How to Measure Anything: Finding the Value of Intangibles in Business / Edition 3

by Douglas W. Hubbard

Overview

Now updated with new measurement methods and new examples, How to Measure Anything shows managers how to inform themselves in order 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, government agency or other organization that, until now, you may have considered "immeasurable," including customer satisfaction, organizational flexibility, technology risk, and technology ROI.

• Adds new measurement methods, showing how they can be applied to a variety of areas such as risk management and customer satisfaction
• Simplifies overall content while still making the more technical applications available to those readers who want to dig deeper
• 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"
• Provides an online database (www.howtomeasureanything.com) of downloadable, practical examples worked out in detailed spreadsheets

Written by recognized expert Douglas Hubbard—creator of Applied Information Economics—How to Measure Anything, Third 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.

Product Details

ISBN-13:	9781118539279
Publisher:	Wiley
Publication date:	03/17/2014
Edition description:	3rd Revised ed.
Pages:	432
Sales rank:	583,676
Product dimensions:	6.10(w) x 9.10(h) x 1.30(d)

About the Author

DOUGLAS W. HUBBARD is the inventor of Applied Information Economics (AIE), a measurement methodology that has earned him critical praise from The Gartner Group, Giga Information Group, and Forrester Research. He is an internationally recognized expert in the field of decision analysis and challenging measurements and is a popular speaker at numerous conferences. He has written articles for Information Week, CIO Enterprise, and DBMS Magazine. He is the author of The Failure of Risk Management: Why It’s Broken and How to Fix It and Pulse: The New Science of Harnessing Internet Buzz to Track Threats and Opportunities.

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Table of Contents

Preface to the Third Edition xiii

Acknowledgments xix

About the Author xxi

Part I The Measurement Solution Exists 1

Chapter 1 The Challenge of Intangibles 3

The Alleged Intangibles 4

Yes, I Mean Anything 5

The Proposal: It’s about Decisions 7

A “Power Tools” Approach to Measurement 10

A Guide to the Rest of the Book 11

Chapter 2 An Intuitive Measurement Habit: Eratosthenes, Enrico, and Emily 15

How an Ancient Greek Measured the Size of Earth 16

Estimating: Be Like Fermi 17

Experiments: Not Just for Adults 20

Notes on What to Learn from Eratosthenes, Enrico, and Emily 25

Notes 27

Chapter 3 The Illusion of Intangibles: Why Immeasurables Aren’t 29

The Concept of Measurement 30

The Object of Measurement 37

The Methods of Measurement 40

Economic Objections to Measurement 48

The Broader Objection to the Usefulness of “Statistics” 52

Ethical Objections to Measurement 55

Reversing Old Assumptions 58

Notes 65

Part II Before You Measure 69

Chapter 4 Clarifying the Measurement Problem 71

Toward a Universal Approach to Measurement 73

The Unexpected Challenge of Defining a Decision 74

If You Understand It, You Can Model It 80

Getting the Language Right: What “Uncertainty” and “Risk” Really Mean 83

An Example of a Clarified Decision 84

Notes 90

Chapter 5 Calibrated Estimates: How Much Do You Know Now? 93

Calibration Exercise 95

Calibration Trick: Bet Money (or Even Just Pretend To) 101

Further Improvements on Calibration 104

Conceptual Obstacles to Calibration 106

The Effects of Calibration Training 111

Notes 118

Chapter 6 Quantifying Risk through Modeling 123

How Not to Quantify Risk 123

Real Risk Analysis: The Monte Carlo 125

An Example of the Monte Carlo Method and Risk 127

Tools and Other Resources for Monte Carlo Simulations 136

The Risk Paradox and the Need for Better Risk Analysis 140

Notes 143

Chapter 7 Quantifying the Value of Information 145

The Chance of Being Wrong and the Cost of Being Wrong: Expected Opportunity Loss 146

