Measurement is a reduction of the uncertainty

In my work I hear quite frequently a lot of smart words. Very often those words are used as a justification to implement one or another project. To keep it short – people spend millions and go through painful change projects because they chase “improved transparency, compliance, control, visibility; increased speed of transactions and operations; reduction in resource intensity; simplified and streamlined processes”. Those are all good reasons. The bad part is – businesses rarely evaluate the benefits in the same units of measure as the price for project implementation. In other words – they simply think it cannot be measured. It is INTANGIBLE.

In the pursuit of attempt to find the answers, I read a book during my recent holidays: “How to measure anything. Finding the value of “intangibles” in business” by Douglas W. Hubbard. Not the best choice for holiday read: according to Lexile framework for reading, it is evaluated at 1240. Almost like reading Stephen Hawking’s “A Brief History of Time”, evaluated at 1290. However, some of the things I found there are brilliant with their simplicity. I would like to share my favourite quotes below.

  • Anything anyone really needs to know is measurable. Including employee morale, reputation, transparency, management effectiveness, value of information, risk of bankruptcy, control and other similar things.
  • Information has a price and a value. The best part is that the initial smallest effort to get the information brings the biggest return on investment (Pareto rules here, too). At the same time, not everything matters. Measure only what is worth measuring.
  • Measurement is a reduction of uncertainty. It is not by any means elimination of uncertainty. To make an informed business decision, you do not need to measure the full population. A sample (representative sample) is enough. Knowing, that it will be impossible to measure EVERYTHING, should not stop you from measuring SOMETHING. Make an attempt.
  • There are a lot of methods to help you measure “intangibles”: focusing of what you know as opposed to what you do not know; decomposing the challenges you are facing; experiments; trials; observations; “catch and re-catch”; measuring traces; historical researches – Google or your colleagues might already “know” the thing you are looking for.
  • Object of measurement is a very important starting point in the process. If you think “improved control” cannot be measured, think of consequences it might bring and measure them.
  • Rule of Five. It sometimes might be as simple as that. Only taking 5 measurements can give you the answer you are looking for (with a confidence of 93.75%). Median of those 5 numbers is the number you are after (Commuting time to work, time on conference calls, etc.). All the difficult details – in the book.
  • Expert judgement (estimation) is also a skill (a tool) which can be improved and calibrated (see here).
  • Categorization and rating (High / Medium / Low) can be very misleading risk assessment methods. Average is not always a good measurement. Compare an average PO value of £516 to a mean PO value of £209. When you are calculating average PO administration costs (£50) per PO in %, the difference is big: 9,7% vs 24%. And now, for the fun of it, imagine you have in total 100k of orders a year… Your priorities in process optimization initiatives for the next year would change, I assume, seeing numbers in different perspectives?
  • “…people do not know how to generate electricity – but they still use it…” There are tools available on the internet and tips to create Monte Carlo simulations on Youtube – almost no excuse not to carry out an assessment when it is really needed.
  • Errors do happen. Intentional, unintentional, systematic, random – you need to keep that in mind when you are trying to estimate anything. By understanding sources and types of errors, you can minimize or eliminate them.

In my experience, I have faced some situations, which looked intangible. Some of the examples where I managed to measure and take action:

  • Economical cleaning efficiency in food retail restaurants and food factories;
  • Organisational structures’ economical efficiencies comparison;
  • P2P systems expected financial benefits versus costs;
  • Behaviour change projects expected efficiency versus costs of change program.

Did you manage to measure something that was considered to be “intangible”? Please share your experience in comments! I would be grateful for examples and I am pretty sure many of us would learn quite a bit!

Advertisements
Measurement is a reduction of the uncertainty

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s