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Project Planning Exercise: What’s In A Coin Flip?

Date Posted: 10/28/15
By Kevin Carpenter, contact:


Planning any project involves a lot of uncertainty. That’s why project planning exercises are so valuable. But how do you properly plan a project when there are so many “known unknowns”, to paraphrase Donald Rumsfeld.

Expected Value is a core concept in uncertainty-based decision making. Simply stated, expected value is the average result you experience when an uncertain trial is repeated several times.

Probably the easiest way to think about this is a simple coin toss.

Know When to Hold ‘Em

Let’s assume we play safe friendly wager on a coin toss. If the coin lands on heads, I owe you $100 . If it lands on tails, no soup for you!

You have a 50-50 chance of getting $100 on the first flip. Likewise, you have a 50-50 chance on each successive flip. But, over time, the law of averages kicks in. After 100 coin tosses, you would end up with $50 for each trial on average.

The Expected Value for this game is then $50. But what’s your chance of taking $50 from me on the first flip?

0% of course. On any given flip, you could take $100 or $0, but NEVER $50.

Crystal clear right? Couldn’t be simpler you say.

Uncertain Project Planning Exercise Problems

But here’s the problem. It’s not unheard of, in fact it’s quite normal, for businesses to assign the wrong value to business cases.

Complex project planning exercises call for uncertainty-based business cases. Uncertain models give us a  range of values. Many use numbers across the range to calculate an average value. After they find the average, they slap an “Expected Value” label on that number, and call it a day.

But, what are the chances a business case will produce an average value? Once again, it’s practically 0%.

It Ain’t What They Call You, It’s What You Answer To

When we place grandiose labels on data points, we suddenly forget anything can happen. Instead of remembering we are dealing with a range of possibilities, we expect to achieve an average.

Uncertainty-based business analysis is not about a single data point on an outcome distribution model. It’s about exploring the distribution of outcomes and their drivers, and then taking the appropriate action to improve our results.

When we only compare the expected values of project alternatives we lose sight of the simple fact that averages are just that; average. Using an average number to make critical business decisions is not a valid approach to project planning.

Put simply, statistically close expected values should be ignored completely. Instead of focusing on one number that’s as statistically probable as hitting the lottery, business leaders need to examining the breadth (or risk) of outcome distributions.

True insights aren’t found in singular (and nearly impossible) possibilities.

It’s not enough to have an average. We need to understand the key drivers behind range of outcomes. And we need to thoroughly grasp how those drivers can lead to wild success, or catastrophic failure.

The moment you realize “expected value” is nothing more than “mean value” you set yourself up for success. You make better decisions, create stronger project plans, and make strides far beyond the average.

Am I Being Mean?

What do you think? Are too many businesses focused on being average? Leave a comment below.



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