The above “cloud” describes a generic conflict of living under the limitations of our knowledge. Goldrartt coined the epigram “Never Say I Know” to guide us to always look for signals that challenge our current understanding and by this prepare the next leap in performance. Problem is that recognizing the limitations of our knowledge might cause paralysis, trying not to do anything that we don’t have to, certainly not to take any decisions that lie outside our “comfort zone”. Taking actions only within the comfort-zone is a wide-spread compromise of the conflict.
Being fortunate to work closely with Dr. Goldratt included the not-too-nice, but extremely inspiring, experience of answering him “I don’t know” to a pointed question. He got angry, pushing me to verbalize what partial information I do know and how it leads to the best answer we can have. The only reason, according to Goldratt, of not knowing anything is not caring. When you do care you notice certain effects that logically lead to certain conclusions, even though far from being certain. This experience led me to recognize the following statement:
Never Say I Don’t Know Anything
This recognition is an even more pointed paradox than the above conflict. How can we both know and don’t know?
My resolution of the paradox, focused on decision making, is the recognition of the wider impact of uncertainty, recognizing two parts of our knowledge – the part we believe we “reasonably know” and the part we know we don’t know. A new element we have to introduce into both conflicts is the term “reasonable”, describing what we think we know with a certain level of certainty, still recognizing the fact that in some infrequent cases we are wrong.
Assessing our reasonable knowledge is much more concrete when we predict what is reasonably NOT true. Let’s view some examples.
- Two teams in sport. Team A had, so far, 10 wins to 0. Team B had, so far, 10 defeats to 0. Who is going to win?
- We could assume that the optional result of B winning is not reasonable.
- When a draw is a possibility (like in soccer) then a draw might be regarded reasonable.
- We can also assess what results are not reasonable. For instance, if the example is about basketball than a result of 100 to 0 is unreasonable. Someone with better intuition might even claim a win by 60 points or more is unreasonable. This assessment of what outcomes are not reasonable, leaves quite a lot of latitude to what is reasonable – and this leaves us with the reasonable boundaries of what we don’t know!
- Predicting the rate of growth of the economy.
- All the current knowledge, based on the past and on understanding the markets would lead to outline what rates are too reasonably high and also what rates are too reasonably low. This defines the range of reasonable results where we don’t know which one would occur.
- Nominating a new C-level executive.
- We like to nominate someone who would not fail! This means that the criterion of the choice is that a failure of such a nomination is considered unreasonable. It could be that we have rejected another candidate whom we reasonably assessed could achieve even more, but also might fail causing serious damage.
Even with this recognition of what is reasonably not true we still acknowledge the fact that in some, relatively rare cases, our reasonable knowledge are flawed.
The boundaries of what we-know-we-don’t-know include all the cases that we assess could reasonably happen – but we don’t know which one. These are also the boundaries of the uncertainty as viewed from our perspective. I define uncertainty as everything I don’t know. The decision-making process has to consider seriously the possibility of every potential outcome that lies within the boundaries of what we don’t know and to consider the range of the potential benefit and damage of all those outcomes.
There is a perception that TOC is against forecasting of sales and that there is no need to forecast sales. I challenge this perception.
The real problem with forecasts is the basic misunderstanding of what information should be conveyed by forecasts. We absolutely need sales forecasts to tell what level of sales is unreasonable, so we can prepare for the range of possible reasonable demand.
Suppose the inventory target level, according to the TOC replenishment solution, for product A is 100 units. Currently the on-hand stock is 30, and two orders are on the way – one for 40 and another for 30.
Buffer management tells you that the on-hand stock is in RED. This means we assume it is reasonable that the demand in the next day or two might exceed 30 units. Thus we have to expedite the next order. However, the possibility that tomorrow the demand would exceed 140 units is considered unreasonable! This is the forecast we use in TOC – predicting that within regular response time the demand will not exceed the target level!
Suppose you hear a rumor that a major competitor is going to close his business in three or four days. It is a “rumor”, not a hard fact, but how many important real hard-facts, which could have big impact, are you exposed to when you have to make a critical decision? Suppose you think this rumor is “reasonable” and if it materialized then the demand for your products would go up.
Would you take actions based on a forecast, which is based on a rumor?
I know I would, maybe very carefully not to cause too much damage of overproducing when the demand might not go up at all because the rumor could be false.
This is the essence of living in uncertainty, partially knowing and partially not knowing. We need to make decisions that would never hit us too seriously and most of the time will bring huge benefits.