The Value of Information for Ranges 149

Beyond Yes/No: Decisions on a Continuum 156

The Imperfect World: The Value of Partial Uncertainty Reduction 159

The Epiphany Equation: How the Value of Information Changes Everything 166

Summarizing Uncertainty, Risk, and Information Value: The Pre-Measurements 171

Notes 172

Part III Measurement Methods 173

Chapter 8 The Transition: From What to Measure to How to Measure 175

Tools of Observation: Introduction to the Instrument of Measurement 177

Decomposition 180

Secondary Research: Assuming You Weren’t the First to Measure It 184

The Basic Methods of Observation: If One Doesn’t Work, Try the Next 186

Measure Just Enough 188

Consider the Error 189

Choose and Design the Instrument 194

Notes 196

Chapter 9 Sampling Reality: How Observing Some Things Tells Us about All Things 197

Building an Intuition for Random Sampling: The Jelly Bean Example 199

A Little about Little Samples: A Beer Brewer’s Approach 200

Are Small Samples Really “Statistically Significant”? 204

When Outliers Matter Most 208

The Easiest Sample Statistics Ever 210

A Biased Sample of Sampling Methods 214

Experiment 226

Seeing Relationships in the Data: An Introduction to Regression Modeling 235

Notes 243

Chapter 10 Bayes: Adding to What You Know Now 247

The Basics and Bayes 248

Using Your Natural Bayesian Instinct 257

Heterogeneous Benchmarking: A “Brand Damage” Application 263

Bayesian Inversion for Ranges: An Overview 267

The Lessons of Bayes 276

Notes 282

Part IV Beyond the Basics 285

Chapter 11 Preference and Attitudes: The Softer Side of Measurement 287

Observing Opinions, Values, and the Pursuit of Happiness 287

A Willingness to Pay: Measuring Value via Trade-Offs 292

Putting It All on the Line: Quantifying Risk Tolerance 296

Quantifying Subjective Trade-Offs: Dealing with Multiple Conflicting Preferences 299

Keeping the Big Picture in Mind: Profit Maximization versus Purely Subjective Trade-Offs 302

Notes 304

Chapter 12 The Ultimate Measurement Instrument: Human Judges 307

Homo Absurdus: The Weird Reasons behind Our Decisions 308

Getting Organized: A Performance Evaluation Example 313

Surprisingly Simple Linear Models 315

How to Standardize Any Evaluation: Rasch Models 316

Removing Human Inconsistency: The Lens Model 320

Panacea or Placebo?: Questionable Methods of Measurement 325

Comparing the Methods 333

Example: A Scientist Measures the Performance of a Decision Model 335

Notes 336

Chapter 13 New Measurement Instruments for Management 339

The Twenty-First-Century Tracker: Keeping Tabs with Technology 339

Measuring the World: The Internet as an Instrument 342

Prediction Markets: A Dynamic Aggregation of Opinions 346

Notes 353

Chapter 14 A Universal Measurement Method: Applied Information Economics 357

Bringing the Pieces Together 358

Case: The Value of the System That Monitors Your Drinking Water 362

Case: Forecasting Fuel for the Marine Corps 367

Case: Measuring the Value of ACORD Standards 373

Ideas for Getting Started: A Few Final Examples 378

Summarizing the Philosophy 384

Notes 385

Appendix Calibration Tests (and Their Answers) 387

Index 397

What People are Saying About This

From the Publisher

"How to Measure Anything was already my favorite book (just ahead of Hubbard's second book, The Failure of Risk Management) and one I actively promote to my students and colleagues. But the Second Edition, improving on the already exquisite first edition, is and achievement of its own. As a physicist and economist, I applied these techniques in several fields for several years. For the first time, somebody wrote together all these concerns on one canvas that is at the same time accessible to a broad audience and applicable by specialists. This book is a must for students and experts in the field of analysis (in general) and decision-making."
—Dr. Johan Braet, University of Antwerp. Faculty of Applied Economics, Risk Management and Innovation

