A Well Defined Problem Is Half Solved

Albert Einstein said, “If I were given one hour to save the world, I would spend 59 minutes defining the problem and one minute solving it.”

With few exceptions, we start solving problems before we have rigorously defined them. Sometimes that works but most times not.

The problem solving material you can find is actually solution finding technique. Not the same thing. Solutions are related to action while problem defining is related to what someone acts upon, why do it, with what resource and in what time frame. That is strategic thought as opposed to the tactical thought of the solution.

Colin Powell has stated that the information you need for a solution falls into the range 40% to 70% of all that you could have. Under 40% you are guessing too much, over 70% you are trying to be too perfect. That is a good guideline if you know exactly what the problem is.

When you do not know, and in the beginning no one really does know, you need to think it through. I recently saw this piece and while it is a long one, the process it describes is a good one. It is aimed at business strategic problem solving but with some adaptation it can work for personal finance and even problems like lawn mower replacement.

Are You Solving The Right Problem. Harvard Business Review

The article itself is more than 5,000 words long. The author Dwayne Spradlin is the president and CEO of InnoCentive, an online marketplace that connects organizations with freelance problem solvers in a multitude of fields. Obviously Innocentive will need to be able to describe the problem well or no one can know how to answer.

A quick summary of the method for the ADHD crowd:

The Problem-Definition Process

  • Establish the Need for a Solution
  • What is the basic need?
  • What is the desired outcome?
  • Who stands to benefit and why?

Justify The Need

  • Is the effort aligned with our strategy?
  • What are the desired benefits for the company, and
  • How will we measure them?
  • How will we ensure that a solution is implemented?

Contextualize the problem

  • What approaches have we tried?
  • What have others tried?
  • What are the internal and external constraints on implementing a solution?

Write the problem statement

  • Is the problem actually many problems?
  • What requirements must a solution meet?
  • Which problem solvers should we engage?
  • What information and language should the problem statement include?
  • What do solvers need to submit?
  • What incentives do solvers need?
  • How will solutions be evaluated and success measured?

In my experience, the “Is the problem actually many problems?” question is the one that destroys casual problem solving. It might well be the first thing you want to address.

As you will find in the article, the approach often results in problems being solved by people with skill sets well outside the expected problem area.

The Solar Flare Problem

NASA needed a way to predict solar flares to protect equipment and people. Its model provided a 4 hour lead time and 50% accuracy. They wanted a better model. With a well designed problem, a semiretired radio-frequency engineer living in rural New Hampshire developed a model that provided an eight-hour lead time and 85% accuracy. He was awarded $30,000 for this solution. There are other examples in the article.

What you can expect from using more rigorous problem defining methods:

  • Find important underlying relationships
  • Eliminate extraneous material
  • Find the focal kernel
  • Find a time line

The message for us all. If you define the problem well, the well-defined problem will give you insights into a method of attack and it will do so more efficiently than “adaptive management.” A euphemism for trial and error.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Hotrods, Lear Jets and Hospitals

What do drag race cars, Lear Jets, and hospitals, have in common?

If you ask drag racers what is the most important thing, they will say, “Go fast in a straight line.” Every other choice for vehicle construction and operation becomes inferior to that. Comfort is not even considered.

Before developing the Lear Jet in the ‘60’s, William Lear observed something interesting. After two hours in the air, passengers most valued “getting there.” So, he built a hotrod executive jet. It was not luxurious, because luxury was merely a convenience. He focused only on the customers’ principal value – getting there sooner. His jet was the fastest and it was the cheapest both to buy and to operate.

Focusing on a single purpose may simplify healthcare issues. Why???

Hospitals have an unaddressed problem. Value decisions get weird when the user of the service (patient) and the people who pay the bill (governments) are disconnected.

Users of the service, who have access to price, are the only ones who can objectively judge value. Everyone else uses a proxy of some kind.

Without the bill and the pain of paying it, patients employ an unpredictable proxy. “Good value” will be present if they get better, staff is friendly and instantly available, or the many (maybe unneeded) expensive tests are done quickly and effortlessly, or there is a comfortable bed in a cheery, quiet room, or the food is acceptable, and visitors are welcomed. Probably some combination of these with unknown, or worse, ever-changing, weighting of the parts.

