Hand reach measurements are done by three different methods.
First is with an extended index finger. Imagine you pushing a button with your index finger. That's it. Where in the vehicle will this finger touch.
Second is a two finger reach. Really it is whether you can pinch something between your thumb and index finger.
Third is a closed fist. Like when you grip the steering wheel in a completely closed hand.
Here is a very basic diagram of how hand reach is measured.

If you need more information contact SAE for the regulation.