Risk Management -- Of Golf Games and Priority Setting

This has been a good month to be traveling outside the United States. The travails of the accounting profession are still to have their reckoning, but at least for now they’re off the radar that displays wreckage from Fannie Mae and Freddie Mac through Lehman and AIG onward to Washington Mutual and Morgan Stanley.

Instead I’ve had time for the syllabus for my business school course on personal risk management and decision-making.  

How do we balance the priorities among our choices – especially as regards efforts for success? What standards do we use for our own performance measurement? For some of the topics, see here.

Being away also meant missing my one annual golfing adventure  – today’s subject.

My sporting and exceedingly patient companions on the golf course are the bunch of guys with whom I more usually bond over fine food and excellent wine.

Last time out, for the hours I was blasting along, all species of on-lookers were in harm’s way – furred, feathered and flask-bearing alike. Happily no wounds were inflicted, except to the innocent fairway grass and my own capacity to sustain dignity in adversity.

I sprayed all points of the compass, including a ricochet straight back off a defenseless oak tree against my unprotected shin -- recalling that the Scots named this activity as they did because all the really pungent four-letter words were already taken.

Later in the steam room after, I was flattered by my colleagues’ suggestion that, having had that much fun, I should consider applying to become a regular.

But with the fresh memory of my own handful of worthwhile shots, scattered at random and by accident through the afternoon, I recalled the advice of my friend Joe the salesman, who golfs with his clients enough to have kept a steady one-handicap since his college days.

You’ll know early on how good you can be, he says. Once you’ve had enough lessons and played enough rounds to assess the basic eye-hand skills and overall coordination, you can predict within five or six shots how much you will ever improve.

In planning the possible reallocation of my limited leisure, I could put it this way: if I invested thousands of dollars and hundreds of scarce weekend hours, I might reverse my ratio of dud shots to well-flown attempts. But I would still be a hapless hacker, muttering to myself from the depths of a fairway trap or a buried lie. And all that at the sacrifice of my family’s entertainment budget and any hope of domestic tranquility.   

Considering golf as a possible new hobby, then, I would face a sporting version of the “80/20” principle – the guidance that, whereas most of the measurable benefit of an undertaking comes in the early stages of invested time and energy, the final climb to the pinnacle of excellence requires dramatically escalating degrees of effort.

The 19th century Italian economist, Vilfredo Pareto, observed both that 20% of the landowners in his region owned 80% of the land, and that 20% of his garden yielded 80% of his crop. His principle has important decision-making applications across such areas as meeting efficiency, product quality control programs, and investment portfolio selection.

Pareto’s principle quickly extends to a version of the economists’ law of diminishing returns. With the acquisition of a garageful of costly and exotic paraphernalia and an intense course of instruction rivaling a university doctorate, I might aspire to put half my tee shots on the fairways and get off the greens in four or five putts. But to put pars and birdies on the scorecard would take intense, concentrated and expensive dedication, with no assurance of success even then.

The setting of priorities leads to a Law of Effective Satisfaction: if 20% of the effort gets you all the benefits you really need, then you can skip the other 80%, and use the efforts elsewhere.

Because budgets of time and money are constrained, there are huge efficiencies in solutions that are “good enough.” If 20% of business activity yields most of the success, do that work first and foremost. Identify and sack the one-fifth of an employee work force causing 80% of the personnel issues. Cultivate the top 20% of the client list, where most of the profit and satisfaction lie.

And there are the personal daily choices. Of the fifty Google hits, the top ten will contain most of the research you can expect, so stop all the digging for no extra yield. Once you’ve studied enough to succeed at a pass-fail exam, close the books, and better use the time by going out for a pizza.

Finally, the bulk of any intelligence that might lurk in the typical book on self-help or investment strategy must be found in the introductory pages – also the case for such insightful but overblown and repetitive non-fiction as “Tipping Point” or “The World Is Flat.” You can skim off most of the value by borrowing a copy from the shelves for thirty minutes at the bookstore coffee bar, and save yourself the purchase price.

These ideas have no application to matters of the heart, which know no limits – the call of patriotism, unconditional commitment to a small child’s welfare, or a vocation pursued with passion. 

But meanwhile back at the country club, it is not hard to decide in favor of my friend’s wise counsel, to put strict limits on the satisfaction I might ever take from beginner’s golf. Once a year I can spend an amiable day strolling the fairways with my friends. Otherwise I stick strictly with forms of recreation where my mediocrity is not a barrier to my enjoyment.

Comments

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great !