Goodhart's law

A Dictionary of Business and Management | 2006 | 607 words | Copyright

Goodhart's law Originally, an economic theory stating that if a particular definition of the money supply were to be used as the basis for monetary policy, the stability of its statistical relationship with spending on the economy would break down and the policy would prove ineffective. The law is now used more widely to highlight the problems of focusing on the value of any specific variable as an indicator. In simple terms, when a measure becomes a target, it ceases to be a good measure. The applications to performance measurement in management accounting and other aspects of business are obvious.

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