexts
In the context of our own organizations, this Fermi-style reasoning can be crucial as we confront scenarios with which we have little or no previous experience.
In a situation as alien as a global pandemic, the truth is that nobody has all the answers we’re looking for. Instead, we need to draw on the limited knowledge that is available to us in order to inform our thinking around potential impacts, strategies, and outcomes as best as possible.
As Epstein writes in Range, “that is what a rapidly changing world demands–conceptual reasoning skills that can connect new ideas and work across contexts...The more constrained and repetitive a challenge, the more likely it will be to be automated, while great rewards will accrue to those who can take conceptual knowledge from one problem and apply it in an entirely new one.”
As the landscape of the sports industry shifts before our eyes, we need to be ready to think like Fermi. In the current context, that means meeting new challenges with a willingness to use knowledge from previous problems or other domains to help navigate the uncertainty of the present.
