From the flow of traffic, water and waste through to the consumption of energy and the quality of the air we breathe, city governments are able to collect and access ever increasing amounts of data about life in the city. The promise is that more and better collection and analysis of this data will improve the way a city works, increasing efficiency, and creating new services that deliver both economic value and address social problems.

Cities around the world have woken up to the promise of data and are investing heavily in it. This week, the Greater London Authority launched its new data strategy: Data for London, which highlights, among other things, the need to create a data market for London and the need for proactive city data governance. Alongside these issues, there are a set of fundamental questions that city governments should be asking themselves before they roll up their sleeves and dive into the data:

• Purpose - Too often, city data advocates focus on the technical how of sensors and databases and not on the why: why are we collecting the data in the first place and what issues are you hoping to address? This should be the first question that city governments ask before sensors are installed and algorithms fired up.

• Big data vs small data - There is a danger of focusing on the “toys for the boys” of huge data sets and the Internet of Things, as discussed by Helen Margetts at the GLA data strategy launch event, and ignoring the more pedestrian challenges of improving the way that cities process the data they already own and sharing data across departments, when in reality these are proven ways to improve the efficiency of city government. What's more, getting the basics right will make it much more obvious which new tools and data analysis techniques a city needs to invest in.

• Inclusiveness - Who contributes data, who gets access to it and who gets a say in how it is analysed? These questions become more pertinent in a world of crowdsourced data and increasingly sophisticated data analysis techniques.

• Privacy and citizen buy-in - A paradox exists in the data debate: people are increasingly happy to give away data for free access to online services like Facebook and Google, yet at the same time are becoming more and more worried about government access to their data. A national conversation is required around government use of data, including an assessment of what governments can do to provide benefits to citizens for giving up their data, otherwise city governments may find their ability to make use of citizen data becomes increasingly restricted.

• Skills - According to some, data scientists are the new superheroes, but not many of them work in city government. For cities to take ownership of the opportunities offered by city data, skills are needed within city government, so that cities don’t become totally reliant on external ‘experts’ for decision making.

• Impact on decision-making - You’ve collected the data, now what? The effects of large amounts of city data on decision-making aren’t yet widely understood, but one critique is that consumers of the data can be unaware of the subjective decisions that have gone into selecting and processing the data – for example, which metrics are included and which are deliberately left out.

• Corporate data - Too often, the debate focuses on pressing city governments to release data, but modern corporations, from Google to Amazon are really data companies, who have a vast treasure chest of knowledge about cities and how they work. How to access this data should be a key question for city governments.

• Leadership - Last but not least, leadership is a key issue when it comes to making the most of city data. Cities that have done the most innovative things with data, from Chicago to New York, tend to have one thing in common, a leadership committed to maximising the potential of data to address urban challenges.

Nesta is deeply engaged in this debate, running innovative open data challenges, rethinking the role of the citizen in addressing urban challenges and analysing the skills that organisations need to take advantage of the data revolution. Building on this, in 2016 we are undertaking an ambitious programme of work on city data, including the first comprehensive survey of how UK cities and local authorities use data and how they can get better value from it.