"Now, performance measures can be defined for even the most difficult problems. Doug Hubbard's book is a marvelous tutorial on how to define sound metrics to justify and manage complex programs. It is a must read for anyone concerned about mitigating the risks involved with Capital Planning, Investment Decisions and Program Management."
—Jim Flyzik, former Government CIO, White House Technology Advisor and CIO Magazine Hall of Fame Inductee

Praise from How to Measure Anything, First Edition

"I love this book. Douglas Hubbard helps us create a path to know the answer to almost any question, in business, in science or in life...Hubbard helps us by showing us that when we seek metrics to solve problems, we are really trying to know something 'better than we know it now,' to put something into context, to find insight to help us get our jobs done, to be more successful, to discover things, or to build things. How to Measure Anything provides just the tools most of us need to measure anything better, to gain that insight, to make progress, and to succeed."
—Peter Tippett, Ph.D., M.D., Chief Technology Officer at CyberTrust and inventor of the first antivirus software

"Interestingly written and full of case studies and rich examples, Hubbard's book is a valuable resource for those who routinely make decisions involving uncertainty. This book is readable and quite entertaining, and even those who consider themselves averse to statistics may find it highly approachable."
—Strategic Finance

"Hubbard has made a career of finding ways to measure things that other folks thought were immeasurable. Quality? The value of telecommuting? The risk of IT project failure? the benefits of greater IT security? Public image? He says it can be done—and without breaking the bank.... If you'd like to fare better in the project-approval wars, take a look at this book."
—ComputerWorld, August 2007

"I use this book as a primary reference for my measurement class at MIT. The students love it because it provides practical advice that can be applied to a variety of scenarios; from aerospace & defense, healthcare, politics, etc."
—Ricardo Valerdi, PhD, Lecturer, MIT

"This book is remarkable in its range of measurement applications and its clarity of style. A must-read for every professional who has ever exclaimed, 'Sure, that concept is important, but can we measure it?'
—Dr. Jack Stenner, Cofounder and CEO of MetaMetrics, Inc.

Editorial Reviews

"Over the past several posts I've been discussing how networkers can reduce supposed "immeasurables" or "intangibles" to something that can in fact be measured, and I've been using Douglas Hubbard's excellent book How to Measure Anything as a guide. I highly recommend that you pick up a copy of the book if you want more details about the approach I've been discussing. For a small book, it covers a lot of ground." (networkworld.com, April 4th, 2009)

"Interestingly written and full of case studies and rich examples, Hubbard's book is a valuable resource for those who routinely make decisions involving uncertainty. This book is readable and quite entertaining, and even those who consider themselves averse to statistics may find it highly approachable." (Strategic Finance, September 2008)

"How many times have you been asked to quantify something that is nebulous or intangible? As a system engineer at Sun, this happens to me all the time. A colleague of mine referred me to How to Measure Anything…one of the best books I've seen in this area." (blogs.sun.com; 1/28/08)

"After reading Hubbard's excellent book on 'How to Measure Anything', I was able to immediately solve several measurement challenges for my CEO and Business Owner colleagues. It should be on every manager's desk." (Amazon.com; 10/07)

"…the book for anyone who wants to know how to measure the value of information or any other intangible asset." (Computer Weekly, Tuesday 18th September 2007)

"Hubbard has made a career of finding ways to measure things that other folks thought were immeasurable. Quality? The value of telecommuting? The risk of IT project failure? the benefits of greater IT security? Public image? He says it can be done — and without breaking the bank. Many IT steering committees won't approve projects that "can't be measured," so it behooves CIOs to figure this out! ...... If you'd like to fare better in the project-approval wars, take a look at this book." (ComputerWorld, 8/07)

"… allows [companies] to measure performance in such diverse areas as customer satisfaction, employee morale, quality and organisational flexibility." (CPO Agenda, Autumn 2007)

From the Publisher