Leave room for doubt

Should I jump?

In 1993 a very successful American bond trader gathered together a few of his disciples and a handful of super-economists and set up a new hedge fund company that promised to be different from anything that had gone before. The new company apparently genuinely believed that their ingenious computer models would allow them to bet on the future with near mathematical certainty. Because their team had some high powered players – including two who were to be future Nobel Prize winners – investors believed them. The company portfolio grew quickly to $100 billion when a default in Russia set in train a sequence of events that the models had not anticipated. This placed the whole financial system at risk and the Federal Reserve quickly called in Wall Street’s leading bankers to underwrite a bailout. Roger Lowenstein in “When Genius Failed” (Fourth Estate. 2002) tells the whole fascinating story.

How could anybody – let alone the super intellects in that hedge fund company – possibly believe that a computer model, no matter how finely tuned, could predict ‘with near mathematical certainty’ future stock markets (which, after all, reflect the volatility that Keynes referred to as ‘animal spirits’).   How could investors clever enough to have amassed the funds to invest, believe them!

Pondering these questions, I thought of the managers I have met who so passionately believe in their models that they brook no doubt, no exploration of better ways, no questioning – and I thought of the problems that this causes. Possibly it starts because to get financial backing in the first place, either from your organisation or from the market, you need to assume and project confidence.

However, confidence is one thing, blind confidence completely another.

So my question for you today is:  How do we transit from the confidence we need  to be persuasive before the project is adopted, to the level of confidence we need,  after the project is adopted,  that allows some room for doubt enabling resilience when the world changes (as it certainly will)?

Only an Indicator!

Our post today responds to a comment by Ben Lawson  that the “Fit for the Future” program is leading councils to equate depreciation and renewal spending regardless of the age or need of their assets.

This issue came to the attention of one of our State Auditors-General who dismissed it, saying ‘I agree that a ratio of renewal: depreciation is too simplistic and that there are real risks to be managed, but ‘it is only an indicator’ ‘  He also suggested that since ‘bureaucrats avoid things that are too complex’, it was necessary for indicators to be as simple as possible.

It is not difficult to see how dangerous this approach is when you consider that an aircraft instrument panel is simply a set of indicators. But without many hours of flying instruction (and thus an understanding of what lies behind each of the indicators) would you expect to be able to correctly interpret the information provided by these indicators – and keep the plane from crashing?

Perhaps we can make it easier for you as the pilot if  we simplify the indicators!   What if were to just keep the altimeter, for example, or the speedometer?  Perhaps just the fuel gauge? Maybe we could do without the compass, or the airspeed indicator, or the directional gyro?   And is the turn indicator really necessary?  What about the vertical speed indicator?

Well, you don’t have to be a trained pilot to figure out that actually you DO need all the instruments on the panel – ALL the indicators, and enough understanding to be able to correctly interpret them in any particular circumstance.    Moreover, this is just for a simple two seater Cessna, not even a Boeing 707, and just for just one aircraft – not a fleet of aircraft.

Now consider that even a fleet of aircraft would present far less decision points than the far greater variety of assets and asset questions facing the average council. Can the task of managing an ever changing and wide range of public sector assets with all their attendant services and disparate user groups, possibly be managed by a few simple indicators?

Worse, can they be managed by a few rules that are applied blindly without understanding?

What is the goal? To spend capital or gain beneficial outcomes?

Ignoring a problem doesn’t solve it!

You might think the answer to be self evident: surely we would all wish to see the best outcomes!  However, when it comes to government spending on infrastructure and public assets, this may not be the case. For state government public authorities, capital expenditures are often seen as a means of increasing the state’s GDP (gross domestic product), or a means of keeping up ‘a pipeline of investment projects’.  When this is the case, departments that do not spend all their capital budgets are not regarded  as ‘economical’, instead they are considered grossly inefficient.

When I was a policy manager in one of the state public works departments, budget meetings were only concerned with how fast money was being spent, not how effectively.  Taking the time to find more efficient ways to produce any given outcome, and so to spend capital money more efficiently, was actively discouraged: it slowed things down and the department did not spend ʻenoughʼ.

Much of the problem is that there is no easy way for politicians to demonstrate performance – only dollars of spending.   I doubt that this happens for any organisation with a quantifiable ʻbottom lineʼ (utilities, mining, manufacturing, etc) –  but maybe they have other problems?

Even for local governments, which are generally very short of capital money overall, and where one would think the ideal solution would be to get the ʻmost bang for the buckʼ, taking the time to look for ways to achieve ‘more for less’, is rarely well regarded as the economies achieved are often difficult to demonstrate, while the extra time taken will often feature in negative media reporting.  In addition, local governments frequently depend on capital grants from state and federal resources with short decision and expenditure deadlines imposed in order to secure a fillip to the economy (i.e. to spend money fast).

This problem has bedevilled me for over 30 years.  Is there a solution?

 

Grenfell Tower Fire

Grenfell Tower Fire June 14Many of us watched in horror as the flames raced up the 24 stories of the Grenfell Tower in London, as firemen desperately tried to find and save individuals in the dense smoke, and where the death toll is now 79 (and may still be rising).  Much has been written about this already, and with the inquiries now launched, more will be written.  We will, hopefully, find out the details of this particular infrastructure failure.  In the meantime there are two areas to consider.

