How to Measure Anything: Finding the Value of Intangibles in Business

by Douglas W. Hubbard

Clarification Chain 1. If it matters at all, it is detectable/observable. 2. If it is detectable, it can be detected as an amount (or range of possible amounts). 3. If it can be detected as a range of possible amounts, it can be measured.

all measurements of any interest to a manager must support at least one specific decision.

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.

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 data than you think. 4. An adequate amount of new data is more accessible than you think.

1. What is the decision this measurement is supposed to support? 2. What is the definition of the thing being measured in terms of observable consequences? 3. How, exactly, does this thing matter to the decision being asked? 4. How much do you know about it now (i.e., what is your current level of uncertainty)? 5. What is the value of additional information?

assessing uncertainty is a general skill that can be taught with a measurable improvement

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

Those who would reject the idea of a customer survey being a measurement instrument forget the whole point of measurement. How uncertain would they be without the instrument?

Those who tend to be easily thwarted by measurement challenges, however, often assume that the existence of any error means that a measurement is impossible.

I find that, in business, people often choose precision with unknown systemic error over a highly imprecise measurement with random error.

It is the mark of an educated mind to rest satisfied with the degree of precision which the nature of the subject admits and not to seek exactness where only an approximation is possible. —Aristotle (384 B.C.-322 B.C.)

Fallacy: The possibility of error in a measurement means that an observation cannot reduce uncertainty. Fact: If an observation might tell us something, it must tell us something.

Broadly, there are two ways to observe preferences: what people say and what people do.