The starting point in all of this is to define what information is. Information reduces uncertainty. It’s a powerful definition with many implications., and since there are actually well defined concepts around the value of information, we’ll start there.
To illustrate the value of information I’ll use a simple example. Say there are two envelopes. One contains $20 and the other nothing. You have to pick an envelope, and whatever is in the envelope becomes yours. How much would you pay someone to tell you which envelope contains the $20? Well you wouldn’t pay $21, and you would probably pay more than $1. You might even pay $19. And so the value of information pertaining to which envelope contains the $20 is $19. It’s all a matter of utility – how much value you place on making an extra dollar.
Decisions of this type are made everyday in a business. Companies will often pay market research firms to establish the likelihood that a new product will be well received. If the stakes are high, and the cost of product development is counted in the millions of dollars, then a firm may be willing to pay hundreds of thousands of dollars to get the information they need – to reduce their uncertainty. Businesses place a value on information every time they buy competitive intelligence, hire a consultant, invest in information systems, hire a knowledge worker – and so on. Most business managers will not talk in terms of information value, but this is essentially the value judgement they are making.
Now in the example given above we assumed that our information source could be trusted 100%. In real life we don’t know for certain that a source of information can be wholly trusted, and so we have to modify our estimations of information value based on this uncertainty – it reduces the value of the information.
There is actually a well developed theory called ‘The Value of Information’, and I’ll probably expand upon it in other articles. However most business people tend to use gut instinct to some extent, and it may well be a better judge of information value in many cases. It is very hard to put a character assessment into a calculation on information value when interviewing someone who claims to have expertise on a given topic.
The cost of information is something that can be laid out on a spreadsheet – typical cost accounting. How much time has been dedicated to searching for information, and what is the cost per unit of time (people costs usually)? What databases, information systems, expertise and so on has been purchased? Information is just like a tangible item when it comes to costing – although such an exercise is very rarely done. This is strange considering we live in the ‘information age’.
The art and science of the cost and value of information is to make sure that the costs are less than the value. Some attempt is made to do this when we are talking of investments in information systems, but no such exercise is undertaken when someone undertakes a search for information on a casual basis. Common sense does come into play – we wouldn’t sanction a three month project to establish exactly how much stationery a department was using, and how it was being used, if the potential cost savings were $100, and the three month project cost $10,000. However, many activities are not as clear cut, and for sure, the proliferation of information systems (and particularly social technologies) mean people are spending much more time dealing with information, and typically no one is counting the cost – or even the value. This will change as firms struggle to become more competitive and efficient, but information productivity is still a missing science in most businesses.
A rough-cut estimate of information costs can be got from company accounts, and approximates to the Sales, General and Administrative (SG&A) costs in a business. Interestingly enough these costs have been rising across the board in many businesses, as a percentage of total costs. Sooner or later information workers will be measured on information productivity in the same way that manual workers have been for decades – but there will be resistance!