1.  Technical issues and organisation (this is probably our first departure point).

“Sprinklers would have saved lives. Fire stops that should have protected the internal means of escape may have been faulty or missing. The gas supply lines are under suspicion. The Grenfell Action Group had presciently warned of a lack of fire safety instructions. 999 operators fatally stuck to the official advice that people should stay in their homes, which makes sense when the building regulations are doing their job of containing fires within a single flat, but not when the whole building is engulfed. Compartmentalised thinking – the inability of any one agency to see the whole picture – played a role. It’s likely, as often in major disasters, that it was the cumulative and multiplying effect of several factors that made it so terrible.”  Guardian columnist, Rowan Moore

cf. Post on The Titanic and Apollo 7 on June 13

2.  Social Attitudes  

“I have sat in council meetings where comments from leading majority councillors have shown a total lack of empathy or even respect for those not born to a world where basic human comforts and a good education are givens. I have heard – and noted – comments stating that social tenants should simply move away if they don’t like what they’ve been “given”. As if social housing was not a public good but some kind of privilege to which they are not really entitled. Alongside this has been a slow but deterministic programme of privatising and monetising public assets such as schools, libraries and community and public space.”  Local Councillor, Emma Dent Coad, writing in The Guardian

cf Post on Gentrification in Infrastructure and Progress June 16.

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Infrastructure and Progress

When he asked me what I did, I replied I looked at ways in which we could, as a community, make sounder infrastructure decisions.

‘Then, what are you are doing about gentrification?’

It wasn’t an idle question.  He was poor, with infrequent, casual and poorly paid employment. His partner earned the minimum wage. They had moved many times as the affordable accommodation they found was ‘upgraded’ and they could no longer afford it.

Gentrification is happening all over the world.  We call it progress.  But is it?   How much of what we call progress is actually only making the world better for the well-off?  And by this, I mean us!   In a world of increasing inequality, this kind of ‘progress’ could actually be considered to be regress from the perspective of overall community wellbeing.

Is it not time to reconsider what we mean by progress, and, indeed, to rethink the entire purpose of infrastructure?

Thoughts?

The Titanic and Apollo 7

The Titanic

This story was originally told by the Young Asset Managers Group at the 2013 ICOMS (now AM-Peak).

What can we take away from it?

Consider the Titanic. There was poor equipment management – only one pair of binoculars and even that was not with the look out, no safety training for the staff (some of the lifeboats were launched with only a fraction of the passengers they could have held.) Safety regulation then was largely non-existent. Lifeboats were not really considered necessary (the ship was unsinkable) and they occupied space and interfered with the view of the passengers. There was also little operational training either as this would have slowed down the departure date.

The Titanic was a commercial venture and, although it was the latest and most modern of ships, nevertheless the company had been operating ships for years, so there was a certain amount of complacency. Was this the cause of failure : complacency and costs before people?

Apollo 7 at launchThe Apollo 7 was also a new venture, but it was a public project. The goal was not simply to get off the launch pad but to take a man into space – and bring him back safely! A year earlier Apollo 1 had suffered a cabin fire during a launch pad test which killed all three crew members. The subsequent inquiry discovered a great number of design and construction flaws – and these problems were corrected, Apollo 7 launched successfully in October 1968. Attention to safety paid off! Pre flight safety checks and operational training won the day. Apollo 7 was not complacent, not commercial and put safety first.

And there the story could have ended, were it not for Challenger.

Less than 20 years later, in January 1986, the Challenger broke apart 73 seconds into its flight killing all 7 of its crew. The cause, as we all know now, was the O-ringseal which became brittle in low temperatures and disintegrated. The O-rings, as well as many other critical components, had no test data to support any expectation of a successful launch in low temperature conditions. NASA managers had known the design contained a potentially catastrophic flaw in the O-rings since 1977 but failed to address it properly and they disregarded warnings from their engineers about the dangers of launching posed by the low temperatures that morning. There were internal financial pressures to get the launch happening, and they had launched successfully many times before.

So complacency and commerciality can affect us all! Being a publicly funded and operated venture is no protection!

Comment?

 

Announcement: Full Talking Infrastructure Association Membership

No fees

The Board has decided that for the foreseeable future we will not charge fees for full voting membership of Talking Infrastructure.  Full membership will, instead, be by invitation to those Community members that contribute in a meaningful way to the work of the Association.

Our first invitations go to

  • Kerry McGovern, of K.McGovern & Associates, who initiated, and collaborated with Talking Infrastructure in designing, a 5 day workshop in the audit of infrastructure performance for Auditors-General in the Pacific Islands.
  • Mark Neasbey, of the Australian Centre for Value Management, who has contributed many posts for the Blog, that have been amongst the most highly read and commented on.
  • Ben Lawson of Common Thread Consulting who has been a regular reader and prolific commentator on the blog

Our congratulations to Kerry, Mark and Ben.  Your commitment to the development, information exchange and debate ideals of Talking Infrastructure are putting us where we are today.

