"Context is everything" - Alvin Gouldner
Today's short Blog (#47) is about context and is a part of the information gathering part of making a big decision. Two examples we are going to think about are the inside vs outside view, scale and complexity.
The Anatomy of a decision
What is context
During information gathering, you would have spoken to people and gathered lots of details of varying importance. Details often give us the feeling of being well informed, but this is often falsely held confidence particularly when in a new domain.
I think of context as the conditions where your information is true. If you were to make the statement 'let's assume every adult can read', that might be close to correct in a society where there is mandatory education until the teenage years. It could also be far from correct where is no mandatory education. Lazy assumptions and a lack of understanding as to when a rule applies can lay banana skins down the line.
The outside view
The outside view
'The inside view is the way people usually think about decisions. They start on the problem and they build the case for a particular course of action. The case often starts with an Excel spreadsheet. You put in numbers and then look into a crystal ball.
The outside view combats a number of biases, including optimism, overconfidence, and anchoring' - Dan Lovallo of McKinsey.
The outside view starts with trying to find broader analogues for your decision. For example, when Youtube realised that the number of hits on a particular video followed an exponential pattern, they found that their best modelling analogues were found in biology (hence going 'viral'). Whilst virology and pictures of cute cats are quite far away from each other, there are often closer analogues. If you are trying to work out how long writing a book in your spare time will take, you can get an outside view by asking other people who have done side projects and how long it actually took.
Outside views require a top-down understanding of your decision and some creativity. Two examples below.
1) Inside view: with so many jobs being lost due to automation, soon there will be lots of unemployed people whose jobs had been automated away.
Outside view is that each time in history a technology removed people’s jobs, another source of increased employment emerged.
2) Inside view: someone working on a project estimates that they get 20% of a project done per day, so they will get it done in five days.
Outside view: all of their previous projects were completed a day before the deadline due to competing priorities, the deadline for this project is in 30 days, so they will get it done in or around day 29.
Scale often means that costs and timelines are much different than you would be able to model in advance if you took small examples and just multiplied them. An example would be if it takes 1 builder, 1 minute to add a brick to a wall and there are 10,000 bricks required in the wall, will it take 10,000 minutes to build the brickwork of the building? We know that it just doesn’t work like that.
Is there complexity in your decision? Complexity is where multiple things are required to go well in order for a project to be successful.
Examples of complexity are scale, number of parties involved, use of technology, reliance on supplies, required authorisations along the way. The problem with managing complexity is that we know it exists but is not subject to approachable mathematics that can help us quantify it.
You might have spoken to lots of sensible people and have a very good understanding of the details (drawing the plans, getting planning permission, carrying out the works). Complexity means that it is less about the individual decisions that have been chunked up, but second order issues. Examples are getting the various stages to link together or having the person who makes the holes for the windows speak the same technical language as the person who measures up and makes the windows.
Why context matters
The reason we care about outside views, scale and complexity is that without thinking about those ideas, we could be severely wrong on key elements of planning.
a) Timelines: Things regularly do not follow the snchronised progress hoped for at the outset which will result in key delays on things that seemed very straightforward at when planning.
b) Costs: There always seems to be unexpected costs, or an increase in costs to secure materials at scale and time (more so than scaling up costs for small deliveries).
c) Mid-process changes: The more complex the project, the more likely the project will need to adapt to new information.
How is this all relevant to decision-making? Here are three take-aways I want to leave you with before we pick it up next week:
1) Information gathering often involves getting lots of details and trying to piece them together for your decision. The problem is that this information needs context. Bottom up forecasts are often out by factors because they have not considered context.
2) Three sources of context is thinking about and getting good information on similar ideas in different industries (outside view), the impacts of scale and the impacts of complexity.
3) Good context upfront will help manage expectations better around cost and timelines and anticipate possible mid-project changes that would need to happen/
Thank you for joining. Next week - 'The problem with numbers'. Don't forget to sign up to the subscription list.
Other blogs in the 'Anatomy of a decision series'