Measurement is a reduction of the uncertainty

In my work I hear quite frequently a lot of smart words. Very often those words are used as a justification to implement one or another project. To keep it short – people spend millions and go through painful change projects because they chase “improved transparency, compliance, control, visibility; increased speed of transactions and operations; reduction in resource intensity; simplified and streamlined processes”. Those are all good reasons. The bad part is – businesses rarely evaluate the benefits in the same units of measure as the price for project implementation. In other words – they simply think it cannot be measured. It is INTANGIBLE.

In the pursuit of attempt to find the answers, I read a book during my recent holidays: “How to measure anything. Finding the value of “intangibles” in business” by Douglas W. Hubbard. Not the best choice for holiday read: according to Lexile framework for reading, it is evaluated at 1240. Almost like reading Stephen Hawking’s “A Brief History of Time”, evaluated at 1290. However, some of the things I found there are brilliant with their simplicity. I would like to share my favourite quotes below.

  • Anything anyone really needs to know is measurable. Including employee morale, reputation, transparency, management effectiveness, value of information, risk of bankruptcy, control and other similar things.
  • Information has a price and a value. The best part is that the initial smallest effort to get the information brings the biggest return on investment (Pareto rules here, too). At the same time, not everything matters. Measure only what is worth measuring.
  • Measurement is a reduction of uncertainty. It is not by any means elimination of uncertainty. To make an informed business decision, you do not need to measure the full population. A sample (representative sample) is enough. Knowing, that it will be impossible to measure EVERYTHING, should not stop you from measuring SOMETHING. Make an attempt.
  • There are a lot of methods to help you measure “intangibles”: focusing of what you know as opposed to what you do not know; decomposing the challenges you are facing; experiments; trials; observations; “catch and re-catch”; measuring traces; historical researches – Google or your colleagues might already “know” the thing you are looking for.
  • Object of measurement is a very important starting point in the process. If you think “improved control” cannot be measured, think of consequences it might bring and measure them.
  • Rule of Five. It sometimes might be as simple as that. Only taking 5 measurements can give you the answer you are looking for (with a confidence of 93.75%). Median of those 5 numbers is the number you are after (Commuting time to work, time on conference calls, etc.). All the difficult details – in the book.
  • Expert judgement (estimation) is also a skill (a tool) which can be improved and calibrated (see here).
  • Categorization and rating (High / Medium / Low) can be very misleading risk assessment methods. Average is not always a good measurement. Compare an average PO value of £516 to a mean PO value of £209. When you are calculating average PO administration costs (£50) per PO in %, the difference is big: 9,7% vs 24%. And now, for the fun of it, imagine you have in total 100k of orders a year… Your priorities in process optimization initiatives for the next year would change, I assume, seeing numbers in different perspectives?
  • “…people do not know how to generate electricity – but they still use it…” There are tools available on the internet and tips to create Monte Carlo simulations on Youtube – almost no excuse not to carry out an assessment when it is really needed.
  • Errors do happen. Intentional, unintentional, systematic, random – you need to keep that in mind when you are trying to estimate anything. By understanding sources and types of errors, you can minimize or eliminate them.

In my experience, I have faced some situations, which looked intangible. Some of the examples where I managed to measure and take action:

  • Economical cleaning efficiency in food retail restaurants and food factories;
  • Organisational structures’ economical efficiencies comparison;
  • P2P systems expected financial benefits versus costs;
  • Behaviour change projects expected efficiency versus costs of change program.

Did you manage to measure something that was considered to be “intangible”? Please share your experience in comments! I would be grateful for examples and I am pretty sure many of us would learn quite a bit!

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Measurement is a reduction of the uncertainty

If I had to put my money on it…

One sentence. That is all you need to reset your brain from simple biases (a.k.a. mistakes in other words). But let’s start from the beginning.

To sum up, logic is not that straightforward

It all started during my holidays. I thought I would do some reading. Which I did. But, besides giving me some tools for my work, the book also challenged my understanding about humans being logical creatures. The book (“How to measure anything” by Douglas W. Hubbard) also talks about perceptions and games that human brain plays. It talks about classical statistics and Bayesian statistics (I am preparing a book overview for my next post. This post is about my experiment).

