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Measurement Theory

In: Business and Management

Submitted By natasyadeen
Words 1075
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2- Measurement Theory
Definition
Measurement is being defined by many researchers. According to Campbell it is the assignment of numerals to represent properties of material systems other than numbers. A similar definition was given by Stevens who states measurement as the assignment of numerals to objects or events according to rules. Whatever the definitions given by all the researchers, they all bring about to the same meaning and understanding. Based on my understanding, measurement is the process of observing, recording and calculating the observations that are collected as part of a research effort which is usually represented by units. These units possess values and are often numerical.
Importance
Everyone uses measurement without even noticing it sometimes. In studying measurement theory, I realised that measurement involve in many of our daily activities without us even noticing it sometimes. Some examples include measuring our heights and weights, measuring the nearest and shortest distance to get to class, measuring the time taken to complete an assignment and many more. Therefore, it can be said that measurement theory is definitely important and useful for everyone. Understanding the importance of measurement theory is crucial to address issues in business, accounting, social and economics.
Importance of measurement in Accounting
Why is measurement theory important? Well, it is important for three simple reasons. It is important to make decisions, assess performance and positions and make comparisons. Let’s look at accounting perspective first. In accounting, almost everything is being measured which includes expenses, revenues, assets, liabilities and profits. Accountants use measurements to report information to internal and external users via financial statements. Financial accounting measurements are typically recorded at historical cost or adjusted to current market values through adjusting entries. Measurement are also being used in management accounting uses to calculate the cost of materials used or the number of labor hours needed to produce goods or services by the method of cost allocation. Cost allocation drivers are the specific accounting measurements used by accountants to apply business costs. Accountants determine the best accounting measurement by reviewing each production procedure and breaking these processes down into allocation drivers. Apart from that, to set a selling price measurement needs to be taken in terms of calculating breakeven point to measure the required units to be sold in order to achieve targeted profit. It is easy to say that measuring is very important in accounting, as accountants, measurement is what they are being paid for.

Importance of measurement in Business
In business perspective, everything needs to be measurable in order to get a true picture of the business growth. It’s important to measure the business activities because variables will change and in order to analyse the results accurately, there should have an indication of why things have changed. Activities such as sales figures, online marketing, magazine advertisements, email campaigns, customer satisfaction and social media activity are some examples that require measurement. By measuring, only then the top management can make strategic decisions to further improve their business and achieve their business goals. Once measured, corrective measures or improvements can be carried out in order to keep satisfying the customers and fulfilling their needs. Also by measuring, company can review and make comparisons of their performance from previous years, from what they have forecasted, from the performance of their competitors and the industry. Let’s take a retail company for example; the weather can have a huge impact on retail sales. If the variables are measured accurately, they will be able to notice these changes and be able to create a plan to mitigate from this in the future. According to Realbusiness UK, advertising is very important to be measured to know if it is a successful advertising or not. Taking out a one-page advertisement in a broadsheet newspaper may seem like a good idea but what is the expected return? How many leads will the advertisement generate? How many sales will come as a result? Each question needs to be answered and the results measured or money will be simply pouring down the drain.
Importance of measurement in Economics
In my understanding, in the perspective of economics, measurement is not being discussed much, but from what I’ve read it is still important but being discussed general an unclear. However, a common discussion of measurement in economics would be the Gross Domestic Profit (GDP). GDP is one of the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period. In simple words, GDP represents the size of the economy. According to the article “GDP and Its Importance” written by Elvis Picardo, CFA, GDP enables policymakers and central banks to judge whether the economy is contracting or expanding, whether it needs a boost or restraint, and if a threat such as a recession or inflation looms on the horizon. The national income and product accounts (NIPA), which form the basis for measuring GDP, allow policymakers, economists and business to analyze the impact of such variables as monetary and fiscal policy, economic shocks such as a spike in oil price, as well as tax and spending plans, on the overall economy and on specific components of it.

Importance of measurement in Social
According to a psychologist Natalie Boyd, it is much easier to understand the importance of measurement in social studies by putting oneself as a psychologist. Let’s just say that as a psychologist, it has been found a new way to treat depressed people. So, the psychologist tried it on one of the patients, and after the treatment the patient is no longer depressed. Could the same way work for other patients? Could it work for any gender and age? In order to answer these questions, psychologist would carry out the same treatment to many different patients and measure the results. So why is it important? Measurement would give us an understanding of what is actually going on. It is a way to understand what's going on and how to communicate it to others so that they, too, will understand. In a social research, it is about comparing one thing to another. This could be comparing two groups, like doing a study to see if men are better at math problems than women, or it could be comparing changes over time, like our study on whether people given your treatment for depression become less depressed after the treatment.

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