Month: January 2011

Swallow Your Pride

Financial advisers took a hit from the 2008 meltdown of the markets.  Many investors, finding fault with their advisers’ lack of prescience or actual handling of their investments during the crisis, decided they could do just as well managing their own investments––and they ditched their advisory firms.
 
So far their results probably haven’t been bad.  For the past two years stocks have been making steady gains, so these new independents have no reason to second-guess their decisions. But a recent blog on CNBC.com put out the strong opinion that it’s probably time for the investors who cut their advisers loose to swallow their pride and kiss and make up. 
 
The basic rationale behind this opinion goes something like this: in an environment with increasingly complex markets and rapid trading automated by neural networks, the everyday investor does not have the necessary skills in financial risk analysis or access to the essential risk analysis solutions to survive.  In addition, new increases in market volatility make it difficult for the amateur, without benefit of Monte Carlo software, to keep pace.  And furthermore, this free spirit most likely will not have the time or discipline to absorb and process the deluge of information the markets pour out. 
 
Overall, it’s a pretty good argument, but I find this last bit––the requirement of time and discipline–-the most convincing.  If most readers are as lazy as I am, financial advisers should see a big uptick in their stock.

Free Webcast Today! 11:00am – Noon ET: “What Is Our Risk If We Cut Too Deep In Our Workforce?”

Today from 11:00am to Noon ET, Sandi Claudell will present a free live webcast.

In all businesses there is a certain demand on resources to produce a certain amount of results in a given window of time. Building a car to meet customer demand, answering help lines so no one waits too long or drops off the line, processing invoices, etc.

This is true in healthcare as well. Whether in clinics or Emergency Departments, the concern is:

  1. Are my patients waiting too long to be seen? Perhaps so long that they leave without being seen at all.
  2. Do I have enough staff to handle the load. Do I have the right mix of physicians, nurses and clerks?
  3. Do we have enough rooms to handle the load of patients?

In the discipline of “Lean” there are a few key calculations we use to determine the needed time and resources. One calculation is ‘takt time’ or ‘takt rate’. This is a simple calculation of the number of minutes available divided by the number of patients needing to be seen. Each step in the process cannot take any longer than this unit of time OR you need to double up on the resources. For example, if the takt rate is 15 minutes then the following steps cannot take any longer than 15 minutes each: registration, vitals (blood pressure, weight, etc), initial triage by the nurse, instructions after meeting with the physician and setting up the next appointment. However, if the doctor typically visits with the patient for 30 minutes then we need 2 physicians in this clinic … this way a patient will exit the clinic every 15 minutes.

Another calculation is “Process Lead Time”. This is based upon the ‘exit rate’ and the number of patients waiting to be seen. It calculates how long the last patient will have to wait before entering and/or exiting the process.

One of the biggest push backs I get in healthcare is that each patient is unique and the volumes of patients seen each day varies and is unpredictable.  They are also unclear on just how many doctors, nurses and exam rooms would be required to keep up with the pace of incoming patients.

I used @RISK to determine the number of rooms, nurses, physicians etc. based upon the varying number of patients to be seen each day. This was helpful in determining how to assign exam rooms in corridors and if they need to hire more nurses per shift etc.

This free live webcast will go through the process we used and the graphic outcomes.

» Register now (FREE)
» View archived webcasts

Free Webcast This Thursday: “What Is Our Risk If We Cut Too Deep In Our Workforce?”

On Thursday, January 20, 2010, Sandi Claudell will present a free live webcast.

In all businesses there is a certain demand on resources to produce a certain amount of results in a given window of time. Building a car to meet customer demand, answering help lines so no one waits too long or drops off the line, processing invoices, etc.

This is true in healthcare as well. Whether in clinics or Emergency Departments, the concern is:

  1. Are my patients waiting too long to be seen? Perhaps so long that they leave without being seen at all.
  2. Do I have enough staff to handle the load. Do I have the right mix of physicians, nurses and clerks?
  3. Do we have enough rooms to handle the load of patients?