Administrators use other proxies for value. 1) Not too much complaint from the patients, 2) Achieve budgets, and 3) Hit target wait times.

No one is doing wrong. They are just using different ways to decide how they are doing. Boards usually act in the best interest of the patient, while administrators act to satisfy the bill payer. Nurses, doctors and other staff try to satisfy both – a perpetually failing proposition. All act in good faith and do as well as possible within the parameters of their jobs. They just do not see the same purpose.

When we see that the values used are inconsistent, we know the strategic vision is incomplete or wrong. We need a common focal point.

Just as with hotrods and Lear Jets, the users need to answer a question. “What do you value most?” In a hospital, the likely answer is, “Nothing is better than getting better.”

Hospital administrators would do well to focus on that single important thing and address less attention to resource consuming conveniences that minimize complaints. As an example, it is unacceptable to accept an increase in the number of c-difficile cases that result from budget-balancing reduction of maintenance.

In the end, focusing on the important value makes patients happier and costs less.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

What’s The Greedy Algorithm?

Many people instinctively use a greedy algorithm to solve problems, but they should have no expectation that it will generate optimal or even good results.

Back in the depths of history, I took a course in operations research. Essentially the process of applying mathematical analysis to real world problems. One of the interesting parts was the Greedy Algorithm. It is the process where you choose the most expedient next step without consideration of other possible solutions or even how you got to where you are.

Some (even most) multistage courses of action can thus never be implemented because the correct first step is not as expedient as some other one. This flaw means that the greedy algorithm can perpetuate or even create problems.

For those with short time frames, it’s attractive. “We are going to do this now and we will deal with any problems that arise, if and when they arise.” Bias to action. Sometimes they say it even when the future problem is known and certain to occur.

Micromanaging is an indicator. You can make all the decisions if you only think one step at a time.

The algorithm can sometimes generate the unique, worst-possible, answer. The “traveling salesman” problem, where you are to find the best way to visit a list of customers, is one. Take the closest next seems obvious, but that choice system will always generate the unique worst route.

When the algorithm fails, it is because an early, right-looking step did not lead to a good final solution. Failure compounds because people tend not to go back and restart. Often that choice is unavailable. Lovers of greedy usually attack the newly observed problem in isolation and again use the greedy algorithm to solve it.

Partly solved problems thus become chronic. There are problem types where it works. (matroid, if you care.)

The worst part of this is that using the greedy algorithm denies you the ability to learn. Because the breakdown appears later, sometimes several steps later, you only learn to avoid that step and there may have been nothing wrong with it. Nothing tells you to stop using the failure inducing first step.

A mistake is your friend, but only if you learn something of value from it. In this case, Gordon Gecko was wrong. Greed is not good.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Strategy But No Tactic

A strategy not implemented remains a dream

Smoking Costs How Much??!

Fundamentally, the world is a fair place.  The more you smoke, the less time you are required to do it.  Maybe a good thing too, because your potential retirement fund will be harmed.

Here’s an example.  Suppose:

  • You are a 30 year old male smoker in otherwise good health.
  • You earn about $75,000 per year and have a family.
  • You have determined that your financial situation would require life insurance of $1,000,000 to resolve if you died.
  • You expect that problem will go away by the time the children are grown.  Call it 20 years.
  • You buy 20 year term life insurance.
  • You think of yourself as a moderate smoker – about 100 cigarettes a week.
  • You invest in a balanced portfolio and expect to earn 2.50% over the inflation rate, and you think inflation will be 3%.
  • You would and could invest in an RRSP if you had extra money.

If you cancel the insurance after 20 years and quit smoking the same day your RRSP will be short $530,552.87 at age 65.

If you did not quit smoking when you cancelled the insurance, it would be short by $747,840.09.

It is truly unpleasant if inflation is 4% instead of 3% – $1,037,790.70 short if you smoke to 65.

The cigarettes are the big piece, but the insurance is not insignificant.  $1,000,000 of 20 year term costs $140.40 per month for a smoker and $74.70 for a non-smoker.

A non-smoker who is 42 would pay $141.30 (same as our 30-year-old smoker) for the same million.  Pay attention, they are trying to tell you something here.

