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Posted on 07/07/2008 by Don Ryan

Assessing the Value of Customer Data - Are You Just Adding Hay To The Haystack?

I heard a comment recently about information intelligence that I got a kick out of. The comment was “When you are trying to find a needle in the haystack, pouring on more hay will not help.”

Sometimes I feel companies have fallen into this trap and rather than assemble just the data they need to study a problem and solve it, they gather as much data as they can in the hope that they will overwhelm the problem with sheer tonnage of information. Maybe this works from time to time, but I generally feel it is the wrong approach. Too much information can obfuscate a problem rather than illuminate it. Too much information can, in fact, distract the analyst or decision maker from seeing what is truly the key insight(s) and, as a result, paralyze the decision making process or, worse yet, lead to a bad decision. Furthermore, the “gather it (the data) and the answer will come” approach to data analysis can be very, very expensive.

As I mentioned in an earlier post, if you use a decision making framework to assess the value of information, then you should be gathering only the information you need to make the best decision. Or, stated another way, because gathering information has a cost the optimal amount of information you gather is that amount at which the marginal cost of gathering the information is equal to the marginal benefits from it.

Now, it is not my intent to get into a theoretical discussion about the value of information, so let’s get back to the real issue for decision makers – making sure they get presented with just the information that is critical to the decision they have to make. Here the decision maker may want to draw upon the principle of Occam’s razor, sometimes referred to as lex parsimoniae or “the law of parsimony.” By this is meant “the simplest explanation is usually the best.” And if you’ve ever presented analysis to a senior decision maker you know that, more often than not, he or she would appreciate a straightforward and economical presentation of the facts and the accompanying recommendations.

For this reason, our view is that, generally speaking, analysis is most valuable when it is “directed” up front by well defined business objectives, and is tempered by an appreciation of the client’s capability to apply the insights. This philosophy tends to keep the analysis very focused on meaningful insights and leads to the development of truly productive solutions. Following this tact, you’ll find that rather than throwing more hay on the haystack, you’ll end up locating that elusive needle.
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Posted by on 07/07/2008 11:06 AM
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