Before making a big, complex decision based on reams of analysis, it’s vital to ask: What are the key assumptions that must prove correct for this analysis to prove accurate?
Skip this question and you court disaster. That’s what happened to Disney’s top brass as the company developed its Paris theme park in the early 1990s.
In planning the Paris site, Disney executives projected the number of visitors and the length of their stay by using data from the other three parks. In the other parks, for example, guests typically stayed for three days.
Disney’s brain trust estimated that 11 million annual visitors would stay three days, resulting in 33 million “guest days” per year. The company thus built hotels and other resources to accommodate that number.
After the park opened in 1992, it recorded about 11 million visitors the first year. But they stayed only one day on average, not three.
It turns out that the Paris site had 15 rides; Disney’s other parks had 45 rides. Paris guests felt they could complete their visit in one day due to the park’s small size.
In the planning process, an employee assumed the Paris site would be the same size as the others. Senior executives overseeing the process never noticed how this assumption affected the projected numbers.
The upshot: Disney lost about $1 billion in the park’s first two years. Had the executive in charge asked project teams to list all of their assumptions that influenced their initial projections, it would’ve been easier to conclude that visitors would not stay for three days, given that Paris offered fewer rides.
— Adapted from How Will You Measure Your Life?, Clayton Christensen, James Allworth & Karen Dillon, Harper Business.