The lost capital because of the insurance price difference, even if you cancel, is about $90,000 in the 3% inflation example.

If you decide to keep the insurance longer than 20 years, at renewal it costs $1,440 per month versus $700 for a non-smoker.  Many people have a fatal heart attack when they see the price of renewal so maybe that is not really an issue.

Everyone’s situation is different, so your mileage may differ.  But the general direction is clear.  To stop smoking is not fun, but it should be considered.

Personally, I liked smoking.  I quit in Scarborough, on Tuesday, June 25, 1985 at 1:55 in the afternoon, not that I’m counting.  I have not had even one cigarette since.  I still miss it a little but not as often.

Sadly I didn’t put the money away.

Maybe you can be both smart enough to stop smoking and smart enough to put the money away too.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.  don.s@protectorsgroup.com

Fuzzy Logic

We don’t always know the thought processes that underlie our intuition. The very real risk is that if those thought processes are limited, so are we.

Our world is non-linear. That does not mean it is curved, that means that the connections are not as they seem. Cause and effect are not tightly connected, outcomes are not proportional to inputs and there is far more to know than we do know.

We are like Spock. We trust logic. But, also like Spock, we trust only a single logic system. Socratic logic. There are others and they may be more appropriate as the real world becomes more complex.

Most of our intuitive thought processes are based on classical ways of thinking. These are “right,” but only within the designed context.

  • Euclidian geometry is quite accurate in small spaces. It is not accurate at all in large ones.
  • Newtonian physics won’t describe atoms or galaxies but it works very well in Omaha.
  • Socratic logic works quite well in simple societies or in computers. It is less perfect in large and differentiated societies.

Today I want to look at how Socratic logic leads us away from the non-linear world.

Socratic logic deals with truth and not-truth. There is no room for variance. A thing is true or it is not true. The law of the excluded middle says it must be one or the other. That limit is not as big a part of other systems. The real world is certainly not like that.

Most Asian societies developed from another logic system. They find and analyze “truth” differently than we do. It is not hard to see why we cannot always communicate effectively. Asian philosophy and logic is more subtle. They can accommodate more depth or maybe it is the continuity in the space between true and not true. There is no excluded middle. Consider this.

A stapler is not a hammer. But it has a certain “hammerness” about it. How many have used one to hang a calendar? A log is not a chair, but around a campfire, it has a certain “chairness.”

These violate the law of the excluded middle, yet we understand hammerness and chairness intuitively. They are outside the Socratic logic box. Unfortunately this type of intuition is not always operational. We tend to revert to contrasts for decisions. Truth and not truth. Included or not included.

We develop the idea of polarity or opposite as ways to describe, simplify and decide. As discussed a few days ago, these extremes become tokens. Part of the essential meaning disappears in the summary. Liberal-Conservative, right-wrong, black-white may be a good way to compare and contrast, but they are not sufficient to think about complicated situations.

It is possible that Asian logic may be more suited to complex societies. For them, the true-false contrast and the excluded middle are strange concepts. An Asian does not see black as the opposite of white. The opposite of white is not-white, thus “It is a black and white decision” has little meaning. For us it seems clear, but the high-contrast presentation forces us to ignore other more subtle choices.

Variations like these can make it hard to communicate with, or even understand, someone who does not share the intuitive background of thinking.

Language structure and vocabulary limits what you can say and it limits how you can think as well. Even art and music are affected. “Asian Picasso” Chinese artist Chang Dai-chien art sold for $506.7 million in 2011.


Clouded Mountain By Chang Dai-chien does not look the product of western thought.

Western classical thought processes require a limited world. Fuzzy Logic began with the 1965 proposal of fuzzy set theory by Lotfi A. Zadeh at the University of California, Berkley. It is worth the trouble to introduce yourself to it.

In a non-linear world, you should be very careful before deciding that the two ends of the contrast scale are the only choices. Somewhere in the middle may lie workable fuzzy logic as opposed to classic logic. For many, that is all that creativity is about.

Am I Paranoid Enough?

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” Alexis de Tocqueville

It appears that this discovery has been made. The only question left is “How will the American Republic cease to endure?”

  • Income in total and per capita will fall or rise or stay the same?
  • Accumulated wealth grows or shrinks?
  • Opportunities increase or decrease?

