Brent is correct on this and all shots are counted/measured. Here's a extreme example to show how it's done for clarity.....
If you shoot a 10 shot group with 8 rounds going directly through the center of the X ring and the 9th shot went 6" directly to the left and the 10th shot went 6" directly to the right you would have approx a 12" group. Calipers with extentensions and optical and plugging devices are used to accuractly tell the center of the bullet holes to get fairly accurate results. But it's still not an exact science. You can take a target and have 5 different people measure it and you might get 5 different measurements that vary by a couple of thousands. Depending on the paper, humidity, backer material, etc different caliber holes measure differently also if you want to get down the the nitty-gritty of measuring. A 28 caliber hole in one paper target may measure .275 in diameter and on another it may measure .273. So when you subtract the caliber diameter you must take into account the actual caliber hole size on that day if your measuring outside to outside like Brent described above to be exact.
But to keep it simple when measuring groups for my hunting guns or informal testing I use the outside to outside measurement and subtract the actual caliber diameter and forget about the few thousands difference in the hole size. If all of my targets have the same error in the same direction, I can tell the better groups from the others and that's all I need to know, so it's irrelevant.
Hope this clears things up.
Steve
[ 12-11-2002: Message edited by: Steve Shelp ]