One of the phenomenons that the book describes is how various biases affect people’s decisions. How perceptions win over logic (say what???). How people choose to believe few pieces of new information and disregard all of the data and facts that they have at hand historically. Having read that, I felt almost insulted for all of us. Oh my saint naivety!

Off to experimenting!

So I decided to test the methodologies and experiments, described in the book. I took exactly the same question, which was used in the book and started asking people around me: “there are 100 specialists in the room. 95 of them are criminal lawyers and 5 – paediatricians. One person was selected randomly. It turned out to be Jane. Jane likes science and she loves kids. What is Jane’s occupation?”.

I started with my partner. First big surprise! On the other hand… knowing how he bought mascara for me… I decided I needed to increase the sample. I tested it with one of my CIPS class students and I was also surprised, again. The final step was to broaden the audience and get the feedback from more people – which I did with a LinkedIn post. I have received many different replies:

  • Statistically most likely. Lawyer. There, I said it – most likely, Jane is a lawyer.
  • Statistically less likely. Paediatrician. This is the grey area. It is not entirely incorrect answer. Explanation will follow later in the text.
  • Different: politically correct, challenging, sensitive, thoughtful, show-off. Knowing, that everyone is first of all a human with a personality, before becoming a professional – you would not expect anything less, right?

Overall the conclusion is one – people are not statistical machines and they are always prone to biases. The book was right. I was wrong to think that people, as a rule, are logical.

The theory

The reason why I avoided to give “the right” answer is complicated. Even statistics is not that straightforward. There are different approaches to it. The book analyses two different approaches – classical and Bayesian.

Classical statistics makes two assumptions:

  1. The data you are analysing has normal distribution.
  2. You know nothing else about the phenomenon you are analysing apart the data you are given.

Needless to say, both of these assumptions many times are wrong. Bayesian statistics, on the other hand, says that whenever you are making a [business] decision, you should take into account (or not ignore) other available information.

In the example given above, you have two portions of information: 95 criminal lawyers and 5 paediatricians; and some new information – Jane’s personal characteristics. Which piece of information do you choose to believe? Which part is more facts based and which is more biased (“standards”, sales and marketing statements, clichés)? That is up to the specialist to decide.

The Application

If you think this is not relevant to you, you are wrong. It is not just a story from a book:

  • Remember every time you hear a sales pitch of yet another P2P system, which “will solve all of your problems”.
  • Remember all the times, when you get a feedback, based on wrong biases and assumptions: no matter if it is recruitment process, annual performance feedback meeting or any other type of feedback.
  • Remember tender evaluation process. I have seen too many tenders, where all of the historical information about supplier performance is put aside, purely because during the tender the new sales team made a great sales pitch. A supplier was always late and delivered poor quality service? And you choose the same supplier again because the sales team promised that everything will change? It is up to you to choose what you believe.

People make decisions based on biases and perceptions more often that they think they do. Scary?

The Fix

There is a fix to it! And it works! I also tested it on myself and my test groups. Almost ALL people who initially chose paediatrician as an option changed their decision when I asked this question: “If you had £1000 and had to put it on your option – what would you do?” (That is also a suggestion from the book). If they had to put their own money on one of the options, they would choose lawyer.

Without going into details, I will sum up: if you are asked a question and you want to give a more confident reply, start it by saying “if I had to put my money on it, I would…”. It is proven, that this helps to re-calibrate your brain. You might still choose the same option, but by saying that, you switch on a different part of brain – that means your reply will be considered from different perspectives.

My reply to the tender evaluation could be: “If I had to bet my money, I would say that the supplier will continue being late, despite what they claimed during the tender. However, even knowing this, I would recommend awarding the contract to them. It is a risk that we already know about and we need to work on it together with the supplier. Instead of being undefined threat, it becomes an action plan and, potentially, a strength”.

 

Hope this is helpful. I thoroughly enjoyed receiving the answers to my question on LinkedIn. Thanks to everyone who contributed! Thank you for reading!

