Saturday, April 18, 2009

Planning Constraints

Hypothetically, achieving a desired outcome depends on three independent variables, each contributing to the probability of success: strategy, ability, and knowledge. The value of each variable has two independent components, one related to the activity yielding the outcome and another unrelated to the outcome; treated as a vector, a given amount of effort will at best contribute 70% (the sine of 45 degrees) in the direction of the outcome. The probability of reaching the outcome, the product of the values of the three variables, is therefore 35%.

Not surprisingly, this probability agrees with the high end of efficiency for energy generation in both biological and non-biological systems. In my experience, the amount of effort (often translatable into time) that it takes to complete a project with an acceptable amount of quality is the reciprocal of this probability, about three times the most optimistic estimates (which tend to be the ones used by managers I have worked for). On the flip side, using the most optimistic estimates for planning results in a roughly two-thirds reduction in quality.

If costs and prices in an economy are based on optimism about what is involved in people getting what they want (the basis of demand), it can have up to two-thirds of waste built in to its consumption of resources. There is a built-in incentive for producers to be dishonest and for purchasers to be willfully ignorant in such a system, absent any correcting mechanisms such as laws and inspection by social agencies such as government, investigative agencies such as the press, and employee organizations such as unions.

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