These are the resources for the bribe. If resources fall, or even fail to grow enough, the bribe system will stop and people will be disappointed. Like in Greece. Another version is in our wilderness parks.  “Don’t Feed The Bears”  Once you start, you have a problem. Don’t feed the bears because there is no way to explain to them that you have run out of cookies.

This reasonably leads to questions like

  • Civility increases or declines?
  • Government intrusion in day to day life increases or decreases?
  • High inflation? Maybe hyper-inflation. Printing money works for a while.
  • Confiscation of hard assets like gold, silver and diamonds.
  • Capital controls on removing assets from the country?
  • Nationalization of businesses, banks and other wealthy institutions?
  • Inability to defend borders and allies?

In the end game, what is there?

  • Martial law imposed to control strife?
  • Country fractures into smaller pieces?
  • Rise of “city-states”?
  • Foreign Intrusion?

I suppose there are many more metrics and questions.

I cannot see how this ends well, but then I have a fairly defined viewing point (according to some, a little to the right of Genghis Khan) so I cannot see the good that could arise from the bribes. Feel free to help me.

In my simple mind, it boils down to one observation. If someone gets something for nothing, someone else must get nothing for something. I don’t see the nothing for something crowd putting up with that if it escalates. Certainly not forever. If they do, in the long run they will have nothing too.

I wonder when, and I wonder how, it will affect those of us who live in Canada.

Kill Them While They’re Small

Math professors love to hand out problem sets.  Many a weekend was consumed resolving these.  One of my friends pointed out that problems are only problems if you don’t know how to solve them.  If you know how to solve them, they are merely questions.  The distinction is true outside the walls of a university too.

We get confused some times. We fix things that are not broken and apply difficult methods to easy questions.  For example, as Harvey MacKay has pointed out, “If you can solve a problem by writing a cheque, you do not have a problem, you have an expense.”  Too bad they are not all that easy.

Problems without known answers, come in two forms.  Big enough that you must deal with them and small enough that you can ignore them.  The trick is to know the difference.  Right?

Probably wrong!  It is the “ignore” part.  A problem you can ignore forever is not a problem to begin with.  I routinely ignore the traffic problems in New Delhi even though it ranks 5th in the world for traffic congestion.  So far no adverse consequences.

Small problems that you ignore, but cannot ignore forever, accumulate.  Eventually you have a large bag full of them and the bag takes on a life of its own.  Jordan Peterson at University of Toronto contends that stress results from the the accumulation of small undone tasks.  A bag of small problems is itself a big problem.

You cure the big bag of small problems issue by using two criteria:

  1. Can I ignore this forever?   if yes, ignore it forever.    if no,
  2. If it were a hundred times bigger how would I deal with it?

The 100-times bigger problem must be solved.  Understanding how you would relate to it at that size, will give you insight into how to remove the little problem.   For example, warranty claims when you could redesign a part to cure the problem.  Then  you must act on it and empower systems or people to keep it at bay.

As you do this, you will find that it takes less time than the ignoring method.  Remember that the ignoring method keeps issues coming at you while the solving method is done once, done forever.  (Well almost that good)

Once in a while, certainly not every time, facing down the little problem, gives you insight into what could have become a big problem in the future.  Even more rarely it gives you the insight into an opportunity.  The rare occurrence of these will pay you for all the effort elsewhere.

Killing big problems while they are small is a competitive advantage.  Use it.

The Laffer Curve

Who knew that Arthur Laffer’s description of how tax revenue changes with rate applies to golf, exams, public speaking, and music recitals?  It does and it’s obvious once you see it.

Arthur Laffer was an adviser to Ronald Reagan on tax policy.  He pointed out that tax revenue depends on two things.

  1. The rate charged (the thing media people understand) and,
  2. The base to which it applies (usually ignored)

Rate x Base = Revenue.  Pretty obvious really.

Since revenue depends on two things raising the rate, by itself, will not necessarily get more money for the government.  At least not beyond the short run.

The government can manage the rate, but the taxpayers manage the base. If the new rate is offensive, the taxpayers will amend their affairs so less base is exposed to the new rate.