 

If I had to put my money on it…

Estimation accuracy is a skill: here is how you train it

One of the first things many of us do in the morning is stepping on the scales. You know, just to get the reassurance of how beautiful we are (ha ha, very funny!). I knew “tricks” for all of the scales I had. Because there are mornings, when the last thing you want is the harsh truth on the small LED screen under your feet. On those mornings, I knew that all I had to do was either lean forward or stand on my toes, or lean on something slightly using my hands.  I know, I know, I know… not fair, not accurate, “not” many other things. But what if I feel like it? And I am pretty sure many of you recognize what I am talking about. It’s called bias. Whether deliberate or unconscious – it is still bias. It will impact all of our estimations.

One thing is deliberately choosing to see the “lighter” version of the truth on the scales every morning. Another – making business decisions on inaccurate data. And I am not talking only about multi-million projects. Everything starts with small every day habits. Some examples:

  • Time planning. One option – being always late (arriving later than promised); second option – arriving always too early.
  • Budget planning. Making assumptions on spend, sales, growth, etc.
  • Selecting savings opportunities to be pursued – prioritising initiatives and projects.
  • Negotiation planning: estimating your own and your negotiation partner’s positions.

Making any assumptions or estimations at all means exposure to a human bias. I knew people have the tendency for overestimating or underestimating things, but it never occurred to me, that you can:

  1. Measure it.
  2. Calibrate it.

Yup, that is right. The rule “if there’s a will, there’s a way” works here, too. It is called confidence calibration. It is a skill and you can train and improve it. You can find some more detailed information here and here. The vast information pool on the internet offered a tool which I tried out on myself. Turns out, I am quite on spot if I know the subject and I am being rather “safe” (underestimating, leaving some space “just in case”), if I am uncertain.

This has helped me to increase the accuracy of my estimations. Furthermore, the old scales broke down and I am still working on finding ways to befriend the new ones. Would love to receive your feedback – if you try using the confidence calibration tool, that is. Oh, and any scale “calibration” tips would be highly appreciated.

Estimation accuracy is a skill: here is how you train it

Types and levels of proofness

For instance, I blog under Futureproofitable: that is future proof and profitable in one word. You can buy things cheap. But if they are of no use – you are not getting far as a business.

The same rule applies across all of the organisations (private or public). You can have the strongest Procurement processes and function in place, but if the decision itself to buy something is wrong, then nothing can save you.

There are few levels of proofness, as I categorise it:

  • Idiot proof: if you know there is a risk of completely failing at the task or a project, just do not do it.
  • Future proof: you know there is a risk, but you choose to address it in advance.
  • Future proof and profitable: you know there is a risk, you choose to address it in advance in a way so that you can turn it into revenue stream in the future.

I will be sharing more examples in the future as I come across them. Today, I already have a bit of a library gathered. Here’s one example.

A PFI object. A health institution. You would expect the highest standard of cleanliness and hygiene. And still… you come across an artwork hanging from a ceiling like this:

ceiling art.jpg

Can you think of all the things that can go wrong? Cost of cleaning it? More like not affordable to clean? And if you cannot afford to clean it – what kind of risks are you exposing everyone to?

What has that got to do with future proofing? Here you go:

  • Level 1, #idiotproof: don’t do it. Just don’t. It adds no value, costs a fortune itself, the maintenance costs even more; without maintenance – it becomes a source of various risks.
  • Level 2, #futureproof: make it machine washable. I am not suggesting I know HOW to do it. But if you really need it in the first place – make it machine washable.
  • Level 3, #futureproofitable: make it machine washable “hall of fame”: hang a small artwork in the name of everyone who has contributed through charity to the purpose of the object.

Do you have any examples like this?

