Goodhart's Law
This page explains Goodhart's Law and its relevance to business operations.
D05 - Measurement Sophistication
Definition
The principle that when a measure becomes a target, it ceases to be a good measure because the incentive to improve the number begins to decouple from the incentive to improve the underlying reality.
Goodhart's Law applies to every reported operational metric. The moment a metric appears in a board presentation or a performance review, it becomes optimizable.
An operations leader who doesn't check for this decoupling is presenting numbers that may be technically accurate while being operationally misleading.
Indicators
- A metric has improved quarter-over-quarter, but a related customer complaint or downstream failure has also increased.
- You have never asked the people measured by your metrics how they'd improve the number if their job depended on it.
- No metric in your current dashboard has been formally tested for the possibility that it can be gamed without the underlying outcome improving.
Quick Win
- Take your top reported metric.
- Ask the people measured by it, "How would you improve this number if your job depended on it?"
- If their answer doesn't involve the actual outcome improving, you have found a Goodhart failure.
Comments ()