Don't Let Measurement Get in the Way of Good Judgment

Source: VeraSage Institute Blog

The following includes excerpts, reproduced with permission, from a blog entry by Ron Baker.

Exact measurements of the wrong things can drive out good judgments of the right things.

The illusion of certainty in our measurements creates — to borrow an important concept from the insurance industry — a moral hazard. If people are insured, they may just act carelessly and cause the very thing they are insured against.

Taking into account the following seven moral hazards of measures may assist executives in avoiding putting efficiency ahead of effectiveness.

1. We Can Count Consumers, But Not Individuals. Because benefits and costs are inherently personal and subjective, aggregation misses the individual.
2. You Change What You Measure. Scientists call it Heisenberg's Uncertainty Principle, which applies to all measures: that the observer in a scientific experiment affects the result. Central bankers call it Goodhart's law: Any target that is set quickly loses its meaning as it comes to be manipulated.
3. Measures Crowd Out Intuition and Insight. Once a measure becomes entrenched as part of the conventional wisdom, it is usually impenetrable to logic, intuition, critical thinking, or better ways to do something.
4. Measures Are Unreliable. Generally accepted accounting principles (GAAP) do a pathetic job of measuring — or even acknowledging — intellectual capital.
5. The More We Measure the Less We Can Compare. The major problem with benchmarking studies and best practice reports is that you are studying the results of a process, not the process itself.
6. The More Intellectual the Capital, the Less You Can Measure It. Much knowledge is tacit, which is hard to capture in spreadsheets and pie charts. Data, reason, and calculation can only produce conclusions; they do not inspire action. Good numbers are not the result of managing numbers.
7. Measures Are Lagging. They can only tell us where we have been, never where we are going.

For the complete blog entry, read “The Seven Moral Hazards of Measurements.”

From VeraSage Institute, http://www.verasage.com/index.php/community, November 11, 2010.