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Benford's Law
A practical law also called the first digit law, first digit phenomenon, or leading digit phenomenon. Benford's law states that in listings, tables of statistics, etc., the digit 1 tends to occur with probability, much greater than the expected 11.1% (i.e., one digit out of 9). Benford's law can be observed, for instance, by examining tables of logarithms and noting that the first pages are much more worn and smudged than later pages (Newcomb 1881). While Benford's law unquestionably applies to many situations in the real world, a satisfactory explanation has been given only recently through the work of Hill (1996).
Where does this apply to the construction industry? There is limited application but, where it applies is powerful.
Before any discussion, let me make it clear that any fair treatment of this application is based on a statistically significant set of data points. That is, many invoices, cost codes, or expense reports must be a large sample size. For a construction company, hundreds if not thousands should be examined if this principal is to be used effectively and not be a dead end.
We see it as a security and anti embezzlement application. Take the first and / or last digit of invoices or purchase orders and see if they appear more than 11.1% of the time. If so, further investigation is needed.
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Posted by Matt Stevens at March 30, 2008 11:55 PM