Think in Indicators (the OECD way)
Growing Meta #9
Hi there!
This week I polled folks on Twitter on their newsletter reading habits. The vast majority thought newsletters should not exceed 500 words. I agree!
To remind you of Growing Meta’s purpose: To succinctly explore topics which help us think about everything holistically, yet practically.
When you read stuff that help you think better, you invest in the quality of your life.
This is why I’m launching a series of thinking frameworks, methods and techniques that help you think and produce better.
Everything is an indicator. Everything.
Detectives call it clues, researchers and engineers call them measurements, parents call them cues, and everyone else has a name for it. Language, actions, statuses, followers, smells — anything that exists is an indicator. Our decision making process is based on a network of indicators and their relationships. So everything we do is an outcome of the quality of how you think about indicators.
Everything is an indicator [GIF source]
Every decision is built on a composite indicator, so how can properly construct one?
Let’s say you want to buy real estate, you want to know if this is a good place to build your dream house on.
This OECD Handbook for Constructing Composite Indicators will tell you to:
Step 1: Build a theoretical framework
define your concept: “Goodness of Location Index”: what makes a good place?
define the sub-measures: what aspects make a good location? e.g. 1- Neighborhood Friendliness, 2- Quality of Services/Utilities, 3- Safety from Hazards (e.g. floods, pollution… ) 4- Distance & Accessibility
select your criterion: what is your selection criteria for indicators? some indicators make no sense, e.g. temporary indicators. Maybe you see a lot of garbage from construction sites. They are usually short-termed and shouldn’t be considered as a strong con.
Once you get a framework up, you can sketch out your indicators, and weigh them in an excel sheet.
Step 2-10: Involves everything from selecting, dealing with missing data, and normalizing, to presenting your composite index. Step 1 is all you need right now for your daily decisions.
“A composite indicator is above all the sum of its parts.”
Here are some examples of composite indicators:
Aggregation structure of the composite indicator of environmental policy stringency (EPS) [source]
A Comparative Analysis of Disaster Risk, Vulnerability and Resilience Composite Indicators [Source]
Reads that will make you a better thinker
OECD Handbook on Constructing Composite Indicators: This should be mandatory study for data scientists and business analysts. This is the ultimatum for constructing meaningful decision-support insights.
But it’s also relevant for everyone. Read it to see what makes quality indicators and frameworks.