# Discuss some pros and cons associated with your measurement,

10
TECHNOLOGYFOCUS
www.insuranceday.com| Wednesday 18 April 2012
Metrics for
industry
standards
You can measure anything
T
here is one unproductive
and pervasive management
myth holding
organisations back: the
belief some of the most important
factors in the organisation are
beyond measurement.
cite quality, reputation or agility as
their key strategic drivers – all supposedly
impossible to measure.
Every day, decision-makers
commit their organisations to
investments, structures and markets
via decisions that supposedly
serve these so-called intangible
qualities yet include no relevant
information. However, anything
that matters can be measured.
What measurement means
A measurement is a quantitative
reduction in uncertainty based on
observation. It does not have to
reduce uncertainty to zero.
Sometimes even a marginal
to decision-makers. Furthermore,
major reductions in uncertainty
can be obtained by asking some
simple questions.
In a famous example, the Nobel
prize-winning scientist Enrico
to estimate the number of piano
tuners in the city.
He showed them by breaking the
which they could make reasonable
estimates, they could come up with
a rough estimate. The students
would come up with answers in the
range of, say, 20 to 200, and Fermi
would reveal the answer was 45. So
they were not far wrong – much
closer than they guessed. We know
more than we think we do.
The ’rule of five’
“We don’t have the data” is a common
reason given for perceived
immeasurability. But if the great
scientists of history were stumped
bythelackofafullypopulateddatabase,wewouldnothavegotfar.
So think about how you can
actively collect just a random sample
of data.
Consider a contemporary classic
of “soft” goals: customer experience.
One way to measure this is to
Not five million. Just five.
Here’s how the “rule of five”
works. Say you want to consider
Make five random calls to the staff.
Ask them how long their commute
is. Say you get the values 30,
60, 45, 80 and 60 minutes. Take the
highest and lowest numbers in the
sample, which are 30 and 80. Now,
there is a 93.7% chance the median
of the entire workforce is between
those two numbers.
Measurement assumptions
There are four main reasons why
so-called intangibles remain unmeasured.
First, people assume
their problem is unique. But it is
has been solved before, perhaps in
another industry. This is why
benchmarkinghassuchapowerful
effect on businesses: it is an opportunity
to transfer solutions across
organisational boundaries.
Second, people think they do not
have the required data. However,
organisations record all kinds of
data that can be relevant to your
needs. Executives have powerful
tools to extract data, they just need
Third,youneedfarlessdatathan
you think. The rule of five really
works, even though it is counterintuitive
– even to some statisticians.
You do not need lots of data,
but relevant data. When you know
nothing, you do not need much
additional data to tell you something
you did not know before.
And last, new sources of data are
much more accessible than you
think. Assume there is a simple
means of measurement you can
implement economically and
quickly. It is more a matter of
resourcefulness than any real
obstacle of measurement.
Measuring what we mean
One of the most powerful effects of
changing our attitude to so-called
intangibles is the new light cast on
our business goals. By looking for
meaningful measures, we improve
our understanding of the goals as
wellasmakingthemmoreachievable.
Take IT security, for example.
Security is one of those things everyone
wants lots of, but few know
how to measure.
When I work through the concept
of security with organisations,
they invariably identify risk with
some specific list of events which,
in turn, cause loss of data, legal liabilities,
loss of productivity and
more. These effects all have magnitudes
that can be estimated.
For some reason, the “brand
damage” effect of a security breach
is seen to be particularly hard
to measure.
But,bydefinition,everyinstance
of brand damage in your industry
is public knowledge and is
reflected in stock prices, market
share or legal cases. Everything is
observable once it is defined.
There is more to measurement
than I can present here, but I hope I
have convinced you that decisionmakers
do not have to fly blind.n
Douglas Hubbard is president of
Hubbard Decision Research
and his website is
www.hubbardresearch.com
Douglas Hubbard,
president
Hubbard Decision
Research
One of the most striking books of
the past few years is Douglas Hubbard’s
How to Measure Anything:
Finding the Value of Intangibles in
Business. It is one of those books
that makes you see the world differentlyanditchtoputitsmessage
intopractice.Hubbardintroduces
his ideas in the piece opposite, but
I urge you to read the book.
The insurance industry is built
on the practices Hubbard
describes. Insurance creates
and applies measures for risk, a
key intangible.
Whenevertheindustryencounters
a new class of risk, it invents
an elegant means of measuring it.
But we do not seem to apply the
same kind of thinking in our information-management
practices.
Historically, the focus of
ACORD has been on enabling the
informationflowbetweenorganisations,
but ACORD standards
have always played a significant
role in systems integration and
data management.
So we are embarking on a
research effort to improve the
metrics we have in place today
and also provide new metrics on
industry standards for decisionmakers.
I see this aspect of our
work growing in importance as
information specialists continue
and amplify the power of data to
Gregory Maciag can be reached at
gmaciag@acord.org People think they do
not have the required
data. However,
organisations record all
kinds of data that can be
Executives have
powerful tools to extract
data, they just need to