Actuaries can do anything they put their minds, and considerable skills, towards, says Darryl Boulton
Who am I to comment? I am only an actuary
Such self-deprecating remarks not only feature in my 'top irritating comments' list but also contribute to the continued blinkered perception that we seem to almost encourage of our noble profession.
Those who have heard of actuaries recognise we have specialist skills but invariably assume we are niche technical specialists, totally incapable of doing anything other than big sums. Perhaps that is what many of us believe - and heaven forbid we have to manage people who think this way. As a profession, I do sometimes despair at our lack of self-confidence.
So, let's start easy. Could you set up and run a coffee shop for example?
What makes for a good coffee shop? Off the top of my head, I would say: Good coffee, good mugs, nice cakes, wifi, friendly and efficient staff, a nice ambience and a good location. Undoubtedly there is more to it, but that's a reasonable start.
Before I launch this business I want some idea of how much profit it could make. Will it be a worthwhile investment? And this is where our actuarial training gives us a massive advantage over the typical small coffee-shop owner. You can set up a relatively simple spreadsheet allowing for costs, income and, of course, cash flow. Recall from your finance and financial reporting (CT2) exam that poor cash flow ruins more businesses than a lack of ultimate profit (and that perhaps tells you something about banks, but that is a rant for another day).
Costs and cash flows
Again, off the top of my head, I need a 'whizzo' coffee machine, I will have to pay rent, insurance, staff costs, buy mugs, replace mugs and so on. I can amortise the cost of the coffee machine (but beware the cash flow) and so on.
Soon you will realise there are more fixed costs than variable costs, so it is all about knocking out as many mugs of coffee as you can sell. I have it on good authority the unit cost of a coffee is around 10p, but the market will bear about £2.50 a mug - who is the mug I wonder?
With your spreadsheet skills you can very easily monitor the progress of your business. You can see which day is busy, at what times, and which cakes sell best so you can refine your ordering to minimise waste and maximise profit.
I suggest that most coffee shop owners only scratch the surface when it comes to analysing their business, and I confidently claim that the average actuary could run a coffee shop better than the average current incumbent.
What does a shopkeeper do? They sell things for more than they buy them for, as they need to cover similar costs to our coffee shop owner above.
How many independent shopkeepers use detailed spreadsheets? Surprisingly few, so you could do better.
And more generally, what does any business do? It provides a service for which it charges, and if it is a viable business it will charge more than it incurs in costs. And, of course, a spreadsheet monitoring and forecasting cash flows will add massive value.
And so, back on home turf. An insurance company sells policies that, on average, should take in more money than is paid out. How does this work? Well you know that one, you get a bunch of whizzo actuaries to factor in all the risks and expected cash flows. This is like running a shop or other business, but rather more complicated - and you are very good at it.
So, if you can ensure an insurance company is run effectively, you should be confident that you can turn your hand to many things, especially where it is simply a matter of assessing familiar factors.
Let us put aside social skills for now. I suspect you may still not be confident that you can do things other than insurance. But you should be. The skill set actuaries build up, through both the exam process and work experience, equips us with analytical skills that are extremely transferable, and it is about time we starting blowing our trumpets louder.
I personally have had to remove my actuarial qualifications from my CV to be taken seriously for a management role. That is a shocking state of affairs.
Darryl Boulton is an independent actuarial consultant. Much of his recent work has involved advising businesses allegedly mis-sold interest rate swaps by banks