It is a rough approximation value of something otherwise unknown and is used for making important decisions.
A ballpark figure is a rough approximation value of something otherwise unknown and is used for making important decisions. For example, the margin of error is already accounted for in the figure while explaining them to numerous stakeholders.
These figures aren't restricted and are used across various professions. For example, accountants use them for sales growth. A stockbroker indicates returns on investments to his client through ballpark figures, leaving enough space for margins of error to be counted.
You went to school today, and during your first lecture, the teacher asked about the number of stairs you covered while coming to school. You answered about 100 staircases.
Now you just estimated the figure to be 100, leaving enough margins for error. You couldn't have said 10,000 stairs because it makes no sense. Hence, it is considered a logical measurement that accounts for a margin of error.
Following are the key takeaways from the excerpt:
- A logical guess about the value of something unknown.
- These are estimates and inaccurate values, thus, should be used in workings accordingly.
- These are helpful when various options are being considered at an early stage.
- It's important to note that the figure values can be exaggerated per the user's motive.
Working on Ballpark figure
Estimating these figures can be one of the most accessible numerical measurements. It just required a basic level of mathematical understanding. Value is just rounded off to the nearest 0-digit figure.
The following steps may be performed:
- So, you got two double-digit values, and you got to perform rounding off for unit digits. So, for example, if the unit digit of your number lies in the range of 1-4, rounding off will be to lower levels, i.e., e.g., rounding off for number 23 will be 20 because the unit digit is 3.
- Similarly, if the unit digit of the number which is to be rounded off lies in the range of 5-9, rounding off will be done to upper limits, i.e., e.g., rounding off for number 27 will be 30 because the unit digit is 7, lying in the range of 5-9.
- A sum or subtraction function is usually performed to estimate the required value.
Financial analysts use these figures to estimate funds for pensions and other investments. Still, they also tend to exaggerate the figure, so a study was conducted to find out the credibility of ballpark figures:
These figures can be the best alternative to complicated models, but users must pursue them cautiously because several underlying assumptions can't be ignored.
Thus, analysts normally use the rule of 72 formula for estimating the return on investments.
Estimating ballpark figures using above said formula.
- The two numbers given are 29 and 44; the problem requires us to subtract them to make an estimate.
- We get 30 and 40 for 29 and 44, rounding off the given values. As the unit digit of 29 is 9, lying in the range of 5-9 makes it round off to 30, and for 44, it's 40.
- The difference in rounded-off figures is 40-30 = 10, whereas the original figure difference is 15.
- Thus 10, the calculated ballpark figure is close to 14 with the margin of errors accounted for.
Used in day-to-day life, ballpark figures are estimated close to actual values. They are backed by the logic of mathematical calculations and the human subjectiveness of expressions.
But still, the stakeholders using these figures may lose the value to benefit themselves from the same, so it's advised to use it with caution. Important business deals or decisions shouldn't be purely made on a ballpark figure basis.
According to a widely accepted opinion, the phrase likely has a history with the expression "in the same ballpark," which indicates "about the same quantity."
Areas, where these figures might not be of use, are Tech Savvy fields:
Computers only work on numbers and cannot understand any range or a particular set. Hence, to make working computer programs easy, one always uses exact figures instead of Ballpark figures.
Custom software development necessitates meticulous labor on each job. In addition, every online or mobile app has a unique tech stack, significant features, and user experience. As a result, estimating the cost of software development is impossible.
Furthermore, many projections do not account for necessary overhead expenses (e.g., technical support and product updates). As a result, it is yet another reason you should consider various methods of budget estimation rather than a ballpark number.
For example, an adviser could say, "The NASDAQ overall rate of return has been around 12% since 1997, so we shouldn't assume too far below or above 12% for this given investment".
It gives the client a general expectation that they will receive, for example, greater than 5% but not necessarily 20% of a rate of return on their principal. It's a given range of expectations.
- BallPark figures don't provide us with an exact numerical value or number.
- Always consider a range of values to be driven based on the figure.
- Use Rule 72 to derive your ballpark figure.
Everything You Need To Master Valuation Modeling
To Help You Thrive in the Most Prestigious Jobs on Wall Street.
Researched and authored by Arshnoor Kamboj | LinkedIn
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