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How to Measure Anything: Finding the Value of "Intangibles" in Business (edition 2007)

by Douglas W. Hubbard

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333333,108 (3.69)None
Member:fitzlade
Title:How to Measure Anything: Finding the Value of "Intangibles" in Business
Authors:Douglas W. Hubbard
Info:Wiley (2007), Edition: 1, Hardcover, 304 pages
Collections:Your library, Read, Favorites
Rating:*****
Tags:Format:Kindle, Genre:Non-Fiction

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How to Measure Anything: Finding the Value of Intangibles in Business by Douglas W. Hubbard

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As an engineer, this book makes me happy. A great discussion of how to break *any* problem down into quantifiable metrics, how to figure out which of those metrics is valuable, and how to measure them. The book is fairly actionable, there is a complementary website with lots of handy excel tools, and there are plenty of examples to help you along. The only downside is that this is largely a stats book in disguise, so some parts are fairly dry and a the difficulty level jumps around a little bit. If you make important decisions, especially in business, this book is for you.

Some great quotes:

Anything can be measured. If a thing can be observed in any way at all, it lends itself to some type of measurement method. No matter how “fuzzy” the measurement is, it’s still a measurement if it tells you more
than you knew before. And those very things most likely to be seen as immeasurable are, virtually always, solved by relatively simple measurement methods.

Measurement: a quantitatively expressed reduction of uncertainty based on one or more observations.

So a measurement doesn’t have to eliminate uncertainty after all. A mere _reduction_ in uncertainty counts as a measurement and possibly can be worth much more than the cost of the measurement.

A problem well stated is a problem half solved.
—Charles Kettering (1876–1958)

The clarification chain is just a short series of connections that should bring us from thinking of something as an intangible to thinking of it as a tangible. First, we recognize that if X is something that we care about, then X, by definition, must be detectable in some way. How could we care about things like “quality,” “risk,” “security,” or “public image” if these things were totally undetectable, in any way, directly or indirectly? If we have reason to care about some unknown quantity, it is because we think it corresponds to desirable or undesirable results in some way. Second, if this thing is detectable, then it must be detectable in some amount. If you can observe a thing at all, you can observe more of it or less of it. Once we accept that much, the final step is perhaps the easiest. If we can observe it in some amount, then it must be measurable.

Rule of five: There is a 93.75% chance that the median of a population is between the smallest and largest values in any random sample of five from that population.

An important lesson comes from the origin of the word experiment. “Ex- periment” comes from the Latin ex-, meaning “of/from,” and periri, mean- ing “try/attempt.” It means, in other words, to get something by trying. The statistician David Moore, the 1998 president of the American Statistical Association, goes so far as to say: “If you don’t know what to measure, measure anyway. You’ll learn what to measure.”

Four useful measurement assumptions:
1. Your problem is not as unique as you think.
2. You have more data than you think.
3. You need less stated that you think.
4. And adequate amount of new data is more accessible than you think.

Don’t assume that the only way to reduce your uncertainty is to use an impractically sophisticated method. Are you trying to get published in a peer-reviewed journal, or are you just trying to reduce your uncertainty about a real-life business decision? Think of measurement as iterative. Start measuring it. You can always adjust the method based on initial findings.

In business cases, most of the variables have an "information value" at or near zero. But usually at least some variables have an information value that is so high that some deliberate measurement is easily justified.

While there are certainly variables that do not justify measurement, a persistent misconception is that unless a measurement meets an arbitrary standard (e.g., adequate for publication in an academic journal or meets generally accepted accounting standards), it has no value. This is a slight oversimplification, but what really makes a measurement of high value is a lot of uncertainty combined with a high cost of being wrong. Whether it meets some other standard is irrelevant.

When people say “You can prove anything with statistics,” they probably don’t really mean “statistics,” they just mean broadly the use of numbers (especially, for some reason, percentages). And they really don’t mean “anything” or “prove.” What they really mean is that “numbers can be used to confuse people, especially the gullible ones lacking basic skills with numbers.” With this, I completely agree but it is an entirely different claim.

The fact is that the preference for ignorance over even marginal reductions in ignorance is never the moral high ground. If decisions are made under a self-imposed state of higher uncertainty, policy makers (or even businesses like, say, airplane manufacturers) are betting on our lives with a higher chance of erroneous allocation of limited resources. In measurement, as in many other human endeavors, ignorance is not only wasteful but can be dangerous.

If we can’t identify a decision that could be affected by a proposed measurement and how it could change those decisions, then the measurement simply has no value.

The lack of having an exact number is not the same as knowing nothing.

The McNamara Fallacy: The first step is to measure whatever can be easily measured. This is OK as far as it goes. The second step is to disregard that which can’t easily be measured or to give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume that what can’t be measured easily isn’t important. This is blindness. The fourth step is to say that what can’t easily be measured really doesn’t exist. This is suicide.

First, we know that the early part of any measurement usually is the high-value part. Don’t attempt a massive study to measure something if you have a lot of uncertainty about it now. Measure a little bit, remove some uncertainty, and evaluate what you have learned. Were you surprised? Is further measurement still necessary? Did what you learned in the beginning of the measurement give you some ideas about how to change the method? Iterative measurement gives you the most flexibility and the best bang for the buck.

This point might be disconcerting to some who would like more certainty in their world, but everything we know from “experience” is just a sample. We didn’t actually experience everything; we experienced some things and we extrapolated from there. That is all we get—fleeting glimpses of a mostly unobserved world from which we draw conclusions about all the stuff we didn’t see. Yet people seem to feel confident in the conclusions they draw from limited samples. The reason they feel this way is because experience tells them sampling often works. (Of course, that experience, too, is based on a sample.)

