How to Measure Anything: Finding the Value of "Intangibles" in Business, Second Edition

Chapter 7. Measuring the Value of Information

If we could measure the value of information itself, we could use that to determine the value of conducting measurements. If we did compute this value, we would probably choose to measure completely different things. We would probably spend more effort and money measuring things we never measured before, and we would probably ignore some things we routinely measured in the past.

The McNamara Fallacy

The first step is to measure whatever can be easily measured. This is OK as far as it goes. The second step is to disregard that which can't easily be measured or to give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume that what can't be measured easily isn't important. This is blindness. The fourth step is to say that what can't easily be measured really doesn't exist. This is suicide.

—Charles Handy, The Empty Raincoat (1995)—describing the Vietnam-era measurement policies of Secretary of Defense Robert McNamara

As mentioned in Chapter 2, there are really only three basic reasons why information ever has value to a business:

1. Information reduces uncertainty about decisions that have economic consequences.

2. Information affects the behavior of others, which has economic consequences.

3. Information sometimes has its own market value.

The solution to the first of these three has existed since the 1950s in a field of mathematics called "decision theory," an offshoot of game theory. It is also the method ...