These were the slides used by Reidar Bratvold and Somik Raha in their session "Metrics Patterns" at DAAG 2015, Huntington Beach.

1. Metrics of Value
Reidar Bratvold
Somik Raha

2. Brushing your teeth and
Values
SYSTEMIC VALUE # of times brushed
PRACTICAL VALUE Dental Hygiene
INTRINSIC VALUE Personal well-being

3. “Everything that can be counted
does not necessarily count;
everything that counts cannot
necessarily be counted.”
—Einstein

4. “What can be counted does not really count;
What counts cannot really be counted.”

5. –Jonathan Hall, VP Finance & Strategy, Walmart
“Key Performance Indicators (KPIs) are not
measures of SVC … they are measures of
things that drive SVC”

6. Metrics are not “measures” of value. They are
systems that drive action toward value creation.
Our ultimate goal is not valuation but value
creation.
Value is created (or destroyed) through our
actions (decisions).
The purpose of a metric is to help us rank
alternatives, and not to calculate some “true value”
Metrics are ultimately systems we create
Question: Are the metrics we use driving desirable
or undesirable action?

7. GOAL: Capture community wisdom around
metrics
Let’s look at some examples

8. But first, a caveat…
You may or may not agree with the examples
If some of these interest you, you can do a table
discussion on it

9. Christopher Alexander
Using Patterns to capture community wisdom
A book that rocked
two worlds

10. Pattern
“Each pattern describes a problem which occurs over and
over again in our environment, and then describes the core
of the solution to that problem, in such a way that you can
use this solution a million times over, without ever doing it
the same way twice.”
“What is a design pattern?” from Design Patterns: Elements of Reusable Object-Oriented Software by Gamma et al., 1995

11. Anti-Pattern
An anti-pattern (or antipattern) is a common response to a
recurring problem that is usually ineffective and often highly
counterproductive

12. ANTI-­‐PATTERN
Combined
Risk-­‐Time
Preferences
What:
Capture
risk
and
.me-­‐preference
in
discount
rate
Descrip:on:
Use
capital
asset
pricing
model
(CAPM)
to
calculate
WACC.
Reason
this
is
undesirable:
Time
and
risk-­‐preference
get
conflated.
Conversa.ons
around
uncertainty
become
extremely
complicated,
and
are
therefore
avoided.
Example:
Financial
models
consistently
avoid
conversa.ons
on
uncertainty
by
reliance
on
models
that
automa.cally
calculated
betas
Related
Pa?ern:
Separated
Preferences

13. PATTERN
Separated
Risk-­‐Time
Preferences
Problem:
When
risk
and
.me-­‐preference
are
combined
in
the
discount
rate,
conversa.ons
around
uncertainty
become
incredibly
difficult
and
suffer
from
lack
of
clarity.
Solu:on:
Use
discount
rate
only
to
capture
.me-­‐preference
and
risk-­‐aItude
to
capture
risk-­‐tolerance.
Reason
this
is
desirable:
Time-­‐preference
is
about
how
much
we
value
future
money
today,
whereas
risk-­‐tolerance
is
about
how
much
uncertainty
we
can
tolerate.
These
are
two
separate
conversa.ons
that
we
know
how
to
conduct
with
clarity.
Example:
…
Related
An:-­‐Pa?ern:
Combined
Risk-­‐Time
preferences

14. ANTI-­‐PATTERN
Discounted
Cashflow
(DCF)
Ranking
What:
Opportuni.es
are
ranked
by
their
DCF
Reason
this
is
undesirable:
DCF
as
a
sole
metric
of
comparing
two
deals
is
problema.c
as
it
has
no
no.on
of
uncertainty
in
it.
This
oNen
results
in
a
misuse
of
the
discount
rate
to
(ineffec.vely)
incorporate
uncertainty.
Related
Pa?ern:
PCF
Ranking

15. PATTERN
Probability-­‐weighted
Cash
Flow
Ranking
Problem:
DCF
does
not
adequately
incorporate
our
thoughts
on
uncertainty.
Solu:on:
Weight
DCF
with
our
assessments
of
probability
to
produce
a
PCF-­‐ranking.
Related
An:-­‐pa?ern:
DCF
Ranking But wait - it’s not so simple! Just
using PCF is problematic. It needs
to be situated in a context of
patterns that clarify preference
metrics.

