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

434 Pages·2014·5.13 MB·English

by  Douglas W. Hubbard

How to Measure
Anything

How to Measure
Anything
Finding the Value of “Intangibles” in Business
Third Edition
DouglAs W. HubbArD
Cover design: Wiley
Cover image: © iStockphoto.com (clockwise from the top); © graphxarts,
© elly99, © derrrek, © procurator, © Olena_T, © miru5
Copyright © 2014 by Douglas W. Hubbard. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
First edition published by John Wiley & Sons, Inc., in 2007.
Second edition published by John Wiley & Sons, Inc., in 2010.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data
Hubbard, Douglas W., 1962–
How to measure anything : finding the value of intangibles in business /
Douglas W. Hubbard.—Third edition.
pages cm
Includes bibliographical references and index.
ISBN 978-1-118-53927-9 (cloth); ISBN 978-1-118-83644-6 (ebk);
ISBN 978-1-118-83649-1 (ebk)
1. Intangible property—Valuation. I. Title.
HF5681.I55H83 2014
657’.7—dc23
2013044540
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
I dedicate this book to the people who are my inspirations
for so many things: to my wife, Janet, and to our children,
Evan, Madeleine, and Steven, who show every potential
for being Renaissance people.
I also would like to dedicate this book to the military men
and women of the United States, so many of whom I know
personally. I’ve been out of the Army National Guard for
many years, but I hope my efforts at improving battlefield
logistics for the U.S. Marines by using better measurements
have improved their effectiveness and safety.

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
vii
viii Contents
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