Risk No Longer Matters

on Friday, April 30, 2010

Over the last few years our country and the world have experienced disasters that have exposed major gaps in our infrastructure, regulatory bodies, and overall planning capabilities. The levies failing in New Orleans is the most obvious example, but more recently the failure of our banking industry, mine safety, offshore drilling, and a plume of volcanic ash hanging over Europe all make evident that a chain is only as strong as its weakest link.

In business, we’re supposed to have a backup plan. We’re supposed to have redundancy. And we’re supposed to be penalized if we fail. All the examples listed above show that none of those things are happening.

So why not? One reason is that businesses and our government no longer put a proper value on risk. That thing that has a 1% chance of happening? It’s no longer factored into the cost/benefit analysis, instead it’s thrown out.

There are two major problems with this.

First, we have to question how that 1% was arrived at to begin with. We like to think that scientists and statisticians somewhere did a thorough risk analysis to come up with that probability. But if the banking industry is any indication, it’s more likely that someone was paid to arrive at a 1% probability. Just as likely, that number was an educated guess.

Second, even when 1% is considered, it’s not properly valued. Looking back and knowing that there was even a 1% chance of that oil rig collapsing out in the Gulf, would BP have made the investment, knowing the cost to plug the hole and clean up the mess is now running at $6 million per day? And that’s just their piece, without factoring in the costs that will be incurred in the fishing, freight, and tourism industries, not to mention costs incurred by individuals. Would BP factor those into an analysis? Not likely, but hopefully getting sued to the brink this time around will force them into thinking about it next time.

So why don’t we put a proper value on risk? One good reason is greed, which we’ve cleverly renamed optimism. We continue to be a society focused on the quick dollar. Most people don’t stay at a job for more than 4 or 5 years, so long term thinking no longer comes into play. To add to that, most organizations compensate far more lavishly to identify opportunity than they do to identify risk.

The government could certainly do more to change this way of thinking, such as tightening regulations, or simply stop watching porn, but society as a whole ultimately needs to change. Looking at our stock portfolios now and realizing they look exactly the same as they did ten years ago might turn a light bulb on. But one thing is for certain, until we start focusing on that 1%, we are 99% screwed.
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Offshore Drilling – A Slick Idea?

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As a slick of oil the size of Delaware slowly heads towards the southern coast of the United States, sure to bring with it a wave of coastal destruction like nothing we’ve ever seen before, I thought about a conversation I had with a colleague a few weeks ago. At the time, Obama had just introduced plans to open offshore drilling on the East Coast of the United States – the first president to do so. I didn’t care for the idea, but my coworker felt it was a good one. “We need to explore all options” he said, which of course is a very reasonable position to take.

The problem is that oil isn’t a sustainable resource. It won’t be around forever, it won’t even be around in the next 100 years, yet we continue to think of it as “Option A” in the plan for energy independence. In reality, it should be “Option Z”, or better yet, “Contingency Plan Z”. To think of offshore drilling as a way to for the U.S. to become energy independent over the long term is the same as thinking duct tape is a permanent solution for fixing a hole in a flat tire.

To make matters worse, a few days ago Obama’s press secretary Robert Gibbs indicated that the disaster in the Gulf will not change the President’s plan to open drilling on the East Coast. I have to think the pictures we will start to see of the coastal and environmental devastation, which will only get worse until they figure out how to shutoff the flow of oil, will change the President’s position on this.

Still, the statement left me wondering, “Then what the hell would?”

