Management Is Naturally Imperfect

Management Is Naturally Imperfect

The fundamental theory of management is that by collecting and assessing enough (all) information, a perfect decision can be made. An omniscient decision maker, for example, chooses his decisions and understands their consequences prior to action.

But management is imperfect because it relies on data of varying quality. For example:

  • information gathered from a biased employee,
  • reporting data handicapped by inadequate collection, or
  • modeling that supports a chosen narrative.

The art of management is that most information is not only unknown, but can't be possibly gathered and understood in any reasonable amount of time – much less within the time frame in which the decision is required. To demonstrate this idea, consider whether you should buy or sell Apple stock, tomorrow at noon.

Scores of analysts weigh this concept every day. At any given time, a handful usually support the buy position and another handful support the sell position. Funny enough, the correct position is the one chosen by other less-than-perfectly informed money managers.

So, how do we make reasonable decisions? Simply put, we must make sure these decisions are:

  1. supported by data from multiple quality sources,
  2. contextually valid in the real world, and
  3. fit into a simple, feasible narrative.

An imperfect analogy

For engineers or those with a technical background, the Riemann Sum is an interesting way to consider the challenges of management. According to Wikipedia, this approach is "useful even if the fundamental theorem of calculus does not make it easy to find a closed-form solution". I.e. it's a great tool when you have limited information.

Left, Right & Midpoint Riemann Sums

In brief, Riemann showed that you can approximate the area under a curve by slicing it into discrete chunks. In the image above, both the Left and Right Riemann Sums will provide worthy approximations of the precise answer. But, by applying multiple vantage points to the problem – and really, the Midpoint is just a simple average of the Left and Right – we get the best approximation of the three.

Conclusion

Similarly, the art of management shares this same principle: consider multiple perspectives, and slice the data just enough times to see comfortably: to make a decision. Over time, you'll encounter situations where more information would have been helpful, and these will help you develop an intuition.

However, you will never be the omniscient decision maker. Management is naturally imperfect.

Devin Fee

Devin Fee

http://devinfee.com

I'm a father, and engineer turned businessman. I have built my career in the world of early stage, venture backed businesses.

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