The Value of Information

One of my favorite stories (stop me if you’ve heard this one before)  concerns an aged power station. One day the station failed, leaving  the small town it served completely without electricity. The town  managers called in several engineers, none of whom could resolve the  problem – the station’s equipment was older than anything they had  worked with before.

Eventually someone remembered the name of the long-retired engineer  who had maintained the plant almost since its construction; a quick  phone call was made asking for his help.

When the old man arrived, he spent 15 minutes wandering around the  station, inspecting, listening, and touching. Then he took a hammer  from a toolbox, approached one piece of equipment, and tapped it  gently three times.

The entire station immediately came back to life. The engineer tossed  the hammer in the toolbox and left.

A week later the town managers received a bill from the old man for  $1000.03. The bill was itemized as 3 cents for three hammer taps, and  1000 dollars for knowing where to tap.

Information, as that retired engineer knew, has value.

I’d like to conclude the short series on measurement as a means of  reducing uncertainty by discussing, briefly, the valuation of  information. The context in which I’ve been writing these articles is  determining how, and what, to measure to make a better business case  for networking projects. Networking projects are expensive: Reducing  uncertainty (not, as I’ve been emphasizing, reaching 100% certainty  but simply becoming less unsure than before the measurement) has  distinct value in helping to make better decisions about how the  project can be executed with less cost and less risk.

The value of the information you acquire from the measurements depends  on how much you already know. If your level of uncertainty is high,  almost any information that reduces the uncertainty is valuable.

But there also is a point at which more information becomes less  valuable. In a previous post I gave an example of a carpenter who can  measure a cut to a 32nd of an inch using simple tools. He could make  his cut much more accurate with highly calibrated scientific  instrumentation, but the increased accuracy is not worth the cost of  the equipment. A 32nd of an inch is close enough for most carpentry  work.

In a network study, perhaps you are making incremental samples of  traffic flows to understand where you need to add bandwidth. The first  50 samples are highly valuable in helping you get closer to the  answer. The next 50 samples are less valuable; the 50 after that even  less so. At some point further information is not worth the time and  effort of taking the samples.

Determining the value of subsequent measurements usually depends on  the results of the initial measurements. Unexpected results might  sustain the value of further measurement, or they might cause the  value of further measurements to drop almost to 0.

The results of initial measurements might also shift what we measure  and how we measure it. Things we though were important might turn out  to be unimportant, and things that we thought unimportant – or  immeasurable – might turn out to have a heavy economic impact on our  project.

It’s also important to understand the cost of measurement and the  value of the resulting information within the context of the costs and  risks of the project. If your estimated project cost is $10 million, a  $100,000 study to clarify the “intangibles” of the project is only 1%  of the expected project cost. If the study results in a 1% reduction  in cost, it has paid for itself. If it results in a 5% savings, it has  become a very good investment.

The bottom line is this: Most things we think of as intangible in  networking can in fact be measured; if it truly cannot be measured, it  has no real value.

Copyright © 2009 IDG Communications, Inc.

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