Traffic Congestion and a Non-Solution

Topic: Management Improvement, Problem Solving

I read, Study: Nation's Traffic Jams Worsening, today on CNN.com. That same headline could have appeared in newspapers every day for the last few years.

For decades traffic congestion has been a problem in American cities and one that has continued to get worse. The typical proposed solution is to increase the number of roads. The theory behind this solution is not normally stated but, I believe, it amounts to: "if we build more roads then the system will have more capacity which has to decrease congestion." Unfortunately this theory fails to take into account the past data on the increasing capacity of roads "solution."

I am not an expert in the area of traffic solutions. However, Russell Ackoff has done some work in this area and I trust his judgment more than almost anybody. I have heard him say increasing capacity does not work (unfortunately I can't find a citation for that statement). All that happens is the number of cars increases and the roads get even more congested. Luckily he understands systems and therefore understands that the system as a whole must be examined. Chapter Seven, Transportation Without a Future, of his excellent book, The Art of Problem Solving Accompanied by Ackoff's Fables, has some good material on this subject.

The CNN article continues the claim of most such articles over the last few decades (that I have noticed anyway) that the only solution is to increase capacity. They don't ever seem to show examples of how this has been done successfully. Granted it is theoretically possible that everyplace just fails to increase capacity enough (I just doubt that is the answer - as stated before, while I am not an expert I trust Ackoff's conclusions).

From the CNN article:

Overall in 2003, there were 3.7 billion hours of travel delay and 2.3 billion gallons of wasted fuel for a total cost of more than $63 billion.
...
Urban areas are not adding enough capacity, improving operations or managing demand well enough to keep congestion from growing.
...
The report was released Monday, the same day the Senate resumes debate on a bill that would spend $284 billion on highways over the next six years.
...
Only job loss or major commitments to expand capacity will decrease congestion dramatically, he said.

The only mention of something other than adding capacity was

Congestion can also be reduced by managing traffic better. The report said such techniques as coordinating traffic signals, smoothing traffic flow on major roads and creating teams to respond quickly to accidents reduced delay by 336 million hours in 2003.

See: Russell L. Ackoff, iconoclastic management authority, advocates a ‘‘systemic’’ approach to innovation an interview of Ackoff by Robert Allio.

The car, currently available only through custom production, goes more than 80 miles per gallon, is non polluting, and would, if in general use, eliminate all urban congestion until well into this century.

I must admit I am skeptical it would be as successful as Ackoff says (though I believe it would result in a large improvement over the current system). I put much more faith in Ackoff's ability to re-design the system to achieve the aim of decreased congestion than those claiming an increase in capacity will solve the congestion problem.

Yes Ackoff's solution does require actually changing the system. That is not easy to accomplish. However, if the desire is to reduce congestion the solution is not likely to be to just keep doing what we have been doing (given that it isn't working). Building more and more capacity doesn't seem to achieve the desired results.

Ackoff also has also done work on redesigning the layout of the city. Great stuff and quite interesting reading. Read about it in his excellent new book: Redesigning Society.

Brain Joiner on Dr. Deming

Topic: Management Improvement

The Spring 2005 MAQIN newsletter includes an interesting piece on a recent MAQIN event where the life and work of Dr. W. Edwards Deming was celebrated.

Dr. Brain Joiner, author of Fourth Generation Management, gave a toast that included several Dr. Deming quotes:

• Best efforts are not enough, you have to know what to do.
• A numerical goal without a method is nonsense.
• The most useful numbers are unknown and unknowable.
  
• Where there is fear you do not get honest figures.

Annual Report by Warren Buffett

Topic: Investing

The annual meeting of Berkshire Hathaway is being held this weekend in Omaha (cnn article). Recently the 2004 Berkshire Hathaway Annual Report (by Warren Buffett) was published. The report is excellent reading for anyone interested in investing. Some quotes from the annual report:

• In one respect, 2004 was a remarkable year for the stock market, a fact buried in the maze of numbers on page 2. If you examine the 35 years since the 1960s ended, you will find that an investor’s return, including dividends, from owning the S&P has averaged 11.2% annually (well above what we expect future returns to be - [bold added]). But if you look for years with returns anywhere close to that 11.2% – say, between 8% and 14% – you will find only one before 2004. - page 3
  
