Understanding and increasing value

Context: Thursday at 4:05 pm, I’ll be keynoting in Hall D at the RSA Security Conference: “Mind over Matter: Managing Risk with Psychology instead of Brute Force”. There are two core topics covered by the keynote; the other is Risk Compensation.

How do we understand how much value we provide to a business? One way is to first understand how much value a business a provides – a business spends money (resources), and (hopefully) makes money. The money it makes is it’s value; the ratio value over resources is its capabilities: how well it applies resources. We hope that our capabilities is greater than 1: that is, that we create surplus through our activities.

Organizations within a business can apply this same measure, even if the numbers are a bit fuzzier. Since we can’t always measure value, sometimes we measure capabilities instead as a proxy. Capabilities is simply our skill at using our resources, times our effort in applying them, times our effectiveness at changing at our environment.

Skill is simple to understand. There’s an apocryphal story about a maintenance engineer for a company who, after retiring, was called back in because one of the ancient mechanical systems had failed, and no amount of effort could restore it. He came in, made a chalk mark on the side of the system, and told them to hit that spot with a hammer. He presented them with a bill for $30,000. When asked for itemization, he noted:
Chalk: $5
Knowing where to make the mark: $29,995
That’s skill: the ease with you can accomplish a task.

Effort is about how we approach a task. Do we think it will fail, so we give it insufficient attention? Have we assigned it to someone overburdened, so they are distracted and fail to make progress? Do we give it to someone with true passion, and let it be a priority for them?

Effectiveness is often about the environment we are in: Did a project complete, or did we decide not to finish after investing 80% of the time? Did we have buy in from the business, or will our project collect dust? Did we end up shouting from rooftops, and no one listened? If, as a result of investing resources, there is no change to the business, then the resources were, generally, ineffective.

That last part is hard – we think of ourselves as preventing bad things, so how do we know if we were effective? The answer is simple – we should have enabled our organizations to take more risks! It sounds perverse – but all organizations take risks. We should enable them to understand the risks they are taking, and mitigate some so that they can take others – hopefully ones not related to security, of course.

While measuring capabilities is hard, it’s like three-dimensional differential equations in a non-ideal environment : really hard on paper, but almost anyone can catch a ball. Within an organization, teams are judged on their capabilities, and resources are redirected over time from the less capable to the more capable.