Point Lookout: a free weekly publication of Chaco Canyon Consulting
Volume 21, Issue 5;   February 3, 2021:

# Cost Concerns: Scale

When we consider the costs of problem solutions too early in the problem-solving process, the results of comparing alternatives might be unreliable. Deferring cost concerns until we fully understand the problem can yield more options and better decisions.

One attribute of a successful problem solution is affordable cost. At every stage of development from conception through elaboration, design, deployment, usage, and retirement, the cost of the solution must be within the reach of the users of the solution. One common pattern that hinders finding successful solutions is excessive concern with costs during the conception stage.

To clarify the importance of understanding the problem in depth, consider this admittedly artificial scenario based on a workshop exercise:

The Marigold project team has been charged with building a tower using only index cards. Neither tape, nor glue, nor fasteners of any kind are permitted. The tower should be as tall as possible using no more than 5000 cards. According to the rules, the "revenue" for the invention is calculated as 1000*E, where E is the elevation of the tower's highest card in centimeters. The "expenses" are calculated as 10*C, where C is the number of cards used. "Profit" is Revenue minus Expenses.

The team immediately starts exploring ways of building tall card towers using very few cards. After about a half hour of this, two team members, Roberta and Robert, leave the room to get ice creams and to think. When they return, the other tower builders have constructed a wobbly tower about two meters tall, which immediately collapses from the breeze that comes through the door Roberta and Robert opened when they returned.

While the other tower builders rebuild their tower, Roberta and Robert decide to read the rules again. (In the real world, the "rules" would be called "requirements.") They discover that the rules have a loophole. If they insert a single card into the crack between two ceiling tiles, that one card meets the definition of a "tower" according to the rules. And the elevation of that card is as high as the room will allow. So, highest possible tower, minimum possible card count. Voila! Maximum "profit."

This scenario Devising brilliantly clever problem
solutions often requires a deep
understanding of the problem space
illustrates two important points about problem solving. First, devising brilliantly clever problem solutions often requires a deep understanding of the problem space. And second, understanding cost sources for solutions requires understanding the properties of the available solutions.

#### Problems of scale are high risk

The importance of these two ideas is perhaps most obvious when the solution to the problem at hand must scale. In problems of scale, after we find a solution, we must deploy many copies of that solution to large numbers of users. Because some solutions scale more readily than others, cost comparisons among solution options must take scale into account. And that can be tricky for some teams.

The composition of many problem-solving teams is biased in favor of knowledge relevant to conceiving and implementing solutions. There are sound reasons for this. Early in the problem-solving process, the range of possible solutions is poorly understood. Because the people most familiar with implementation technologies are also best able to generate solution options to investigate, we tend to populate problem-solving teams with people who are needed early in the problem-solving process.

But in some cases this practice introduces risk when the team focuses on cost comparisons among solution options too early in the problem-solving process. Consider what happens when significant costs of all relevant solutions are associated not with implementing or manufacturing copies of a solution, but instead, with deploying the solution, or with convincing users or customers to adopt it. For such problems, comparisons of costs of solution options based on comparing their implementation costs are likely to provide misleading results.

This phenomenon is more likely to occur when a solution has significant cost components that lie downstream of the conception phase of problem solving. For example, consider two kinds of attributes such a problem solution might have.

Implementation
Implementation costs are associated with the technologies employed in actually conceiving the solution. For example, if we're making an adhesive, the chemistry of adhesives would be one of the implementation technologies. And the implementation costs would most likely be dominated by the cost of discovering and manufacturing the adhesive.
Stakeholders
Problem solutions have stakeholders. Stakeholder classes vary in size, but the stakeholder classes most likely to contribute significant costs are those associated with large groups of customers or users. The costs that are most significant for problems of scale are those associated with marketing a solution to customers, or with persuading users to adopt a solution, or with obtaining the approval of regulators, or with the logistics of delivering solution-related materials to users.

Teams that have expertise biased in favor of implementation-related issues are more likely to tend to emphasize effort to minimize implementation-related costs. The estimates of stakeholder-related costs by such a biased team are more likely to be inaccurate or incomplete. If teams address cost concerns too early in the problem-solving process, before they acquire team members who are expert in stakeholder issues, their exploration of the space of possible solutions is more likely to be biased in favor of solutions that have low implementation costs, rather than low total cost. For example, they might reject a solution on the basis of high implementation costs, without recognizing that it has very favorable stakeholder-related costs.

Estimates of costs of solutions to inherently large-scale problems must consider how scale affects the viability of each solution. And that consideration is more likely to be objective if it occurs after the team has developed an array of solution options.

#### Last words

Although problems of scale present special risk for teams that have expertise biased in favor of implementation-related issues, problems of any sort can present special risk for teams that have biased expertise. To manage these risks, tailor the composition of problem solving teams to match solution discovery risk to the needs of the organization. First in this series

Are your projects always (or almost always) late and over budget? Are your project teams plagued by turnover, burnout, and high defect rates? Turn your culture around. Read 52 Tips for Leaders of Project-Oriented Organizations, filled with tips and techniques for organizational leaders. Order Now!

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## Related articles

More articles on Project Management:

Design Errors and Group Biases
Design errors can cause unwanted outcomes, but they can also lead to welcome surprises. The causes of many design errors are fundamental attributes of the way groups function. Here is Part II of our exploration.
Avoid Having to Reframe Failure
Yet again, we missed our goal — we were late, we were over budget, or we lost to the competition. But how can we get something good out of it?
Risk Creep: I
Risk creep is a term that describes the insidious and unrecognized increase in risk that occurs despite our every effort to mitigate risk or avoid it altogether. What are the dominant sources of risk creep?
Seven Planning Pitfalls: III
We usually attribute departures from plan to poor execution, or to "poor planning." But one cause of plan ineffectiveness is the way we think when we set about devising plans. Three cognitive biases that can play roles are the so-called Magical Number 7, the Ambiguity Effect, and the Planning Fallacy.
Anticipating Absence: Why
Knowledge workers are scientists, engineers, physicians, attorneys, and any other professionals who "think for a living." When they suddenly become unavailable because of the Coronavirus Pandemic, substituting someone else to carry on for them can be problematic, because skills and experience are not enough.

See also Project Management and Problem Solving and Creativity for more related articles.

## Forthcoming issues of Point Lookout

Coming January 26: Cyber Rumors in Organizations
Rumor management practices in organizations haven't kept up with rumor propagation technology. Rumors that propagate by digital means — cyber rumors — have longer lifetimes, spread faster, are more credible, and are better able to reinforce each other. Available here and by RSS on January 26.
And on February 2: The Risk of Astonishing Success
When we experience success, we're more likely to develop overconfidence. And when the success is so extreme as to induce astonishment, we become even more vulnerable to overconfidence. It's a real risk of success that must be managed. Available here and by RSS on February 2.

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