Black Swan Farming

Why are people afraid of estimating value?

When it comes to estimating value the biggest barrier is usually our own fixed-mindset. It is our prejudices and perceptions, fears and uncertainties that stop us from seeing what might be. To an impartial observer, it might seem like we have an allergy — where if we were to talk about value in terms of money, or use numbers to help make hard decisions we just might break out in hives or go into anaphylactic shock. We tell ourselves it can’t be done and so we don’t even bother. We also preach these beliefs to others, with convincing arguments based mostly on anecdotes and FUD.

Having talked to lots of people about this, I’ve noticed an interesting pattern in how people respond. People who have been on (or identify closely with) the “order-taker” side of a challenging relationship tend to be by far the most allergic. This is understandable. Unfortunately, in many organisations people in I.T. have been burned (or seen others burned) by rough estimates that were subsequently treated like contracts. When those rough estimates  of course turned out to be “wrong” those contracts then morphed into a stick to beat people with. Expectations were (unintentionally) set and, of course, disappointment followed. Trust erodes. The relationship breaks down. If it wasn’t for the fact that most internal software development is a monopoly provider, the “business” would probably go elsewhere to get what they want.

Change the focus > change the conversation > change the relationship

Some might suggest that it is the presence of estimates that creates this relationship – that it is an inevitable consequence of producing estimates. Whilst I sympathise with this view, I don’t think it’s the case. I have experienced first-hand lots of situations where estimates are simply used as a rough aid to help make difficult prioritisation and trade-off decisions. No matter how we dress up the problem, we simply can’t have it all – and at the very least we have to decide where to start. For this, I can’t think of an alternative to some form of estimation. How else are we to make sensible decisions? There’s no getting around this fundamental problem.

If all parties have a good understanding of the uncertainty involved, producing estimates doesn’t have to lead to an “order-taker” style relationship. I’ve also seen an entrenched “order taker” relationship fundamentally change — but where duration estimates were still a fundamental part of prioritisation decisions. One key difference was that the main focus of the conversation wasn’t on the cost side of the equation, but rather on the value side.

Perversely, resistance to estimating value often condemns us to continue focusing on the cost side of the equation, with all the strange results that produces (big batches, excess WIP, long queues, long leadtimes, cost-cutting etc.). This focus also means that assumptions about value remain hidden. As long as the project is on-time and on-budget does anyone in IT really care about whether it delivers value? I don’t believe this is what anyone really wants.

There is a better way

Rather than attempting to stop the conversations from happening, let’s change the focus of the conversation. Much better to use something like Cost of Delay to get people talking about the more important variables of value and urgency.

Even if we manage to surmount the fear that often prevents us from experimenting with estimating value, we still have another hurdle to clear. The root of this is a romantic belief that “intangible” benefits cannot be quantified, or in any way estimated. I fully agree that it would be wrong to focus primarily on profit or money. But we simply have no business making the tradeoffs we do every day, that have real monetary impacts, without some understanding of the tradeoffs we are making. Focusing on delighting customers and end-users doesn’t mean we shouldn’t attempt to make these trade-offs measurable and consider the likely economic effects of our decisions.

This is often presented as a false dichotomy. If we express value in dollars or some other measurable thing then we will become robots, blindly following a GPS and forgetting to look out the window. This view fails to account for the fact that it is our System 1 that feeds our System 2, not the other way around. Douglas Hubbard wrote an interesting book called “How To Measure Anything: Finding the Value of Intangibles in Business. In it, he makes the following case for why we should push through the barriers and give it a go:

“Often, an important decision requires better knowledge of the alleged intangible, but when a [person] believes something to be immeasurable, attempts to measure it will not even be considered.

As a result, decisions are less informed than they could be. The chance of error increases. Resources are misallocated, good ideas are rejected, and bad ideas are accepted. Money is wasted. In some cases life and health are put in jeopardy. The belief that some things — even very important things — might be impossible to measure is sand in the gears of the entire economy.

Any important decision maker could benefit from learning that anything they really need to know is measurable.”

The issue, as with many things, is the presuppositions we carry with us all the time. It is our mindset, our belief system, that tells us it can’t be done. It is System 1 feeding System 2 with tales based on bad experience. Changing that isn’t impossible, I’ve seen it many times. It just takes one person brave enough to get over the allergy, discard the romantic notion of value not being quantifiable, and willing to give it a go. It may seem crazy at first and it may take some time to see the effects – but it will be worth it.

If you want to give it a shot, you could do worse than starting here.