Rahm Emanuel, now famously, once said “You never let a serious crisis go to waste.” In this travesty, Obama has the option to fundamentally change the way we think about using oil. Or he can try to have it both ways, like all the Presidents before him. History will be the judge.
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A $470 Million Pothole?

on Wednesday, April 28, 2010

Yes, that’s what I said, a $470 million pothole. Well, a metaphoric pothole anyway, in the state transportation budget. An article from philly.com indicated that PA Governor Rendell has been trying to find a way to fill that hole in order to raise money for transportation repairs on the highways, bridges and other projects. I get why we need tolls, I really do, but I feel like they keep finding ways to up the ante and not in the PA drivers’ favor. Rendell wanted to toll I-80 to help make up for the deficit as well as raise other local tolls. The Federal Highway Administration has rejected the proposal to institute tolls on I-80 three times already citing federal transportation law that states that tolls collected on that road must only be used for that road. I’m not sure what to think about this. It makes sense to help with the transportation budget but I already pay $2 to go a few miles on the turnpike! What do you think? Do you think they should keep fighting to toll I-80? Or find another means of funding?
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Rant (again): Paying for an RFP

on Tuesday, April 27, 2010

Hey, School District in California (you know who you are)... Sorry, but we are not interested in paying to retrieve an RFP that you bulk blasted us with. Please see this post to learn more.

Just a reminder to purchasing folks out there; it is generally not good business practice to make your suppliers pay to participate in a sourcing event. And if you do choose to use this tactic, you should have a more open dialog with the prospective suppliers before you send them a fax telling them to pay for an RFP before they even know the contents of that RFP.

/end rant

In case you missed them, here are some posts with tips for conducting RFP events:
Stop RFP Spamming
Rant: Pay for an RFP, No Thanks
Don't Let Your Suppliers Write the RFP
NJ Transit, an RFP in Futility
Bypassing the RFP
E-RFX, Are you Getting Results?
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Granados, Guatemala Goes Green

on Friday, April 23, 2010

Rounding out Earth Week I wanted to share another story relating to the “3 R’s” – reduce, reuse, recycle.

A 25-year-old from Portland, OR volunteering with the Peace Corps in Granados, Guatemala thought outside of the box when she saw the village’s school building was breaking down. Dreams don’t just come true in Disney World. Laura Kutner’s plan was to rebuild the school’s walls with waste plastic bottles and to cover with a thin layer of cement and paint, leaving a spot on one wall to expose the distinctive construction.

With the help of the school students who were asked to find at least 20 bottles each, every bottle was stuffed with plastic bags to strengthen the structure. The process took about 6,000 bottles and months of work. Talk about a value-ad to this project; by collecting bottles and plastic bags the students cleaned up ditches and hillsides of their village and even neighboring villages. By including the students in the process they shared pride in rebuilding the new school and became more aware to clean up garbage around the village.

Thanks to Laura for acting on her dreams to help this village’s school, the mayor of Granados is even talking about building a bottle sidewalk if they can find enough materials.

What a true inspirational story to be told this Earth Week.
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Happy Earth Day 2010!

on Thursday, April 22, 2010

In honor of Earth Day’s 40th anniversary today, I’d like to share with you part of Good Housekeeping’s Easy Ways to Live Greener.

A few of the Green Around the Clock habits to start practicing that caught my eye were:

1. Brew USDA Certified Organic coffee or take a travel mug with you when swinging by your favorite coffee shop. They may even fill it at a discount!
2. Configure your office printer or copy machine to duplex printing (both sides of the page).
3. Unplug any electronics not used while sleeping to prevent phantom electrical draw. A helpful tip is to plug items into a power strip to easily flip the switch before bedtime!

Check out the full article for suggestions in Start ‘Em Young and Green My Ride.

The page continues into 21 Ways to Green Your Home (and keep some greenbacks in your pocket) which contain great suggestions. Check out the full article if you get a chance but here are a few from the Double-Duty Ideas section that were neat and easy ways to help reduce, reuse and recycle:

1. Small glass food jars. These make perfect see-through storage vessels for nails, screws, nuts, and bolts.
2. Used coffee grounds. Spread them over flower beds of acid-craving plants such as azaleas or rhododendrons. Personally I’ve used coffee grounds around hydrangea to get them to grow vibrant blue hues versus the traditional pink.
3. Empty paper-towel roll. Flatten and use it to sheathe a knife kept in a drawer.
4. Plastic tub. Get the largest-size container of yogurt, sour cream, or margarine. When done with the tub, rinse and reuse it as a travel dish for pets or for craft-supply storage.

