Doing this blindly is a bad idea. There are two separate issues that are often conflated: how you write the dimension and what the tolerance is. Building equipment in-house, you are in a good position to make your design and manufacturing processes work together. Don't throw that away.
The answer to your question is that it depends on how oversized the holes are. If it's a 1/8" hole, it's probably for a #4 (.112") or M3 (.118") screw. If you actually change it to 1/16" rounding, your error can be half that, or 1/32" (.03125"). It's obvious here that it might not work.
Now, you might say, "I'm not going to round to the nearest 16th, I'm just going to truncate to 2 decimal places, surely nothing bad could happen". Now your sensor has 4x M3s on an 87mm (3.4252") square. Your new setup truncates the decimal to 3.43". Assuming the .125" holes aren't undersized, your new tolerance band, if you want a symmetric tolerance band, on the 3.42" dimension is +-.002". This is now a more expensive part, rather than an easy +-.005 part.
There isn't usually a good reason, in my opinion, to not show three decimal places if you're laying things out with a CNC or DRO. It minimizes rounding errors and says nothing about requiring a tight tolerance. If your welders can't figure out that both 0.19 and 0.188 are 3/16, you have bigger problems. That being said, if you actually do drawings with fractions, those can be great for fab shop drawings, you're just putting the onus on the designer to ensure that what they have on the drawing is what they want to get. Blindly truncating dimensions is not the answer.
I'm not even going to get into how Solidworks handles explicit tolerancing of holes/bores and how truncation can screw you up there.
There is no alternative to your engineers actually thinking about tolerances, tolerance stackups, and how the part is being manufactured and assembled.