Thank you.

Populism? – or Community Participation?

A Question

Sydney Opera ouseBen Lawson’s response to the post “I measure therefore I manage” (do read it!) reminded me of a question I have recently been asking myself – What’s the difference between ‘populism’ and ‘community participation’?   Is it, for example, the difference between uninformed (and often knee-jerk) reaction and informed and considered judgement?   And, if so, what can we do to lift the level of informed response?

Good and Bad Practice

Back when I was writing “Strategic Asset Management” it was my job to note both good and bad practices in the measurement of community satisfaction. The clue? Good practices stepped themselves out from the pack by the amount of real understanding of the problem that they generated (both the costs and the consequences).

Citizen Juries

One example was the use of Citizen Juries, such as the exercise in Boroondara where a representative sample (about 20) of the citizenry were engaged (and paid!) to learn over a period of six weeks about the issues and the options facing the city and then – as informed citizens – to give their considered opinions.  It is notable that the City then implemented those decisions, and the jury members were the strongest advocates for both the City and the Council.

Sydney Opera House

A smaller example was the decision to replace the broken flagstones in the courtyard of the Opera House. The question was ‘should all cracked flagstones be replaced or only those that were major problems?’ Three costings were developed according to the degree of replacement and pictures were provided of both the current situation and what the final result would look like for each option.  Then local visitors (i.e. those that would be taxed to pay for it) were polled to see what level they supported. With both the costs and the consequences in evidence, those polled voted for a moderate degree of renewal, not the most expensive.  You can see that good practice asked specific questions and provided both costs and consequences.

Poor practice?

Current local government ‘satisfaction surveys’ on the other hand ask general questions and provide neither costs nor consequences.

How would you prefer that decisions on your rates and taxes be determined?

Talking Überstructure

No I’m not talking about huge structures, but about talking with Uber drivers about infrastructure decision making, and what I have learned from them.

Uber drivers are business people, they are characterised by having a drive for improvement of their lives and are often driving as a second career or while transitioning from one life circumstance to another, new job, new city, new family, etc. They are also polite.

As professional drivers they have a serious interest in transport infrastructure, especially roads. As service providers they will listen to customers’ stories. My drivers are often surprised when I voice the opinion that we don’t need more lanes, roads and tunnels; especially if we are in slow-moving traffic. There then follows a discussion, usually around 20 minutes, that covers the underlying needs for roads, traffic loads and the factors that contribute to peak congestion, the available solutions to the problems of road transport and the contribution that smart, connected technology can make to the problems of city life.

Since my drivers are constant consumers of connected technologies (GPS, booking apps, forecasting software) they have no trouble understanding the benefits that flow from the ideals of “Smart Cities” and easily understand that improvements flow from having information sources connected. They see that transport issues are directly related to things that can be adjusted with a connected view of the world. They also comprehend that the technology needed to address these issues has been available for years, and that it is the lack of integration of business, government and social information and policy that retards us.

What I have learnt from Uber drivers is that a conversation of 20 minutes can change a person’s understanding of infrastructure needs completely, from a view that continuous infrastructure construction is essential to a view that the solution to congestion of all kinds can be addressed with understanding and leadership.

Smart cities are coming, but I’d like the benefits now. Rather than upgrading highways, I’d like to see freely available information that can be used to tell drivers that leaving 15 minutes later will get you to your destination at the same time and with less fuel and frustration. Then service providers like Uber can give me an option to have a cup of coffee before my car arrives and everybody wins.

Paris Climate Accord – America’s loss, Australia’s gain?

The future – or our past!

As everyone now knows, the US President has withdrawn the USA from the Paris Climate Accord. Although he claims to be saving US jobs, the strong likelihood is that it will lose US jobs as the renewal energy industry at the moment is the fastest growing industry in the USA. With President Trump’s decision, Germany is expected to take the lead in wind energy and China in solar.

Australia is now making key decisions for its own energy future. Will we permit the Government to continue to back the old technology, coal, or force it to support the new renewables?  The next big gains are to be made with renewal energy battery storage and the encouragement and the development opportunities we provide now could be decisive. Companies now developing in this area in Australia could have a real chance at world leadership. Or they could miss out to more innovative governments (e.g. California which is taking an opposite stance to the federal decision, and being very active about it.)  Infrastructure decisions have recently been discussed in terms of immediate construction jobs. but they have a longer term importance that goes far beyond mere, and relatively temporary, construction jobs.  The techniques we develop now could have major export capabilities to the entire world.

The USA withdrawing from the Paris Climate Accord suits those who gain from oil and fossil fuel exploitation more generally – oil producers in Russia and Saudi Arabia – and coal producers in the USA and Australia.  An interesting question for Australia is who has the political strength in this country – the coal lobby or those promoting renewable energy?  This is not an idle question.  For a long time, Australia has been content to follow America’s lead. Will it this time?

Emanuel Macron, newly elected President of France, recently addressed the USA and the world – in fluent English! – arguing that France, and Europe, will continue the fight to control carbon emissions – ‘to make this planet great again’

Will Australia?