Date: 31 March 2015
The Flaw of Averages states that plans based “average” assumptions are wrong on average. It explains why most projects are behind schedule, beyond budget and below projection.
The discipline of Probability Management addresses this problem from three perspectives.
- Technological: Interactive Simulation creates a more intuitive understanding of uncertainty and risk.
- Informational: Databases of Monte Carlo trials may be used to transparently communicate and aggregate uncertainties.
- Managerial: Responsibility must be assigned for determining and maintaining probabilistic assumptions. A competent Chief Probability Officer (CPO) can give your organization the permission to be uncertain.
Examples will be drawn from scheduling, purchasing, managing R&D portfolios, and finance.
No prior understating of statistics is assumed, but for those with extensive training in the subject, this presentation will attempt to repair the damage.
Part two of the presentation will be on: Probability Management comes to City Hall: "Early movers" in the discipline of probability management within local government and models to help public managers learn probabilistic thinking.
Dr. Sam L. Savage.
Dr. Sam L. Savage is the author of "The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty” (John Wiley & Sons, 2009, 2012) and inventor of the Stochastic Information Packet (SIP), an open data structure for unambiguously conveying uncertainty.
Sam is a Consulting Professor at Stanford University, a Fellow of the Judge Business School at Cambridge University, and Executive Director of ProbabilityManagement.org, a 501(c)(3) nonprofit that maintains the open SIPmath(tm) standard.
The organization has recently been cited in the MIT Sloan Management Review for “improving communication of uncertainty,” and “simulation-based communication to improve actual managerial decisions and public policies.”
Dr. Savage is joined on the board by Harry Markowitz, Nobel Laureate in Economics, and the organization has received sponsorship from Chevron, General Electric, Lockheed Martin and Wells Fargo Bank.
Shayne Kavanagh is the Senior Manager of Research for Government Finance Officers Association.
Shayne has been developing the practice and technique of long-term financial planning for local government 2002.
In addition to working with local governments in a consulting capacity on financial planning and risk analysis, he is the author of a number of publications on financial planning and budgeting, including:
- The leading book about long-term financial planning in local government, Financing the Future: Long-Term Financial Planning for Local Governments.
- The leading book on policies for establishing financial governance, Financial Policies
- He has written about probability management for local government in Government Finance Review and Analytics Magazine