Get your green juices flowing by paging through the full 5 pages this article has to offer.
Recycling Do's and Don'ts
Paper, Paper, Everywhere!
7 Ways to Waste Less
5 Oldies but Goodies
5 Eco Labels You Can Trust

Save money and save the Earth!
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Flying Off the Handle?

on Monday, April 19, 2010

Over the past few years travelers have experienced increased fees for various reasons, 9/11 for one was a big contributor to increased airline fees. Others that have added to the mix are the high costs of fuel as well as the decrease in pleasure related travel. The airline industry, like many others, is a supply and demand business and must find ways to accommodate for added costs. These added fees can account for up to seven percent of an airline’s operating revenue according to an article posted in the Philadelphia Inquirer. The article also noted that five major airlines, American Airlines, Delta Air Lines, United Airlines, JetBlue Airways, and US Airways will not be charging customers for carry-on luggage like some other airlines will soon do. This even comes at the wake of financial losses for some of these companies. I suppose they have come to the realization that travelers will only take so much before “flying” to the competition.

What this all boils down to is understanding the value that a company provides for the cost. I know that when I travel I look at the costs to drive my decision making. This might change depending on the duration of the flight. A few years ago I had quite the fiasco with a trip to Cabo San Lucas that went from two short flights to three long flights. A person can really take the time to evaluate an airline when they spend all day flying! Some airlines provide movies, others don’t, some provide free in flight concessions, others charge an arm and a leg. Again, as someone who does not frequently travel I do not take this into as big of a consideration as someone who might travel weekly or daily for business. Airlines need to factor in what costs and amenities will drive a customers decision to move forward with a purchase in its favor or against it. This is certainly something that Spirit Airlines will be evaluating come August when the new fees go into effect.
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NJ Transit – An RFP in Futility

on Thursday, April 8, 2010

Traveling from Trenton to New York City on an NJ Transit train yesterday, in a train car that was at least 95 degrees (the AC was broken), and on an express train that was “stuck” behind a local, I was reminded of an RFP our firm was invited to participate in last week.

At first I thought the NJ Transit RFP for “Telecom Bill Audit and Recovery Services” was an example of a state government finally trying to get control of expenses. Telecom audits, which typically include both a recovery aspect (getting credits for lines that should have been disconnected, as well as other mis-billings) and infrastructure optimization (disconnecting unused lines/circuits, changing services, etc) are a great way to reduce overall telecom costs.

However, I quickly overcame my optimism when I saw the 100 + page hard-copy RFP and associated documentation that was mailed to us via USPS Priority Mail. Ever hear of e-mail?

My disappointment was compounded after I read through the document. I couldn’t possibly address every issue in one blog post, but by far the biggest was the extremely limited scope of work that NJ Transit establishes in the RFP. As detailed in Addendum 2:

“Identifying services that should have been disconnected but are still being billed are naturally a part of this effort and credits or refunds to the consultant are eligible from the date the disconnect was proven to be issued. There is no compensation for future savings nor is this a “traffic engineering” RFP.”

In other words, finding lines that are no longer active, issuing a disconnect, and verifying the new prices, are not part of the scope of work. In fact, neither are other simple changes that could be identified when analyzing this type of data, such as moving to unlimited long distance lines where it makes sense.

So what is in the scope of work? Getting credits for mis-billings, most of which occur when a company issues a disconnect order and the carrier fails to terminate the line and/or the subsequent billing.

Substantial savings are to be gotten in this arena, however it assumes that the provider will have access to proof that a disconnect was requested by the customer. In many cases, this data is not available, or can only be found by searching through the email of the person that issued the disconnect. Is NJ transit going to allow their provider to rummage through email records for this information? Not likely.