• If only one variable is key to a decision, and the variable has a 90% chance of going your way, the chance for a successful outcome is obviously 90%. But if ten independent variables need to break favorably for a successful result, and each has a 90% probability of success, the likelihood of having a winner is only 35%. In our zinc venture, we solved most of the problems. But one proved intractable, and that was one too many. Since a chain is no stronger than its weakest link, it makes sense to look for – if you’ll excuse an oxymoron – mono-linked chains. - page 5
• Finally, there is a fear factor at work, in that a shrinking business usually leads to layoffs. To avoid pink slips, employees will rationalize inadequate pricing, telling themselves that poorly-priced business must be tolerated in order to keep the organization intact and the distribution system happy...
  To combat employees’ natural tendency to save their own skins, we have always promised
  NICO’s workforce that no one will be fired because of declining volume, however severe the contraction...
  Naturally, a business that follows a no-layoff policy must be especially careful to avoid
  overstaffing when times are good. - page 8
  
• Like Hell, derivative trading is easy to enter but difficult to leave. - page 11
• Should we continue to run current account deficits comparable to those now prevailing, the net ownership of the U.S. by other countries and their citizens a decade from now will amount to roughly $11 trillion. And, if foreign investors were to earn only 5% on that net holding, we would need to send a net of $.55 trillion of goods and services abroad every year merely to service the U.S. investments then held by foreigners. At that date, a decade out, our GDP would probably total about $18 trillion (assuming low inflation, which is far from a sure thing). Therefore, our U.S. “family” would then be delivering 3% of its
  annual output to the rest of the world simply as tribute for the overindulgences of the past. In this case, unlike that involving budget deficits, the sons would truly pay for the sins of their fathers. - page 20

Comments by Warren Buffet and Charlie Munger and the Annual Meeting (cnn article):

• Munger: "You have a real asset-price bubble in places like parts of California and the suburbs of Washington, DC. "
• On whether pharmaceutical stocks have become bargains

  Buffett: "That industry is in a state of flux right now. It's historically earned very good returns on invested capital, but it could be well be that the world will unfold differently in the future than in the past. I'm not sure I can give you a good answer on that."

  Munger: "We just throw some decisions into the "too hard" file and go onto others."

Call for Papers - Deming Research Seminar

Topic: Management Improvement

Call for Papers

12th Annual Research Seminar
The W. Edwards Deming Institute and Fordham University
13-14 February 2006
New York City

Papers that link Dr. Deming’s work to the academic literature or to the works of other great thinkers are particularly sought, as are papers that extend or expand Dr. Deming’s work, and those that describe applications of Dr. Deming’s management ideas in organizations.

The Annual Research Seminar brings together people from around the world, and from a variety of specialties, to develop an understanding of Dr. Deming’s theories in a wide-ranging context. View a list of topics and speakers from the last Research Seminar.

To be considered, papers must be original work. Proposals of 200 words or less should be sent by 3 October 2005. Find more information about submitting a paper.

Deming Links:

• W. Edwards Deming Institute
• Deming Scholars Program at Fordham University
• Curious Cat Deming Web
• Curious Cat Management Improvement Library - Deming Articles
  

10 stocks for 10 years

Topic: Investment

I decided to look at selecting a portfolio of stocks I would be comfortable putting into an IRA for 10 years. My main criteria was companies with a history of large positive cash flow (that seemed likely to continue that trend).

The 10 stocks I came up with are (closing price on 22 April 2005 - % of portofilo invested):

• Templeton Dragon Fund (TDF - 16.40 - 16%) - a closed end mutual fund investing in China, Hong Kong, Taiwan, Singapore... This one doesn't fit the criteria but does a great job of filling out the portfolio in my opinion.
  
• Dell (DELL - 36.43 - 12%)
  
• Toyota (TM - 72.42 - 12%)
  
• Google (GOOG - 215.81 - 12%)
  
• Pfizer (PFE - 27.22 - 8%)
  
• Amazon (AMZN - 33.04 - 8%) They are only just starting to generate cash but I like their prospects.
  
• Intel (INTC - 23.24 - 8%)
  
• Petro China (PTR - 61.68 - 8%) Investing in PTR is based on the potential for China, the prospects for oil over the next 10-20 years and Warren Buffet's ownership of the stock.
  
• Cisco (CSCO - 17.43 - 8%)
  
• First Data (FDC - 37.48 - 8%)
  

Thankfully I don't have to staying locked into decisions for 10 years. But, if I had to, this is a portfolio I would feel comfortable with today. It is overweighted on technology (which is another reason for including Petro China). Templeton Dragon Fund also provides a nice counter weight to all the technology. I would like to have a higher exposure to heath care, but I couldn't find the stocks that seemed equal to those above.

I have been using marketocracy, since 2001, to manage a portfolio of stocks (marketocracy does a great job of tracking performance for you which I find quite convenient). This year my fund has suffered. At the beginning of this year the Darvamore Fund has exceeded the S&P 500 by over 10% annually on average). This year however the fund's overall performance results have been reduced to just 5.5% over the S&P 500 annually. Hopefully that trend will turn around soon.

