Kent McDonald writes on using the idea of real options in your everyday life, including your software projects. When you are faced with a decision, find out what your options are, find out when they no longer become options, and use the intervening time to uncover more information so that you can make an informed decision.
People abhor uncertainty. When given a choice whether to be right, be wrong, or be uncertain, many people would rather make a choice now and run the risk of being wrong rather than continue in a state of uncertainty. Unfortunately that tendency leads people to make uninformed decisions without any good reason for doing so, other than they were uncomfortable not knowing.
Chris Matts, Olav Maassen, and Chris Geary introduce the idea of real options in the graphic business novel Commitment: Novel About Managing Project Risk. The idea can be summed up as:
- Options have value
- Options expire
- Never commit early, unless you know why
There are two subtle, yet key points that really make the idea of real options useful in everyday life. First, it’s important not to confuse options for commitments. Options are things you have the right but not the obligation to do. Commitments, on the other hand, are things you have to do. Many things that people think are commitments, such as tickets for airplanes, concerts, or sporting events, are actually options.
For the person buying the tickets, the tickets are not commitments. When you purchase an airplane ticket, you are buying the option to get on the flight, but you don’t have to. Sure, you will be out the price of the ticket, but you are not obligated to take the flight. The airline, on the other hand, has made a commitment to get you to your destination, although those of you who travel frequently may feel like that does not always happen. Understanding this key difference between options and commitments helps you to have a clearer head about many decisions, because you will no longer feel trapped into having to take a particular decision.
Second, the idea of real options can help you decide when you really need to make your decisions. When you are facing a decision, take a few minutes to figure out your options, and then identify when those options are no longer available, ie., when they expire. You can then use the time up to when the first option expires to gather more information that will help you make a decision. Even then you may not need to make a final decision. You really only have to decide if that option is the one you want to go with or if you would rather use a different option.
Why is the timing of a decision so important? It's all about information. People that decide too quickly lose the chance to make their decision with critical information because they did not take the time to gather it. People who decide too late have a smaller list of options to chose from, because they dithered too long trying find out every shred of information and their analysis paralysis cost them potentially elegant options.
There is a fine balancing point between gathering sufficient information and not spending too much time trying to gather information that is not there or not helpful. You aren't going to know how much information is really available until you start seeking it, so the best thing to do is to determine when you absolutely have to make a decision by and use the intervening time to gather information.
Let’s look at an example from the Mercury Program. In February 1962, John Glenn was attempting to become the first American to orbit the earth. The flight was planned for three orbits. At the end of the first orbit, Mission Control was just about to patch President John F. Kennedy through to John Glenn when Mission Control received a “Segment 51” warning and John Glenn began having altitude control problems. Mission Control told the President that they were a little busy at the moment and would have to call him back. The team then turned to figuring out what Segment 51 indicated.
Segment 51 is meant to indicate that the landing bag had deployed. The landing bag is a rubber bag that inflated on the Mercury capsule following reentry, which prevented the capsule from sinking when it landed in the ocean. The landing bag was situated behind the heat shield that protected the Mercury capsule from the intense heat of reentry. If the landing bag had truly deployed, that also meant that the heat shield had been pried loose from the capsule, which was not a good thing for John Glenn. Basically, it meant that if they were to believe what the data was telling them, the Mercury Capsule could burn up during reentry.
Mission Control immediately began reviewing options. The Mercury Capsule had a retropack that fired to slow the capsule into a reentry velocity and then was jettisoned before the capsule entered the atmosphere. The retropack was attached to the capsule by three metal straps, and if left on would theoretically hold the heat shield on during the crucial point of reentry. But Mission Control was not sure if the retropack burning up would also cause damage to the heat shield. They also weren’t sure whether the Segment 51 alert was valid. Some on the team thought the issue was actually a false alarm caused by an electrical failure.
With two orbits left, Mission Control began a series of activities at once. Some controllers identified tests that they could perform to determine whether the indicator was an electrical issue or if the heat shield had actually dislodged. Others tried to figure out what would happen if the retropack stayed attached to the capsule while others figured out how the reentry procedures needed to change if they decided to leave the retropack on. No decisions had been made whether to leave the retropack on; Mission Control, in fact, had two more orbits to figure that out, and the team members were using every bit of that time to explore their options and gather information to help make their decision.
Chris Kraft, the flight director for the mission, was convinced that the problem was an electrical issue, and stalled making the decision to leave the retropack on until the last moment so that he could have as much information as possible:
From the book Failure Is Not an Option, page 74:
Kraft was still holding out until the last moment, so that he had a complete understanding of the final instructions before he radioed up to John Glenn. The mission was turning into a horse race. Kraft wanted answers from one final test to be performed over Hawaii before he turned the discussion to the entry procedure modifications.
Finally after hearing that the retropack rockets fired and were not a risk to explode during reentry, Walter Williams, the operations director and Kraft’s boss, made the decision to leave the retropack on at the point in time in which Mission Control and John Glenn had enough time to alter the reentry procedure to not jettison the retropack.
When Glenn reentered the atmosphere, the retropack burned up, followed by the heat shield sufficiently protecting Glenn from the heat of reentry. After Glenn landed analysis on the capsule confirmed that the Segment 51 reading was invalid.
In this case Chris Kraft knew that his options started running out when Friendship 7 was over Hawaii during its last orbit. He therefore waited to make a decision until that point so that the mission control staff could gather information and try to determine what was really going on.
You can use the idea of real options in your everyday life, including your software projects. When you are faced with a decision, find out what your options are, find out when they no longer become options, and use the intervening time to uncover more information so that you can make an informed decision. Waiting a little bit to decide and putting the time to good use will improve your chances of making the right decision and help you to be a little more comfortable with uncertainty.