Types and levels of proofness

RF-Spy: Procurement on a Mission

I am on a mission. Yes, this is what I think every time I start a review of a project or a spend category – I am on a mission. I have a goal in front of me: to do whatever it takes, to get the best result. I was discussing with my colleagues, what should be the starting point for the procurement process. I heard many replies. The most frequent reply was – RFI (request for information) is (or should be) the first step. Not for me. I start with a game my kid taught me: “I spy with my little eye…”

The understanding on an RFI varies. Wikipedia says it is “a standard business process whose purpose is to collect written information about the capabilities of various suppliers. Normally it follows a format that can be used for comparative purposes… sent to a broad base of potential suppliers for the purpose of conditioning suppliers’ minds, developing strategy, building a database and preparing for an RFP, RFT, or RFQ”. The key negative aspects of this definition to me are “standard”, “comparative”, “written information…to condition suppliers’ minds”. How can you choose a standard method of measurement, if, at the point of going into the market, you do not yet know what you are looking for? How can you aim to compare outcomes, if by default, RFI stage should allow you to collect completely different methods, business cases, options? How can you gauge someone’s minds over standard ten page questionnaire? By the time any supplier reaches the end of such a questionnaire, they hate you anyway. You need a dialogue to gauge someone’s mind, views and approach. RFI is a one way street.

I have asked our colleagues over LinkedIn post (big thank you for those who responded): “what is the real purpose of RFI for you?”. People use RFI:

  • To be sure the supplier is able to fulfil the needs.
  • To validate assumptions, prove or disprove hypothesis.
  • To validate buying organization’s requirements.
  • To develop buying organization’s requirements.
  • To ensure transparency and business ethics.
  • To assess suppliers on qualification requirements.
  • To capture the information for short listing purposes.
  • To make sure everyone is given a chance to participate.

Ultimately, RFI is a communication method. It is neither good nor bad. It has to serve the purpose of what you want to achieve:

  • To check suppliers’ financial capabilities? Choose independent information sources instead.
  • To “condition suppliers’ minds”? Choose a meeting and/or a conversation.
  • To evaluate supplier’s capability to fulfil the needs (quality, capacity)? Choose supplier audits.
  • To act ethically and transparent? Do it, instead of talking and making manifestos about it. Inviting two hundred suppliers (fine, slightly exaggerating) into a RFI / RFP process is expensive, not transparent. You don’t trust your own employees? Well, you already know what’s coming next – why do you employ them in the first place?
  • To make sure the supplier’s project team will see through to the end of the project? Ask for staff retention statistics, not for a standard list of CVs.
  • To find out what is happening in the market? Do your researches. Nobody these days can complain of lack of information.

It might seem funny (or silly – I do not mind calling things their real names), but I tried to find “instructions for spying”, “private investigator processes” and similar keywords on the internet. You know, to validate if my work principles are any similar to the real spy games (fine, I have been watching too many movies, I know). And I did find things. Mostly, governmental process descriptions, and they were of not much use. However, I did come across some indications. Mostly those were lists of tools that they can use, based on the situation and their own expert judgement. Yes, the tools can be standard, but the combination, that you use, is what makes it unique.

Because of this approach, I choose to do my homework (the spy game) first. Then, when I know my alternatives, I issue pre-qualification questionnaires (if there is anything else that I still want to ask the suppliers and it was not validated during my homework stage). Getting onto my first stage long-list (which is no-where near 200) is already an achievement. And there is no need to question my motivation: I represent business interests. Making sure, that procurement process is not too long and not expensive is one of the objectives. Political correctness? I choose to be polite instead. Those suppliers, who were not invited to the process, should appreciate that I respect their time and choose not to waste their resources by dragging them into a process if I know they are not suitable for it.

Do you have your own unique approach to this? Please share in the comments below!

RF-Spy: Procurement on a Mission

Five Things to Do to Delight, Keep Happy And Not To Annoy Your Stakeholders

The ultimate measure of what we do is the stakeholder satisfaction. The subject is much wider and more complex than you could think. And very frequently it is underestimated in importance. Try to think about aligning your demanding boss’s expectations to devote as many hours for work per week as possible to the expectations from your partner to spend more time at home. Difficult, right? Now multiply that several times to reflect every day business situations. It starts looking like one of the Fermi questions: divide the price of a Nike men’s Dual Fusion sneaker by the price of Burj Khalifa, for instance. Don’t worry, you are not alone – I do not know the answer, either.

