Archive for the 'What indicators indicate' Category

Reinhart and Rogoff story shows how important it is to check your indicators

This month two academic researchers showed that there were errors in the calculations behind the claim by economists Carmen Reinhart and Kenneth Rogoff that the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one [...]

The Curse of Kelvin

“The mental health effects of any given disaster are related to the intensity of the exposure of the event. Sustaining personal injury and experiencing the injury or death of a loved one in the disaster are particularly potent predictors of psychological impairment.” The research paper from which the above quote was taken was published shortly [...]

The biggest storm? That’s hot air.

After every big storm there are always attempts to rank it to see how it compares to other biggies. That certainly happened with this week’s “Frankenstorm” Sandy (for example here and here). There are so many ways to rank storms that there will likely be some way every major storm will earn an impressive rank. [...]

What measuring Olympic athletic performance can teach business

How should one measure the performance of countries at producing Olympic medal winners, and of the Olympic athletes themselves?  Some members of the press are having some fun answering that question—and there are some lessons for business too. The National Post played around with various ways of adding up the medal count to compare countries. [...]

Dillusions of importance

Economist Fredrich Hayek, in his 1972 Nobel lecture, criticised what he called the “scientistic” approach to economics. His criticism applies today to those who over-emphasize the importance of measurement in management. He said:  Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects [...]

Investors beware: mining resource estimation methods give inconsistent results

After the Bre-X scandal in 1996, when fake measurements of gold wiped out billions of dollars in shareholder value of the Canadian mining company, the mining industry developed new standards for measuring mineral resources. While they are a vast improvement, the words and methods the industry uses to describe resources still leave room for the [...]

This time it’s different: stock market indicators

There is no shortage of indicators in the stock market. And anyone who can find reliable leading indicators that give reasonable predictions of what the markets are going to do in the future will quickly get very rich. Many people try—and fail. That does not mean there is necessarily anything wrong with the indicators themselves. [...]

How business measurement clichés mislead

You get what you measure What you measure is what you get If you don’t measure it, you can’t manage it Tell me how I’m going to be measured and I’ll tell you how I’ll perform You cannot improve what you can’t measure Garbage in, garbage out If you don’t measure it, it’s just a [...]

misLeading pant sizes-why women aren’t as thin as they think

The Economist magazine is  taking a jab at another sort of inflation. Women’s pant sizes, while nominally the same, have actually been increasing in girth.  The British new magazine estimates that an average size 14 pair of women’s pants  “is now more than four inches wider at the waist than it was in the 1970s.” [...]

How do you measure the performance of a business book?

Today* stores start selling our book—misLeading Indicators: How to Reliably Measure your Business. It has been a while coming. It’s natural for us as authors to wonder how it will “perform”. Many of our acquaintances wonder too, and ask us how we expect it to perform. Their indicators are usually sales or royalties.  Those are [...]

A leading indicator of business cycles that have already happened

A “leading indicator” is supposed to forecast, or at least to help the person using it, to make a forecast. The Conference Board recently announced that it was changing its Leading Economic Indicator to address structural changes that have occurred in the US economy in the last few decades.  The new indicator was released on [...]

Hoaxing, forging, trimming, faking, cooking and falsifying measurements

There have been several recent high-profile cases of scientists hoaxing, forging, trimming, cooking or falsifying their data. These cases occurred in spite of the fact that scientific publications must be peer-reviewed before publication, and that scientific findings must be replicated before they are confirmed. Would the safeguards in place in most business catch similar acts? [...]

Are Americans getting wealthier or poorer? It depends on how you measure “wealth.”

The standard measure of wealth is GDP per capita. The chart below shows that Americans have been getting continually wealthier for decades, with a few blips here and there (source of data). The measure of wealth—Gross Domestic Product, is based on the dollar value of economic transactions. Such a measure depends crucially on the definition [...]

Dead right.

I snapped this picture at a cross walk in Manhattan near Central Park over the weekend. What does it say? Stop or walk? You could walk and not, technically, be jaywalking.  You stand a good chance of getting smacked by a car though if you do. You’d be technically right. And maybe even dead right. [...]

Studies show studies don’t show

It’s used in medical research, engineering research, and just about every other form of research. It determines whether research is “significant” or destined for the garbage bin. And it is one of the most misleading indicators ever developed.  It is known as the “p-value.” The p-value is the number that comes out of most orthodox [...]

Moneyball shows that you should challenge thinking about KPIs

Business writers often speak of “measures that drive future performance.” The trick is figuring out what measures those are. Doctors have been measuring their patients since the Italian doctor Santorio Santorio invented a scale for the Galileo thermometer in 1612.  But patients can (and do) die soon after they get a clean bill of health, [...]

The definitions of performance indicators are critical: the case of unemployment.

The US Bureau of Labor statistics calculates inflation several different ways. The mostly widely reported is U-3, and what people generally call the “unemployment rate.” U-6 has a broader definition and includes discouraged workers and those that work part time because they cannot find full time work. In the 1930’s depression many workers were given [...]

You can manage many things without measuring them

There is a common saying that “if you can’t measure it you can’t manage it.” Many people mistakenly think the reverse is true, that if they can measure it, or something they call “it,” they can manage it. What they ignore is an old lesson from some of the greatest scientists—just because you can obtain [...]

Good definitions needed for reliable measurements

The trustworthiness of any measurement depends crucially on the definition of the thing you are measuring.  This in turn depends on having adequate background information to define it. Even apparently simple things can be devilish to define: take on-time delivery. What is on-time? What counts as a delivery? Or try absenteeism. Is an employee ‘absent’ [...]

The numbers from your performance indicators cannot tell the whole story

Consider the figure below, which shows the KPI (key performance indicator) “inventory age in days” for 20 months. Looking at the chart raises a lot of questions. Why did inventory age shoot up by almost 40% between the 7th month and the 9th?   Why did it suddenly drop down again? Why was there much more variability in [...]