56 • The Engineer Entrepreneur

would have to know the severity of the applications they’re applied to. This
applications data would need to be compared with what we will do with our
proposed machine so we do not end up comparing apples with oranges. We
would also want to talk to other users to find out what they did to keep their
CNC grinders operational and how difficult it was (or still is) to do that. We
would also have to assemble a sufficient amount of data to ensure that we
have a meaningful sample. Let’s assume we’ve been successful in this task
and have data as presented in Figure 3-3 below.
We see from Figure 3-3 that the life span of grinders, the same as or simi-
lar to the one we contemplate purchasing, is plotted. The graph shows us
that no machine lasted more than 6.9 years. However, 5 machines (account-
ing for 8%) lasted that long. The data also tells us that 20 machines lasted up
to 5.9 years, or 31% of the universe of the survey. We are interested in know-
ing what the probably would be of the machine we intend to purchase last-
ing 5 years. To get this answer from this data, we would determine the num-
ber of machines that lasted less than 5 years, calculate that percentage, and
subtract the value from 100%. That would tell us the percent probability of
our machine lasting 5 years. Mathematically we could express it as follows:

% Probability > 5 yrs = 100% – Sum% (0–0.9, 1–1.9, 2–2.9, 3–3.9, 4–4.9)
= 100 – ( 0 + 7 + 14 + 18 + 22) = 39

From this calculation we see that the probability of the CNC grinder lasting 5
years or longer is 39%. We can see that the odds are not in our favor. For a
baseball batting average it would be outstanding. But for a business proposi-
tion, it’s hardly enticing. In this case, even though the financial numbers could
be portrayed to be very favorable, the risk or uncertainty factor is too high to
be a viable project. The entrepreneur should go ahead and send out the grind-
ing operation to a specialty facility equipped to do the job, in this case, a
machine shop with multiple similar grinders so that if one grinder is down for
major overhaul, others are available to keep up with production needs.

Uncertainty Factors in Assessing Risks

The earlier example shows how we can use data to determine the extent of risk
a certain decision will entail. But not all decisions encompass situations where
data is available to set the probability level of success. Many entrepreneurs say
they make those decisions “by the seat of their pants.” They intimate that they
have a feel for the decision being up, down, or sideways with respect to the sit-
uation. In other words, they have a way of assessing risk that makes sense to
them. Most successful entrepreneurs will tell you that they always figure the
risk percentage through an analytical approach as shown earlier or through
some quasi-calculated approach they use to quantify a subjective decision. To
do this, we need to be able to measure a decision choice against a ranking of
situation facts. This is done through introducing an uncertainty rating on
these facts. I use the term “facts” loosely because they are feelings and
hunches and known conditions all lumped together; and in total they make

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