16. List metrics that you’ve seen driving counterproductive
behavior in a context
METRIC: Discounted Cash Flow
CONTEXT: Ranking Business Decisions
DCF as a sole metric of comparing two deals is
problematic as it has no notion of uncertainty in
it and it is often based on Combined Risk-Time
Preferences. This often results in a misuse of
the discount rate to (ineffectively) incorporate
risk attitude.
REIDAR + SOMIK
Story
example
Your name(s)

17. List metrics that you’ve seen driving useful behavior
in a context
METRIC: Probability-weighted Discounted
Cash Flow
CONTEXT: Ranking Business Decisions
By using Separated Risk-Time Preferences, we
are able to drive good conversations around
time and risk-preference, while at the same
addressing uncertainty in a clear manner.
REIDAR + SOMIK
Story
example
Your name(s)

18. List metrics that you’ve seen as somewhat neutral
(neither helpful nor harmful) in a context
METRIC:
CONTEXT:
Story
Your name(s)
example

19. Please start your reflection
writing (5 mins)
METRIC: Discounted Cash Flow
CONTEXT: Ranking Business Decisions
DCF as a sole metric of comparing two
deals is problematic as it has no notion of
uncertainty in it and it is often based on
Combined Risk-Time Preferences. This
often results in a misuse of the discount rate
to (ineffectively) incorporate risk attitude.
REIDAR + SOMIK
METRIC: Probability-weighted
Discounted Cash Flow
CONTEXT: Ranking Business Decisions
By using Separated Risk-Time Preferences,
we are able to drive good conversations
around time and risk-preference, while at
the same addressing uncertainty in a clear
manner.
REIDAR + SOMIK
METRIC:
CONTEXT:

20. Identify contexts of interest
Area of Interest Table Leader
Financial Steve Begg
Advertising Elisabeth Browne
Risk Management Chris
Operational Christa
Non-profit Victor
Health Kwon
Safety George
Personal Elisabeth Browne
Culture Change Jim Driscoll
Environment Laura
Rankings Robyn
Oil & Gas Eric
Business Carl

21. Find Your Table
Table leaders, take your seats
Table leaders write down in bold on the flipchart the
context you are anchoring
Everyone else walk over to the table you want to be a
part of.
Only as many participants as there are chairs.
Share your cards and discuss. Make new cards as
necessary.

22. Summarize your Discussion
Metric
Discount
Rate
Discounted
CashFlow
…
USEFUL
Story of
context
Capture
Time
Preferences
Input to PCF-
Ranking of
alternatives
…
NEUTRAL
Story of
context
… … …
COUNTER-
PRODUCTIVE
Story of
context
Combined
Risk-Time
Preferences
DCF-Ranking
of
alternatives
…
Take 5 mins

23. Consolidation
Table leaders paste your posters on the wall and
consolidate columns across posters - take 5 minutes.
Everyone else - think of other metrics/contexts that have
been sparked in your mind from these discussions and
make more cards. Take 5 minutes.

24. Review
Let’s take 10 minutes to review

25. What did we learn?
Let’s take 5 minutes to share
Everyone else - walk over and read everyone’s cards. If a
context is missing, add your own card to it. Take 10
minutes.
e.g. you see a red card, where you think the metric has good uses, please
make your green card and stick it up; and vice-versa

26. Review stories
Please walk over and read everyone’s cards. If a context is
missing, add your own card to it.
e.g. you see a red card, where you think the metric has good uses, please make
your green card and stick it up; and vice-versa

27. Appendix

28. You can use images to summarize wisdom
Net Cash
Flow (NCF)
Ignores
time-value of
money
Harder to
build on than
NPV
“Cash is king” -
planning of
cashflow
Discounted Cash Flow
Useinstead
reason this is
a pattern
reason this is
an anti-pattern
reason this is
an anti-pattern

29. Example: Light on Two Sides of a Room

30. Possible Patterns and Anti-Patterns on Metrics
You may or may not agree
These are shown as examples
If some of these interest you, you can do a table
discussion on it