1% Everyday – Noise in Organizational Decision Making

Tell me.

How good are we as a company at coming up with an excellent solution?

What is the variability in our solutions depending on the teams we assemble?

I was listening to the “People I mostly admire” podcast with an interview with Daniel Kahneman. https://freakonomics.com/podcast/daniel-kahneman-on-why-our-judgment-is-flawed-and-what-to-do-about-it-people-i-mostly-admire-ep-27/

They were talking about his book Noise.

In the conversation they spoke of the noise and cost to an insurance company:

“The question was put as follows, supposedly two underwriters at random, you compute the average of the two premiums they set and you divide the difference by the average. So in percentages, how large do you expect the difference to be? Now, it turns out, there is a number that seems to come to everybody’s mind as a tolerable amount of noise, and that’s roughly 10 percent. Now the correct answer, in two units — at that insurance company was roughly 50 percent, five-zero.”

Is that where our company is at?

When we provide a solution, should our customers expect a 50% difference depending on the team?

Note: All human decision making attributes will result in a normal distribution:

Consider the following:

  • How do we make sure that all of our customers get the best solution within 10%?
  • What are the elements of our solutions that our customers would delight in more reliability?
  • How would our optimization of delivery of design solutions help us in the long run?

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