Sunk Cost, Loss Aversion, and Cannibalism: Lean Muppet Series Post 3

After losing an “I” and his tie, this New York baker is ready for Cookie to leave.

I cannot count the number of times I, as a consultant, have been called in to diagnose an obvious problem.Cookie Monster...now he has an obvious problem.While we would all like to see many of our current television hosts eaten by monsters, it's clear to even little kids that Cookie Monster would be better served by eating pie than Guy Smiley.Pie is the optimal solution. But at least as far as we see, Cookie Monster has chosen Smileycide as the solution to his problem, and is committed to it.We often identify a solution, create a plan, then commit to a number of actions to achieve that plan. With each action we take, alternatives psychologically become more unpallatable.You can see in the future, Cookie Monster catching up and actually eating Guy Smiley and then saying, "Hmmmm, me no like eat Guy Smiley after all." But each time Cookie Monster chases Guy, he finds that he's invested more of his time and energy into Project EatGuy and is less likely to stop.Psychologists and economists call this the "sunk cost fallacy," and even though every MBA student in the world learns about it, we still see it happen.In lean manufacturing this is a specific type of waste called "muda," work that we do that adds no value.  In this case, chasing something considered inedible is not going to result in a delicious snack.But I'd like to focus on a different lesson - one more fudamental that, if we strive to solve it, we'll eliminate muda anyway.Lean teaches us to avoid inventory. Inventory is the stuff we create, are in the process of creating, or are the parts for the things we anticipate creating.I remember in 1979 my father was involved in creating a business incubator in our hometown called Triangle East. It was in the abandoned Geer Mobile Home plant. All my father's projects were family projects and so at one point I found myself going through the old plant cleaning up. The was inventory everywhere - desks, chairs, doors, bolts, and so forth. Tons of inventory that we either recycled (such that we could in 1979), threw away, or served as fascination for a 14 year old boy. All of it constituted waste because it would never be used to biuld a mobile home.In knowledge work we build up conceptual tons of inventory. Reports, files, software code, policies, processes, procedures, half explored ideas, concurrent tasks... all these things decrease our ability to complete work or to ship products.But the more conceptual inventory we create, the more sunk costs we perceive. The more sunk costs there are, the less likely we are to improve. Psychologists call this tendency "loss aversion."We can illustrate this idea with this ridiculous equation:

Y = Cookie Monster's hungerG = the perceived value of eating Guy SmileyCx = the number of times Cookie Monster chases Guy around the counter

Cx * Y = G

Note that while the actual value of eating Guy Smiley will be zero, the perceived value of eating him increases with every iteration.What's worse is that if Cookie's goal is partially achieved, he is unlikely to learn from it, but will actually become more entrenched. So, say he catches Guy Smiley and eats an arm (who knew the Muppets could be so dark?), he will work harder because loss aversion is telling him "you missed the tasty part."Our stakes may be higher in the non-felt world, but the scenarios are no less ridiculous. Pets.com is the classic example where free shipping of discounted cat litter attracted tens of millions in VC money and much more at IPO. Anyone not caught up in dot com fever could see that building a business model around shipping bags of clay (maybe the only thing worse would be bags of lead) was not likely to produce profits.Another quick point here is that while Cookie Monster was never the brightest bulb in the Muppet marquee, he was and remains a nice guy. By nature he does not cannibalize other muppets. He had simply bought into an idea and found himself in a sunk cost spiral.Always look for the pie.This is third in a series of Lean Muppet Posts: For a list of Lean Muppet posts and an explanation of why we did this... look here -> Lean Muppets Introduction

What If I Had A Slack Card?

Showing Slack Card

“All things in moderation, including moderation.”― Mark TwainIn yesterday’s post, you may have noticed that we have a “Slack Card” in our Personal Kanban for the day.The problem we, like most people, were having was this:Productivity feels good.The Zone feels good.But productivity and the zone can lead to burnout.Just like Pomodoro includes rests every 25 minutes, we wanted to include a Pomodoro that was nothing but slack.What we assumed was that we have eight half hour pomodoros in an eight hour work day.Interruptions, non-focused tasks, and other minutia tend to make pomodoros not start back-to-back.Of those eight, the slack card is kind of a “get out of jail free” card. It can let you spend a free half hour just resting, it can be spent collaborating on less focused tasks, it can be used to “throw away” if interruptions stop you from being able to do one of your Pomodoro.  Ultimately it’s a visual place holder for an option. You be the judge.

Inventory Makes Work

Lean talks a lot about inventory. A major tenet of Lean is to reduce inventory. Companies that stock up on too much stuff have to maintain that stuff, manage it, and then deal with it when it is no longer useful. This is why companies end up having huge sales at the end of the year - they've amassed warehouses of stock (or their suppliers have) and now that merchandise needs to be sold fast.

Inventory lowers organizational effectiveness because the time and money spent taking care of the inventory could have been spent making the company more successful. Therefore, Lean organizations tend to receive the things they need to operate at the last responsible moment, this is called "Just in Time" (JIT). A JIT organization does not take on inventory until the moment they need it and therefore spends as little as possible maintaining inventory, greatly reducing the risk of having overstock.But inventory isn't just "stuff." Inventory for us as individuals includes anything we have that requires maintenance or on-going attention. We have responsibilities, they aren't going away. We will have a yard, it will need to be mowed. Dishes need to be washed. Children need to be raised.Other inventory comes in the form of stress. Stress, I would argue, is inventory. Your brain is like a factory, you take in information, you create value. Stress slows your factory down.I've written about "Existential Overhead." Stress is a big part of that overhead and it is totally inventory. The question is, how much of our stress do we manufacture ourselves? Certainly there is stress that comes from outside our control. Illness in the family, natural disasters, economic crises - we can't do much to stave these off.There's other overhead we create for ourselves. Lean teaches us to save action until the last responsible minute, but procrastination teaches us to ignore action until someone yells at us. Procrastination is not responsible. The more you procrastinate, the more you know someone is going to yell at you. So, even when you are doing something else, you are fretting about what you aren't doing and that lowers your productivity.Focus for you as an individual comes from an understanding of what you are doing and why. Existential Overhead, inventory, stress all combine to make you question what you are doing and why. That muddies your understanding, you lose focus, and your effectiveness decreases.The biggest problem here: if you stress about things that can be relieved, when big problems come along, your capacity to absorb that extra stress is reduced. And if the new big problem is too big, you lose your cookies. But all we needed to do to keep our cool and rise to the occasion was some work up-front to relieve those previous stressers.I invite you to look at what is going on in your life, identify stressers and other inventory that you 

know

routinely keep you awake at night, and start to figure out ways to mitigate them or even remove them from your life. Especially look for stress you are manufacturing yourself.