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Balanced Scorecard Metrics – Accuracy vs. Precision

Posted January 4, 2012 10:49 AM by Ted Jackson

I was reading an ExtremeTech article today titled "Lies, damned lies, and benchmarks." The article was about measuring performance in mobile phones, which isn't all that interesting to me, but I started thinking about some of the concepts in the article and how they related to the Balanced Scorecard. The author, Joel Hruska, threw in a chart about Accuracy vs Precision that I thought was particularly relevant.

The ExtremeTech article didn't talk much about the graphic, but it got me thinking about the concept. Accuracy can be defined as how close a measured value is to the actual or true value. Precision on the other hand, is defined as how close measured values are to each other. If you think about a bull's eye chart, highly accurate measures are ones that are close to the center of the chart. Precise measures are close to each other but may or may not be close to the center of the chart.

Most people are comfortable with precise measures as they tend to fit in the category of "repeatable>" Precise ones are very close together and when one measure point falls outside of the group, you can generally research it and explain why. These are typically good measures for operational processes. Hopefully they are accurate, but if not, at least they are repeatable, and you can see when you have issues with your measures.

With a Balanced Scorecard, you are typically measuring strategy. Strategy includes the process of looking forward several years and determining (or guessing) where you want to be in the future. It might also involve doing new things in your organization that have not been done before. This means that it might involve coming up with new measures as well. Here, Accuracy is helpful, but precision is not a full requirement. For example, with our company, Ascendant, we are trying to grow our technology revenue (revenue associated with ClearPoint). We do set a target, but we are not concerned about the monthly and quarterly precision around our target. It is hard to predict our growth, and we measure it as a percentage, so the growth of our consulting revenue can affect it as well.

For us, it is important that our revenue continues to grow for technology to justify the investments that we are making in it. Like the example diagram, the dots may fall all around the bull's eye, and that is OK, since this is strategy and the path is uncertain. It is better than having low accuracy and high precision. Maybe that would mean that our revenue is growing at a meticulous plan, but we are missing some opportunities by not keeping an open mind.

I'd be interested in your ideas on the subject.

Filed Under Balanced Scorecard