Delighting, Performing, Fulfilling basic needs

Searching for ways to evaluate and prioritize areas of focus, I came across Kano model. You can find detailed explanations about it here. To sum up, Mr. Noriaki Kano was studying customer satisfaction and realized, that the features (of a system, a product, or a solution – any deliverable you are working on) have different reactions from the customers (or stakeholders, in our case). Some of them deserved bland “meh” reactions, while the others got stakeholders excited.  Kano model divides all factors into “basic needs”, “delighters” and “performance needs”. It is relatively self explanatory, as per the picture below.

report kano

Think about all of the reports and slide decks you are preparing. What do you think your manager and other people around you think about quality and the quantity of the report slides? If you report nothing at all, most likely people will not be happy. But when it comes to the question of how many slides you prepare – do you really think, that getting a deck with 64 slides instead of 5, will make your manager much more satisfied? Think again. However, if we are talking about the quality (yes, I know, a very subjective topic), it works slightly differently. All the things you can improve, will add to the end result – satisfaction. And, any level of over delivery, which is perceived as adding value, will have much bigger impact on satisfaction.

So what do you do to delight the stakeholders, keep them happy and make sure you are not messing up by forgetting the simple things? Continue reading…

1.    Understand the needs. I mean real needs. Ask “why?” several times. Do not settle for mere “because” or more sophisticated “because I said so”. “We need to increase compliance to Preferred Supplier List”. Why? “Because it increases benefits to our company”. How? “Because we get rebates from companies on our PSL.” (my personal opinion about rebates is here). So is the main purpose to get benefits for the company, right? Would it be OK to get them in other ways? “No.” Why? “Because then those benefits would not be allocated to our department and our performance is measured on that”. What if the goals and objectives were reviewed to represent proper focus and motivation? “Then I agree with everything you are proposing.” This was a real conversation. Two conclusions can be made. One – the system of setting company and personal goals and objectives needs to be reviewed. Two – the real need is to deliver benefits to the company, and not to comply to PSL whatever the cost.

2.    Understand the type of the need. Once the needs are identified, you need to understand how they will influence stakeholder satisfaction. The example with report slides is mentioned in the text above. It is important to understand the business you are in. Consider savings. In many occasions, you would think, that it is a linear progression. The more you deliver, the happier the stakeholders. Not always. Think about long term contracts where you have to deliver a certain percentage of savings year-on-year. This will motivate procurement managers not to do their best in year one – because they will under-perform during all further years. And if you add gain-share / pain-share models, it gets even more complicated. Imagine your savings target is £1m and if you do not deliver it, you get penalties of the size of annual management fee. That becomes your “basic needs” curve. You have to deliver one million – whatever it takes. But you can’t really care less about everything over it. If you are using gain share model with a cut-off line at the same £1m, after which you get 50% of savings, you will do your best to hit your maximum best, but everything above the threshold will make your CFO your best mate.

3.    Make sure you deal with basic needs consistently. Deal with those tasks quickly to remove them out of your way to focus on really important things. Do not waste additional effort on them – they do not bring additional satisfaction. However, you cannot leave them to be finished last – because not delivering on them will mean failure overall. Are you a contractor? Do you need to submit time sheets and invoices weekly? It’s thirty minutes and a bit of discipline to do it on time every time. Or else – payments will not be made, they will be delayed or / and you will have additional headaches to bring everything back in order.

4.    Work hard on performance needs. This is the part which earns your bread and butter. This is where you know that everything you put in, will come back to you.

5.    Always find some time for tasks that are not on your job description. Study. Improve. Do a favor for a colleague in need. Speak up during the meeting, if you think (or even have evidence) your opinion would make the difference. Those are your real investments into your future. Everything you do, you do it for yourself. Remember this and those few extra hours a week trying to learn endless boring 6sigma formulas will no longer seem wasted. Ehrm… I am just trying to convince myself here. But you get the point.