Laffer’s observation is that there are always two tax rates that will raise the same amount of revenue.  For example 0% applied to a large base raises nothing.  Similarly 100% applied to a base that has disappeared raises nothing.  As rates travel from 0% to 100% there are intermediate rate pairs that generate the same revenue.  A and A* in the graph below.

Don’t fall in love with rates.  They alone will not raise revenue once people adjust.

If you are interested in the economic ideas for the Laffer Curve, you can find a reasonable discussion about this here.  Don’t Knock the Laffer Curve

But, how does that affect me when I need to make a 6 foot putt or write a chemistry exam?

Change the image so that the axis tax revenue$ becomes your mark on the exam or the probability of making the putt or setting a new best in the 200m dash.  Performance improves moving left to right.  On the Y-axis, up and down, change the tax rate% to be your level of excitement about the task at hand.

Again there are always two levels of excitement that will get the same result.  If I am 0% excited, (sleeping, unconscious, coma) then the achievement will be quite low.  If I am 100% excited, (catatonic with fear) again I will achieve nothing.  As with taxes, there are two levels of excitement that will result in the same mark.

In this context, excitement is made up of several things.  Stress, alertness, vigilance, hope, fear.   The optimum is in the middle somewhere.  Excited enough but not too much.  Paying attention but not so stressed that I am “tight.”  Athletes refer to it as getting up for a game.

Athletes have very strong ability to manage their emotions and their involvement.  Usually they need to move up to their optimal level.  In the zone, where things just flow.  Less experienced people tend to get over excited and need to learn to move their level down.

Take a deep breath, focus on your skills rather than your failings, relax your body, allow your brain to focus on the things you know.  Repeat until ready.

Capitalism Has A Dark Side

Capitalism is very fair.  Ruthlessly so.  In its purest form, you receive value in proportion to how society values your contribution.  Your reward depends on what people will buy and at what price.

Is it fair that baseball players make more than philosophers or rock musicians make more than engineers?  Yes!  People in the aggregate of society are willing to give up more of their wealth to enjoy the contributions of rock musicians and baseball players.  They are satisfying themselves not some arbitrary idea of what should be valuable.

Although you would be hard pressed to learn this from politicians, capitalism is not a political philosophy.  It is a method of allocating the resources available to society.  Each of us makes many small decisions and those aggregate to the result we see.  Jimi Hendrix music earns more than Mozart music.  If you want to change that, you need to change all of us, or as some people believe, use political power to make things work out “right.”

It is unlikely that we can agree on “right” but the end result of legislating it is that some people get something for nothing and others get nothing for something.  Not necessarily a bad thing, some of us need assistance, but it is not perfect when the result requires bureaucratic helpers.

A bureaucracy cannot solve a problem.  To do so would mean extinguishing itself.  Never assign a problem to someone who will be personally harmed if they are successful.  A bureaucracy grows by making the problem it purportedly solves bigger, more subtle and harder to measure.  Ideally, for the bureaucracy, impossible to measure.

This reallocation of resources to bureaucracies is unnatural, so it will not work forever.  The dark side of capitalism is always there.

The dark side, destroys misdirected wealth.  That means, in the absence of political intervention, misplaced assets or assets in incompetent hands, are removed. In the fall of 2008 and early 2009 we saw the efficiency of capitalism. Economist Joseph Schumpeter talked about “creative destruction.”  The system is better because it has been trimmed.  Culling the herd.

Compare creative destruction to socialism.  Socialism has no failure mechanism.  Things go on forever, continuously becoming more useless. Since there is no process to reposition capital through small failures, there can be only eventual catastrophic failure.  Think the Soviet Union in 1989.  Rather like forest fires.  If you prevent or kill the small ones, you guarantee a big one.

Instead of examining the past several years and trumpeting the “Failure of Capitalism,” intelligent observers should be trumpeting the success of the dark side of capitalism.

You cannot ignore the fact that things that don’t work, don’t last.  And should not last.
If our society is to prosper, it will be because we choose to direct excess wealth to growth not to wasteful regulation and inept problem solving.

BTW,  If you have a business, look at staff departments.  Engineering, HR, finance, marketing and the like all draw from a budget allocation.  They behave the same way as government bureaucracies, admittedly with more oversight.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.  don.s@protectorsgroup.com

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