The Problem Statement

Man-made systems are created to exploit opportunities or to reduce threats.  They are designed to fulfill a mission, or objective, aimed a exploiting the opportunity, or reducing a threat.

A problem space is a relativistic concept. Two people in the same organisation may view problems differently.

Problems and solutions could be two sides of the same coin. One man’s problem is another man’s opportunity -- a client has a problem, the solution provider has an opportunity.

Sometimes what we think as problem solving is actually only symptom solving.

Problem spaces are not static. They evolve.

Problems can be symptoms.  Finding the root cause helps in finding an effective solution.

In systems, often the root cause of problem spaces can be many.

Sometimes the best way to understand the solution space is to strart with a conceptual solution.

The problem space is partitioned into solution spaces. This is to reduce the complexity.  It can be impossible to provide a single homogeneous solution that addresses the whole solution space. Each partitioned solution space is analysed deeper and even partitioned.

You cannot really expect to solve a problem if you don’t know what the problem is.  One of the first steps in solving a problem is to understand the problem. 

Often, a problem cannot be solved away, it can only be managed.

Implementation of a solution changes the surrounding system and may introduce new problems and opportunities. Systems are systems.

 

References:

• System Analysis, Design, and Development: Concepts, Principles, and Practices (Wiley Series in Systems Engineering and Management)

System Operations Model

Every (man-made) system is intended to be deployed, operated, and eventually disposed of.  Having a common understanding of how the system is to be deployed, operated, and disposed helps avoid much miscommunication between the project team.

A System Operations Model is a high-level model of how a system is envisioned to be deployed, operated, and eventually, disposed.

It shows, in graphical terms (a SOM is typically diagrammed) the interrelationships among the different stages, gates, and operations:

• System development
• Entrance criteria (entrance into deployment)
• System deployment
• Performance of purpose (mission)
• System maintenance
• System reconfiguration
• Phasing out
• System disposal

Once we have built the SOM, it becomes the basis for further systematic elaboration into operations and tasks.

Seeing Tomorrow, III

Continuing book review of Dembo & Freeman’s “Seeing Tomorrow: Rewriting the Rules of Risk”

In chapter 2, the authors introduce four elements they consider to be core to any forward-looking approach to risk management:

• Time horizon
• Scenarios
• Risk measure
• Benchmarks

Time horizon refers to the future period that we are interested in.  It is a distinct period (with a distinct begin and end, as opposed to simply ‘the future’).  An investor who wants to assess the risks involved in an investment needs to think about the timeframe of his investment.  This timeframe (or time horizon)  is very different for someone who wants to cash in in two years than for someone who plans to cash in 15 years into the future.

Of the four elements, the authors give the longest treatment to scenarios.  A scenario is a projection of what could possibly happen in the future.  The purpose of creating scenarios is to help us plan for that event if it occurs. 

The key here, the authors say, is not merely generating a scenario but several scenarios.  These set of scenarios will help us gain a clearer understanding of the range of dangers (and opportunities) we might face. 

If a scenario eventuates, and we had anticipated that scenario, and made plans for it, then we are in a better position to react and perhaps exploit the new situation.  We will be better placed, relative to our competitors and relative to where would be had we not planned for it.

The third element of risk management is deciding on a risk measure. This is about deciding we measure riskiness.  Apparently this is very tricky, since choosing a measure like Value at Risk (VaR) could protentially produce similar values to very different risk situations, effectively obscuring the reality that they are very different propositions.

The final element is Benchmark, or having something to compare with.  Choosing the appropriate benchmark is key to understanding how well we are managing our risks.  Do we choose to benchmark our investment performance relative to Warren Buffet’s or the DOW index or something else?

After the discussion on the four elements, the authors also touch on Risk-Adjusted Valuation.  This is the ‘real’ price tag of something and is almost always ignored.  For example, suppose you buy an expensive ring for $20,000.  Now, you would want to insure something that valuable since you cannot afford to self-insure it (absorb the loss if it gets lost).  So let’s say you pay $100 per year to insure that ring.  That total amount (comprised of the original amount of the ring, plus its ongoing insurance) is the Risk-Adjusted Value of that ring.  The authors want the reader to begin thinking always about the Risk-Adjust Value of everything.

The chapter ends by tying up all the four elements in a short example using a model called Marking-to-Future, a model developed by one of the authors.