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Economics and Armillary Spheres

Sat, 07 Feb 2009 10:29:39 GMT

I just finished reading Nassim Nicholas Taleb’s book The Black Swan (The Impact of the Highly Improbable). Published in 2007 he talks about the risks banks and financial institutions are taking and predicts a major collapse of the system. In this book, I found many of my intuitive views about economics confirmed.

From Aristotle to the Renaissance, astronomy was based on the geocentric view of the universe. Countless astronomers and mathematicians were busy adjusting their formulas to new observations. Artists spent years building and rebuilding Armillary Spheres representing these formulas; but no matter how hard they tried, they were never able to exactly reproduce the observations in the sky. The problem was not their skills but the fact that the earth was in the centre of their models. Once it was recognized that the universe is heliocentric the discrepancies between the models and the observations could be explained and the armillary spheres became beautiful examples of sophisticated craftsmanship.

Why do I bring armillary spheres up? Because I believe that today’s science of economics, based on diligent attempts to put observations into mathematic formulas, has its basic assumptions wrong. For example, is the theorem that recessions are cyclic just based on observation or is there a deeper reason? To what degree is this theorem self-fulfilling prophecy? I also wonder about the influence of the tight relationship between the economics academia and the executive levels of the economy. Is this another case of “don’t bite the hand that feeds you”? Is GDP accurate enough to describe the economic wellbeing of a nation?

I am convinced that we have to change the basic assumptions of economics to get a handle on the ever increasing problems of society (e.g. environment, income disparity, etc.). Unfortunately, there was no equivalent of an Armillary Sphere ever built, so future generations have nothing to marvel at.

http://en.wikipedia.org/wiki/The_Black_Swan_(book)

http://en.wikipedia.org/wiki/Black_swan_theory

http://www.fooledbyrandomness.com/

http://brunelleschi.imss.fi.it/mediciscienze/emed.asp?c=70062

Extend the life of your software

Mon, 24 Nov 2008 05:48:04 GMT

Were you looking for new software to improve the functioning of your company or tie stand alone systems together? Do you have trouble justifying the expense, especially with the uncertainties of the time we are in? Here is a cost effective alternative you might want to consider:

A custom designed ‘Interface’ that can solve some of your current problems for a fraction of the price of new software.

To give you some ideas, here are a number of examples that could apply to your company:

- You use an older, text based system that is rather cumbersome to operate because each bit of information has to be accessed with a new query. A new interface can extract existing data from your system and present it in a more universal way that allows better and faster decisions.

- You have a stand-alone accounting system that ‘accounts’ just fine but it requires lots of effort to extract data and process them with Excel into the form you want. A new interface can automate these activities, saving you lots of time while reducing the chance of errors considerably.

- Lots of your process critical data are stored in countless individual spreadsheets all over your company, creating problems with accessibility and using up to date information. A custom designed application can solve many of these problems too.

If you want to know more or explore some specific ideas of yours, please feel free to contact Owl Database Applications.

Thinking Outside the Box

Wed, 12 Nov 2008 06:12:17 GMT

Tough times need new solutions, solutions ‘outside the box’. How often do we try to solve basic problems of our company with tweaks and band-aids, adding or removing layers of our organization without even looking at the deeper cause of our problems?

To start thinking ‘outside the box’ you have to start looking at the box from outside and ask yourself if ‘it’ makes sense. My high school math teacher drilled us to ask this same question every time we were done solving a math problem. As illustration he used the following little story I would like to share:

In the early 1900’s an engineer starts his first job after graduation at a shipyard. He is given the task of calculating the center of gravity of a new ship. So he takes a set of drawings and his slide ruler and goes to work. After about three weeks he has the result and brings it to his boss. The boss looks at it for just a few second and says “wrong, do it again”. Since in the early 1900’s you didn’t question your boss, our young engineer goes back, thoroughly checks his calculations, corrects a few mistakes and after another 3 weeks comes up with a slightly different result. When showing the new result to his boss, he gets the same comment “wrong, do it again”. Now, truly angry, our young engineer blurts out “I worked a total of six weeks on these calculations and you looked at the results for not more than 10 seconds, how can you tell the result is wrong?” “Well” says the boss, “the center of gravity can not be outside the ship”.

Thought Bubble # 4

Fri, 29 Feb 2008 07:53:45 GMT

Thought Bubbles comment on deeper truths, often overlooked in today’s hectic and complex business world.

In geometry, the shortest connection between two points is the straight line, in management its a spiral.

Thought Bubble # 3

Tue, 26 Feb 2008 05:34:57 GMT

Thought Bubbles comment on deeper truths, often overlooked in today’s hectic and complex business world.

Properly nurtured, the sparrow in your hand adds probably more to your bottom line than the relentless pursuit of the pigeons on the roof.

Thought Bubble # 2

Sun, 24 Feb 2008 06:10:37 GMT

Thought Bubbles comment on deeper truths, often overlooked in today’s hectic and complex business world.

It doesn’t help impregnating nine women at the same time to get a baby in one month

Thought Bubble # 1

Fri, 22 Feb 2008 09:02:04 GMT

Thought Bubbles comment on deeper truths, often overlooked in today’s hectic and complex business world.

If you KISS* complex problems, they'll come back for more.

* KISS: keep it simple, stupid

Planning for Small and Medium Sized Organizations

Thu, 21 Feb 2008 07:05:16 GMT

On LinkedIn I recently stumbled over a question along the line "In the context of planning, you can't do everything, should you do something?"

The answer is simple: "You bet!" You already have a business plan and a budget, what else can be done with the limited resources available?

All plans are based on assumptions. The only thing you know for sure is that some of these assumptions will not materialize. Unfortunately, ahead of time you have no idea which ones are wrong and by how much they will be off. If you make a Sensitivity Analysis of your plans you will see that some of your assumptions are critical (the ones where a small deviation has a big impact on the end result) while others are less critical (even big deviations impact the bottom line only marginally).

Start with taking a closer look at the critical assumptions. 'Disassemble' them into their elements (e.g. a manufacturer needs the orders plus the capacity to sell the assumed number of units). Then device a method to closely monitor them; you probably already have most of the data somewhere in your organization (e.g. accounting, payroll, etc.) so all you have to do is find a way to collect and display them in the new context.

But what is the benefit of going through all that hassle? The answer is quite simple: It allows you to recognize problems before they become emergencies and you know more clearly where the problem comes from; and therefore where to start with the remedy (in the case of above manufacturer, it doesn't help to hire more people to increase the capacity if there are not enough orders in the pipeline).

Now here is the good news. The critical assumptions of your organization's plan do normally not change from year to year unless you revamp the way you do business. So you can invest your (planning) energies in expanding your monitoring to less critical assumptions.

And always remember, reality doesn't care about your plans (or have you ever seen the weather watching the Weather Channel to know what to do tomorrow?)