Read more:

• Curious Cat Investment Books
• Curious Cat Investment Dictionary
• Curious Cat Investment Library

Beginning of the End of Housing Bubble?

Topic: Economics - Investing

re: Beginning of the End of Housing Bubble? - Dan Gilmor blog post

I doubt we are at the end of the bubble. However, financial bubbles are very difficult to time. My guess is the bubble will continue for over a year for most, if not all locations in the USA. And unless the bubble continues and prices reach levels much higher than they are now, the end of the bubble will not be dramatic decline of prices (say an drop in prices of over 25%) in most locations. Manhattan (with historically very volatile prices) and certain other locations will likely have dramatic declines. But overall the real estate market will slow down (fewer sales) greatly and may experience say a 5 year period where prices decline slightly (or increase slightly). Real Estate normally does not behave the same way the stock market does when a bubble breaks, but we will see what actually happens.

The risk of stagflation, while real, is small, I believe. The huge trade deficit, large unfunded liabilities (Social Security) and huge federal budget deficients are likely to cause problems. However I believe these problems will more likely result in long term slow degradation of the standard of living in the USA instead of a dramatic break of the sort that could result in stagflation.

The decrease in the standard of living due to these forces could well be masked by other forces that increase the standard of living. So the inevitable cost of us now living beyond our means (passing the bills on to our children and grandchildren) can be ignored fairly easily. It is not a good approach but it is likely the one we will continue to practice. A recession is much more likely than stagflation.

Real Estate articles:

• Some Economists Warn of Housing Bubble by Daniela Deane Washington Post


• Are you living in a bubble? - like most opinions I wouldn't take those expressed in this article as anything other than an opinion, but as such, it provides some interesting estimates.
• More real estate articles
  

Management Improvement Articles

Topic: Management - Library Articles

Recent additions to the Curious Cat Management Improvement Library include:

• Six Sigma and Kaizen Compared by Raphael L. Vitalo
• Deming Retrospective Inputs by Gerry Hahn
  
• Bringing Lean Systems Thinking to Six Sigma by Paul Mullenhour and Jamie Flinchbaugh
  
• Risk Management during Requirements by Tom DeMarco and Timothy Lister
  
• Innovation Now! by Gary Hamel
  

Find links to these, and other new additions, on the Curious Cat Management Improvement New Articles Page or search for management improvement articles.

Performance without Appraisal

Topic: Management Improvement

re: Managing with Trust post from Coding Horror

This interesting post includes the quote:

"It seems cheap to dispatch [performance reviews] without suggesting some alternative."

Dr. Deming would mention Peter Scholtes thoughts on why performance appraisals were bad management when asked about his belief that performance appraisals should be eliminated. In the short article Performance Without Appraisal: What to do Instead of Performance Appraisals, Peter wrote:

Dr. Deming said of Performance Appraisals, "Stop doing them and things will get better." He was correct. Many organizations, however, wonder what to do instead.

For those that do require "some alternative" Peter included some good ideas in The Leader's Handbook(see chapter 9 "Performance without Appraisal pages 293 to 368). This chapter has excellent material for any manager. In the interest of full disclosure I not only think Peter's ideas are great I consider him a friend and host his web site (he is retired).

Abolishing Performance Appraisals: Why They Backfire and What to Do Instead by Tom Coens, Mary Jenkins (forward by Peter Block), 2000, is another excellent source of "what to do instead."

I think the Managing with Trust post has some good ideas but I don't agree with everything. "In order to manage a project, you have to objectively measure what your teammates are doing." I don't agree with this quote. I agree you must manage a project and "that trusting your team is not a substitute for managing them." However a manager must manage many unmeasurable factors. The stuff that can be measured is the easy part. The largest part of the job is managing the things that are unmeasurable.

Deming explores the idea of rating people on page 109 of Out of the Crisis and states "fair rating is impossible." He goes on to explore what is commonly known as the "red bead experiment" where he shows an example of how easy it is to assign numbers to people to aid in managing. But the experiment actually shows how easy it is to be distracted by numbers instead of actually managing. It is easier to make decisions based just on the numbers you have than to take on the challenging task of managing. And to help this process along it is easier to reduce employees to simple numbers (ratings or rankings) than to deal with the complexity and interdependence that actually exists.

The Managing with Trust post also mentions Tom Demarco. I am in the midst of reading the second edition of Peopleware: Productive Projects and Teams by Tom Demarco, Timothy Lister and it is an excellent book.