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.
Example:
How many piano tuners are there in Chicago?
Take a minute to think about how you might approach this problem. How do you estimate this quantity without looking up anything online?
At first glance, this might seem like a really hard question to answer without additional information. However, we can produce a reasonable estimate by making a few sensible assumptions.
Let’s say that Chicago has around 5 million people. Pianos are generally owned by families rather than by individuals, and perhaps each family in Chicago has 4 people. Then there are around 1.25 million families in Chicago.
Let’s assume that one in every ten families owns a piano that is tuned regularly. That would mean that there are around 125,000 pianos in Chicago.
How many piano tuners do we need to maintain these pianos? We can assume that each piano should be tuned once per year, so there are 125,000 piano tunings in Chicago each year.
If each piano tuner works 8 hours per day on each weekday, and if each piano takes around 2 hours to tune, then a piano tuner can tune around 4 pianos per day for 250 days per year. That’s around 1,000 piano tunings per piano tuner each year.
So we can estimate that we need around 125 piano tuners to perform the 125,000 piano tunings in Chicago each year.
While we can’t claim this answer is exactly accurate, we can claim that it is a fair estimate of the actual value. That’s the goal of a Fermi estimation problem.
Conclusion
Fermi thinking often requires us to make reasonable assumptions and estimates about the situation in order to come up with an approximate answer.
Also you need to be able to explain and justify what you did when coming up with the solutions like in the example above.
In business, it is often necessary to make quick estimates when neither time nor resources are available for making traditional assessments.
At this juncture, even a gross estimate is very useful to head off ill-advised expenditures, which are unlikely to generate a baseline profit. A back-of-the-envelope determination of market size, costs, or technical feasibility may be needed.
Such a calculation ignores details, focuses only on major factors, and aims at an estimate.
Until recently, business educators interested in teaching students to use Fermi questions would find it difficult to locate published questions related to the business world. Fermi questions and their solutions tended to involve physics, chemistry, biology, and other so-called hard science
However, this may be changing as the trend is for consulting firms and corporations such as Google and Microsoft to ask applicants to try to answer Fermi questions, as part of the job interview process, with the goal of identifying creative thinkers