The Anti-fragile Risk Management (ARM) Model has seven components; the third is Process & Plant.
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Category Archives: Mass
Guns, Telephone Books and Risk?
Is Risk Management a worthwhile activity? An alternative, ‘Anti-Fragile Risk Management’, is proposed.
Continue readingBeyond the Big Honkin’ Binder
Have you ever had the unenviable task of creating a procedure for something? Maybe a high level set of policies or a hands on ‘How-To’ guide. Great – now picture the end result in your mind. Got it pictured? Okay, where is it now?
Continue readingA Ruling on 80, 90 and 99
Heuristics or rules of thumb are of great benefit in formulating approximations and quick decisions. They can just as easily lead one astray through over simplification. In thinking about heuristics as they apply to organizations, I have been pondering three: the 80/20 Rule, the 90 Rule, and the 99 Rule.
The 80/20 Rule or Pareto Principle
The Pareto Principle is a heuristic that estimates cause and effect, it is defined as:
Also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity; states that, for many events, roughly 80% of the effects come from 20% of the causes. Named after Italian economist Vilfredo Pareto (adapted from wikipedia).
While the Pareto Principle has reasonably good statistic evidence of its validity in estimating cause and effect, it does not do so well in predicting effort. In other words, 20% of your future actions will yield 80% of the future value. Which of the four out of five things will you do that will have no or limited impact on the 80%?
The 90 Rule
This rule is based on the observation of contributions to social media sites.
In Internet culture, the 1% rule is a rule of thumb pertaining to participation in an internet community, stating that only 1% of the users of a website actively create new content, while the other 99% of the participants only lurk (adapted from Wikipedia).
It may seem strange to invoke an internet rule but compare this to an organizational structure. What is the relative proportion of shop floor workers to middle to senior managers? Typically there is about a 1:10 ratio of doers versus managers.
Consider an organization of 1,000 people; a reasonable sized government ministry or medium-sized enterprise. Within such an organization, there would be about 10 senior leaders (Assistant/Deputy Ministers, CEOs, Vice Presidents), 90 middle level managers (Directors, Managers, Assistant Managers) and 900 shop floor staff and immediate supervisors (clerks, sales people, workers, supervisors, etc.).
In other words the 90 rule is a reasonable heuristic to predict the allocation of resources and effort. 1% or the allocated resources will have a disproportionate effect on the next 9% which in turns controls or influences the final 90% of an organization.
The 99/0.9/0.1 Rule
A more lean view of the 90 rule is that 99 rule. The 90 rule is accurate in the allocation of operational resources but I believe underestimates the effect of more strategic or exceptional events. The CEO’s decision to close an unprofitable factory is not made by 10 people in the above fictional organization, but instead by 1 person. Certainly the other 9 people support and (hopefully) validate the decision but the impact is then disproportionate to the remaining 990 individuals in an organization.
The 99 rule is a better tool to estimate strategic decisions within an organization.
Recap of the Rules
- Pareto: 20% of an organization’s actions account for 80% of its results.
- 90 Rule: 1% of the operational decisions are enacted by 9% of the organization affecting the remaining 90%.
- 99 Rule: 0.1% of the strategic decisions are enacted by 0.9% of the organization which impacts the remaining 99%.
What are your thoughts? Are the above heuristics reasonable and valuable tool when allocating organizational resources? Is there too much variability and the rules are a meaningless average? Do you have any anecdotal experience with any of the above rules in either their cause or effect?
Organizations in Four Part Harmony
What exactly makes up an organization and how is work done within them? This is a subject of a handy mental model I use when I am trying to understand an organization; an organization in four part harmony.
1. Harmony 1, Infrastructure: the furniture, furnaces, machinery and head offices of the organization. Note that in many organizations infrastructure is often a non-tangible. For example a computerized airline reservation system or perhaps a finance system.
Steamfitter, by Lewis Hine (American, 1874–1940) . Metropolitan Museum of Art, New York. Accession Number: 54.549.56
2. Harmony 2, Operations: these are the day-in-day-out processes, tasks and procedures which we typically hire people to do. Accounts payable clerks, widgets assembler or process engineers are hired because payables need to be clerked, widgets assembled and processes engineered.
3. Harmony 3, Ad hoc activities: if you have a reserved parking spot close to the head office of an organization, I bet this is what you do all day. Sure, you were hired to do operations (Chief Executive/Finance/Information Officer) and sometimes operational work sneaks in when you are not looking. More than likely though, you have crossed into the grey and smudgy no-man’s land that separates operations from the world of the ad hoc.
4. Harmony 4, Strategic thinking/planning: Periodically, the leaders of an organization will set aside their many ad hoc and fewer operational activities to complete strategic plans. Strategic plans hopefully answer questions like, do we have the right infrastructure, efficient operations and why are there so many ad hoc activities.
Four Perfect Harmonies
If you dig out your old college text books, organizations are described as functioning something like this. Wise executives poke their heads up from the fray and gain strategic knowledge. In turn, this knowledge is used to tweak infrastructure and adjust operations. Ad hoc opportunities are few and nearly always involve entering into new markets, maximizing shareholder wealth or stakeholder well-being.
Dilbert and The Four Harmonies
In a Dilbert’esque world, the four harmonies work in isolation. Most of the management focus is on performing ad hoc work that usually involves fixing or infrastructure or operations. This is because infrastructure suffers from a lack of investment while operations are conducted by poorly trained leading the newly hired. The only time either of these harmonies get any attention is when they fail and then they are hastily repaired, usually in an ad hoc manner.
Beyond the Harmonies
Most organizations fall in between these two extremes. Ideally infrastructure is like a well-run furnace on a cold winter’s day – well-functioning, appreciated and invisible. Time invested in operations saves management effort solving future ad hoc problems (an ounce of prevention is worth of pound of cure). Ad hoc efforts need to be the exception and not the standard modus operandi of an organization. Unfortunately management through heroics and drive by management can make it difficult to operationalize a corporate culture used to the adrenalin rush of the last moment.
Finally strategic planning should be an ongoing rather than intermittent activity, ad hoc activity. Ideally, an orchestra-conductor makes small corrections to the harmony rather than having to stop the tune and start again from the top.
Organizations are much too complex to fit into four neat buckets, but it is surprising how this simple model has help me channel my thinking about complex and abstract structures, such as organizations. So, how well does your organization manage the four harmonies and what are your thoughts on the mental model? As always drop me your thoughts, ideally via a singing telegram in four part harmony.
Phrankism: Documentation is a Waste of Time
In World War Two, the British counted the bullet holes in airplanes that returned from missions. Based on where the holes were, they now knew where not to bother putting armour on their airplanes (see this Mother Jones Article).
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Organizational Biology 