Threshold Calibration

A threshold is the value at which a metric transitions from "on track" to "needs attention" to "requires intervention." Calibrating thresholds requires historical data: what was the metric's distribution over the last four quarters? The green-yellow-red thresholds should be set at the 25th and 10th percentiles of historical performance. Below the 25th percentile is yellow — performance has degraded. Below the 10th percentile is red — something is broken. Above the 25th percentile is green — performance is within normal range. Arbitrary thresholds — "below $1M is red" — create alert fatigue (too sensitive) or dangerous blind spots (too permissive). Data-driven thresholds match the reality of the business.