Anything you need to quantify can be measured in some way that is superior to not measuring it at all.
—Gilb’s Law ( )
  brikis98 | Nov 11, 2015 |
All the undeserved optimism of a TED talk condensed into a book. The author wants people to think more quantitatively as they go about trying to find tools to measure and presumable optimize anything in life. Now this is wonderful if you're measuring the size of a railroad, but when you're measuring something latent like utility, happiness levels, or personality traits, some theories need to be developed about the connection between your tool of measurement and the thing quantity you wish to measure. How do you know that the intangible you're measuring actually exists? How do you know that your measurement tool isn't actually giving you completely spurious results that have nothing to do with the intangible you want to measure? The author never addresses this, but provides a variety of techniques you can use to measure your potentially nonexistent intangibles. ( )
  F.Lee | Apr 19, 2014 |
This is the only book about measurement for business which has any substance. But anyone who is just a clerk or not really dealing with deicions under uncertainty probably got this thinking it would be about some accounting procedure. This is really for the manager and leader who is a scientist at heart and wants to run things on the basis of reason and evidence. Moderately high IQ required. ( )
1 vote DanJust | Jul 17, 2009 |
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Amazon.com Amazon.com Review (ISBN 0470539399, Hardcover)

Now updated with new research and even more intuitive explanations, a demystifying explanation of how managers can inform themselves to make less risky, more profitable business decisions

This insightful and eloquent book will show you how to measure those things in your own business that, until now, you may have considered "immeasurable," including customer satisfaction, organizational flexibility, technology risk, and technology ROI. Adds even more intuitive explanations of powerful measurement methods and shows how they can be applied to areas such as risk management and customer satisfaction Continues to boldly assert that any perception of "immeasurability" is based on certain popular misconceptions about measurement and measurement methods Shows the common reasoning for calling something immeasurable, and sets out to correct those ideas Offers practical methods for measuring a variety of "intangibles" Adds recent research, especially in regards to methods that seem like measurement, but are in fact a kind of "placebo effect" for management – and explains how to tell effective methods from management mythology

Written by recognized expert Douglas Hubbard-creator of Applied Information Economics-How to Measure Anything, Second Edition illustrates how the author has used his approach across various industries and how any problem, no matter how difficult, ill defined, or uncertain can lend itself to measurement using proven methods.

How Everything Can Be Measured
Amazon-exclusive content from author Douglas Hubbard

How can we measure the population of fish in a lake? And how is that like measuring unsatisfied customers who didn’t complain or measuring security breaches that were not detected? How can we isolate the effect advertising has on sales when a vast amount of unknowns also affect sales? How did an 11-year old girl use a simple measurement to debunk a popular practice in medicine? How did intelligence analysts in WWII estimate the monthly German tank production by an analysis of serial numbers of captured tanks? How do we measure quality, risk or innovation? How do we know what to measure in the first place? The answers are easier than you might think.

The idea that some things are utterly immeasurable is based on just three common misconceptions. As I explained in How to Measure Anything, the three misconceptions can be overcome and powerful measurement methods can be applied to resolve just about any problem. The misconceptions are Concept, Object and Method (you can remember them as .com). The concept of measurement refers to the meaning the word “measurement” is assumed to have. Some things are thought to be immeasurable only because it is believed that measurement must be some exact value. But the more pragmatic scientific approach to the term measurement is to treat it as quantified uncertainty reduction based on observation. If you have a wide range of possible values for the percentage of customers who would prefer a new product, all you really need is a reduction in that uncertainty to make a better bet about a new product.

The second misconception about measurement is the objective of measurement itself. If “strategic alignment”, or “employee empowerment” seem immeasurable, it is only because they are – initially – ambiguous. But if they are important to a business, then they must have observable consequences. They must have some impact on some decision (otherwise they wouldn’t need to be measured at all). And so they must be detectable in some manner, directly or indirectly.

The third misconception is about methods. Obscure but well-developed methods already exist for more types of measurement problems than most managers realize. Controlled experiments, variations on random sampling methods, and some very simple but non-obvious methods can be used in many practical business situations. While many measurements feel daunting at first, the fact is that we often have more data than we think, we need less data than we think, and getting more data through observation is simpler than we think. And, above all else, no matter how challenging a measurement problem appears, we should assume that we are not the first to measure something like it. Any measurement problem you encounter will very likely already have a practical solution. You only need to know about it.

Once these imaginary obstacles have been overcome, there are practical measurement solutions that can be applied to any uncertain decision. We can quantify any uncertainty and then compute the value of reducing that uncertainty by measurement. Where the value of information about a measurement is very high, my book explains how to employ sampling, controlled experiments, and even more methods in a way that makes it approachable for any manager.

(retrieved from Amazon Thu, 12 Mar 2015 18:13:20 -0400)

(see all 2 descriptions)

"Now updated with new research and even more intuitive explanations, a demystifying explanation of how managers can inform themselves to make less risky, more profitable business decisions. This insightful and eloquent book will show you how to measure those things in your own business that, until now, you may have considered "immeasurable," including customer satisfaction, organizational flexibility, technology risk, and technology ROI. [It]: Adds even more intuitive explanations of powerful measurement methods and shows how they can be applied to areas such as risk management and customer satisfaction ; Continues to boldly assert that any perception of "immeasurability" is based on certain popular misconceptions about measurement and measurement methods ; Shows the common reasoning for calling something immeasurable, and sets out to correct those ideas ; Offers practical methods for measuring a variety of "intangibles" ; Adds recent research, especially in regards to methods that seem like measurement, but are in fact a kind of "placebo effect" for management ? and explains how to tell effective methods from management mythology." - product descrption.… (more)

(summary from another edition)

» see all 2 descriptions

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