Of course, if disconnect orders are readily available, a provider can go back and request credits. But getting the carriers to actually issue credits for past billings (in this case up to 6 years worth) could take several months, and the impact will only be seen once.

The long term impact for any company (or even a government entity!), is in identifying unused lines, issuing (or re-issuing) disconnects, following through to verify the disconnect happens, and validating it on the next bill. The impact is immediate and invoice amounts can be reduced substantially in a relatively short amount of time.

Since NJ Transit is excluding any compensation to the providers for that service, they awarded bidder certainly won’t be doing it. Will NJ Transit do it internally? Well, they haven’t in the past (hence the audit) so they likely won’t be doing it in the future either. A real cost savings opportunity goes absolutely untouched.

New Jersey – your state is on the verge of budgetary collapse. Your schools are not properly funded, your infrastructure is crumbling, and most importantly, $25 is excessive for an on-peak round trip to NYC. This RFP will not produce sustainable long term results, in fact, it is counterproductive. The companies that will respond to it are likely to take any job, and the provider you end up with will achieve little or nothing. The concept was great, reduce telecom costs, but the follow through absolutely killed it.

If one good thing came out of this proposal, it’s that the “Contract Specialist” that issued the RFP can demonstrate they spent a lot time writing a 100+ page document that makes absolutely no business sense and will achieve the little or nothing. Our government’s finest, hard at work.
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Networking: You’re Doing It Wrong

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Today, networking is one of the biggest buzzwords being tossed around. From “Networking Mixers” to “Speed Networking” events to LinkedIn, anybody and everybody is trying to get in on the action in one way or another. On many levels this makes sense. In the face of a stuttering economy, many people are relying more on personal relationships to get a foot in the door for a new job or business opportunity. After all, it’s not so much what you know as it is who you know, right?

With that being said, I think many people on the networking bandwagon have the wrong idea of what networking actually is. People understand that networking involves meeting new people, and they understand that these relationships can help them throughout their career. What they sometimes fail to understand is that networking is only effective if your immediate goal is to find ways to help others. Yep, I said it. In the long run, you can reap serious benefits from networking, but you must first develop relationships.

While networking may eventually lead to opportunities (jobs, sales, business deals, etc) you can’t view everyone you meet as a prospect. The quickest way to annoy someone is to treat them as a prospect. Michael Goldberg, a networking expert who developed a whole list of rules for acceptable networking etiquette, makes one point about networking I found to be very valuable. He calls it the “chickens and eggs” rule.

In short, he compares eggs to the end goal. New jobs, business opportunities, and new sales are all examples of “eggs”. Goldberg argues that networking isn’t about hunting for eggs. He asserts that successful networking is about developing relationships with what he calls “chickens”. A chicken represents a relationship that can eventually yield eggs. If you feed, that is look for ways to help, chickens they will eventually deliver eggs.

This brings me back to my point that successful networking must be rooted in an earnest desire to help others. Networking is not a spot sell or a short-term goal. It is the ongoing process of developing, tracking, and nurturing relationships. The more you focus on planting seeds, and the less on harvesting, the higher your end yield will be. So, I urge you to start networking today. Whether you meet someone new, or already have someone in mind, take a second today to help someone else in your professional network. It may not be tomorrow, or the day after, or the year after, but, in all likelihood, that relationship will pay dividends in the long run.
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Gothic Goes Green

on Thursday, April 1, 2010

This is no joke. The University of Wisconsin at Green Bay (fitting) goes green by changing their default font from Arial to Century Gothic on its email system. By making this minor switch the university will save potentially $10K per gallon (30%) in the cost of printer ink when students print emails on campus. The school’s director of computing says the decision is part of the school's five-year plan to go green.

Give Century Gothic a try in your office or home and be eco-friendly while saving money today!

Source One can help you obtain savings on your toner purchases
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