He presented this definition of Real Options:
1. Options have value.
2. Options expire.
3. Never commit unless you know why.
I didn't understand it, so I asked him what impact it had on his behavior. He said that it cleaned up his language...he no longer uses the words 'must', 'should', and 'have to'. I asked him to recommend a book. He recommended Commitment. I read it last night. Took a couple hours.
Get your hands on this book. It's dense with simple and powerful ideas about project management.
Here are highlights of what I learned:
- Real Options is a rational decision making framework. It is a mechanism for countering a strong behavior pattern in people. People prefer to be right rather than wrong. And they prefer to be wrong rather than uncertain. The 'never commit unless you know why' in Real Options is all about countering people's innate preference to be wrong rather than be uncertain.
- The book distinguishes between outputs and outcomes. All outcomes belong to one of four categories. You only commit once you've identified the outcome. The book offers three strategies for delaying commitment.
- How to create a Kanban board. The book offers so many ideas about this, it really made me view Kanban boards in a very different way. And I've been working with them for a decade. It made me understand why they lead to better decision making and better outcomes through discussion of Theory of Constraints, WIP limits, identifying blocked work, and the cost of hidden queues.
- How do you optimize for scaling teams up and down? Answer: staff liquidity. Actively manage knowledge silos by allocating your most junior people first. I found this very counter-intuitive...allocate your most senior people last? What? But the book makes clear why this makes sense.
- There are 3 types of options: financial, legal, and real options. 'Real' just means the option is offered by the 'real world'. Not a man-made financial or legal contract. This is an important distinction, because you can use math to identify optimal decisions for financial and legal options. Math does not help you identify optimal decisions for real options.
- The book applies Real Options to knowledge acquisition...Knowledge Options. I found this idea fascinating. It also discussed a strategy for finding mentors.
- The book discusses the relationship between conflict, failure, and collaboration using Game Theory. It makes really clear the consequence of avoiding conflict and failure...no collaboration. It discusses how to detect conflict avoidance, and tactics to support conflict resolution.
- How to manage risks? Answer: scenario planning.