Hope this helps to understand why the same effort you put into different things is perceived differently. It’s Friday (as usual; I like posting on Fridays). And today’s list is simple: A. as a minimum, not to forget to collect my kid from the school (I will surely be in trouble if I do not do that); B. Cook Friday dinner for the family (it’s what we do); C. Open cold beer and switch on (and…leave it on) football match for my partner. That should guarantee some brownie points 🙂 Thank you for reading!

 

Five Things to Do to Delight, Keep Happy And Not To Annoy Your Stakeholders

Conference calls: cost saving or addiction?

Conference-call-mad-world

I looked at my calendar some time ago. Did some maths and was slightly shocked. More than 75% of my week was various conference calls. Then I picked up my head, had a good look around the office and realised, that I am not the only one. Welcome to the conference-call-mad-world.

How did it happen?

I wish I could say procurement had nothing to do with it. Maybe it did; maybe it did not. Time and technology progress brought innovations for the business and the way how people communicate. And, surely, there must have been a smart indirect procurement manager who picked it up as a savings opportunity. A lot of travel policies these days have instructions to think before travelling if the face to face meeting could be replaced by a virtual one. Everyone understands how to estimate the cost of face to face meetings – or, at least, the part of the costs which show up later on invoices. Therefore, being able to swap it for a solution which, at the first look, costs only a fraction of all previous costs, seemed like an amazing idea.

The side effects

Everything in life is relative. On one hand – high costs of the meetings are not desirable for businesses. On the other hand – it had a very big advantage: realising the price of the meetings, people were preparing for them much better, they used the meeting time much more productively and they used to appoint them much more responsibly. Removing this “cost barrier” brought a whole bunch of side effects:

  • People started having virtual calls right, left and centre, without any good reason or purpose – “it does not cost anything” …
  • People started inviting whoever they can remember into the calls – “it does not cost anything” …
  • People “forgot” or ran out of time to prepare for the calls: “we will work it out during the call – it does not cost anything” …
  • People do not follow up on action plans after calls – “we can always arrange next call to discuss what were the outcomes supposed to be from the previous call… it does not cost anything” …
  • Not to mention “pre-call calls”. You know, when you need to agree what you will be talking during the actual call…
  • People stopped doing actual work, because they are… busy with calls…

People got addicted. And when it comes to conference calling, there is no such a thing as “light drug”.

The outcomes

Meetings with no decisions or action points. No decisions or deliverables or actions outside of the calls, because there is no more “outside of the calls” time left… Next level multitasking work, while being on mute. The whole generation of office staff, addicted to conference calls. It sometimes really feels like there are many people, who crave for conference calls just like for a dose of drugs… Oh, and most importantly – costs. That not-so-smart indirect procurement manager, who claimed savings some time ago, did not think about everything. Now the costs of inefficiently used (or, as you might say, efficiently wasted) time are tens, if not hundreds, of times bigger than travel costs were in the first place.

Recommendations

  • Put down the phone. Seriously. You are reading an article while “listening” to the conference call. It means the call is not that important. Put down the phone.
  • Cancel a call, if it does not have any agenda attached to it. Or if the objective is not clear.
  • Cancel a call, if you were not given the contents or material in advance of the call. Everyone should know the subject before the call. The call is to discuss the subject – not to read the slides.
  • Reduce the frequency of all regular calls twice.
  • Review the list of invitees. Remove people, who only need to be informed of the outcomes – they can read 5 sentences summary on an email.
  • If people are not participating – they should not be on the call.
  • Consider all other work efficiency tools: task management systems, document management systems, team cooperation tools. Meetings and calls have to be there to discuss issues, alternative options (which are analysed in advance) and make decisions.
  • Consider meeting efficiency KPIs. I am not joking – a company I used to work for, had a tool to monitor how many action points were agreed during the meeting and what kind of decicions were made. Big deviations from “norm” were questioned.

Has your calendar turned manic with conference calls? Are you in a closed circuit and do not have any ideas how to get out of it? Share your questions in the comments below and I think our colleagues on social networks will be able to help! Thanks for reading. Even if you did it while listening to someone boring speaking on the other end of another conference call…

Conference calls: cost saving or addiction?