In the discipline of “Lean” there are a few key calculations we use to determine the needed time and resources. One calculation is ‘takt time’ or ‘takt rate’. This is a simple calculation of the number of minutes available divided by the number of patients needing to be seen. Each step in the process cannot take any longer than this unit of time OR you need to double up on the resources. For example, if the takt rate is 15 minutes then the following steps cannot take any longer than 15 minutes each: registration, vitals (blood pressure, weight, etc), initial triage by the nurse, instructions after meeting with the physician and setting up the next appointment. However, if the doctor typically visits with the patient for 30 minutes then we need 2 physicians in this clinic … this way a patient will exit the clinic every 15 minutes.

Another calculation is “Process Lead Time”. This is based upon the ‘exit rate’ and the number of patients waiting to be seen. It calculates how long the last patient will have to wait before entering and/or exiting the process.

One of the biggest push backs I get in healthcare is that each patient is unique and the volumes of patients seen each day varies and is unpredictable.  They are also unclear on just how many doctors, nurses and exam rooms would be required to keep up with the pace of incoming patients.

I used @RISK to determine the number of rooms, nurses, physicians etc. based upon the varying number of patients to be seen each day. This was helpful in determining how to assign exam rooms in corridors and if they need to hire more nurses per shift etc.

This free live webcast will go through the process we used and the graphic outcomes.

» Register now (FREE)
» View archived webcasts

The Flash Crash

Last May 6, the Dow Jones Industrial Average made a rapid series of inexplicable drops, and, in fact, in one five-minute period fell more than 500 points.  Then, just as inexplicably, the market recovered.  The causes of the so-called Flash Crash remained mysterious until September, when the SEC issued a report on the rapid fluctuation of the market.  It found that a single "large fundamental trader" had used an algorithm to aggressively hedge its market position quickly.
 
Since then the role of neural networks and algorithms in automated transactions has received a good deal of attention from the media.  The online edition of this month’s Wired offers a fascinating perspective on algorithms as investors.  It reveals how neural networks and other automated types of statistical analysis  can chew through news of the financial markets–essential a big pile of data– to instantaneously produce a financial risk analysis, make a larger determination of the results of a prospective trade portfolio risk management terms, and make the trade.  The speed with which a computer can function as an investor is part of the problem. It produces a kind of feedback loop in which each instantaneous trade produces instantaneous responses from other computers trolling the markets. 
 
The trend toward computer control of financial markets, however, does not continue unfettered. The month after the Flash Crash, the SEC instituted some "circuit breakers," rules to stop trading when the feedback loops begun too intense and the markets fluctuate too rapidly.

All of this presents an interesting and larger question: How much control can we delegate to computers–not just in the financial realm but in our social and creative lives–before we have to scramble to catch up with them and regain control?   

Two Shapes of Bond Risk

Baby Boomers are coming face to face with the realities of retirement, and their financial advisers are having to dig deep to come up with strategies that will calm their fears of a recurrence of the financial meltdown of 2008.  In this climate, one term that comes up repeatedly is fixed income, which usually means bonds.  Here, it is interesting to note that even fixed is not as certain as it sounds.  Prices and rates of return for bonds vary over time and in opposition to those of equities.  Even given this dynamic, the challenge for bond fund managers is essentially the same as for equity fund managers–how to diversify a portfolio’s holdings to minimize risk and optimize return.  
In 2008 and early 2009 the the credit risk of corporate bonds was painfully in evidence, and since then financial planners have been sharpening their credit risk management tools to stabilize returns on bond portfolios.  It has been generally accepted by investment professionals that the greater the number of financial instruments in a portfolio, the broader the spread of credit risk.  A recent credit risk analysis by the BondDesk Group found, however, that spreading risk over an increasing number of investments is effective only up to a point, after which further investments offer no further protection against loss.
 
The BondDesk Group used Monte Carlo simulation software to determine two values, tail risk (loss of 20%) and black swan risk (loss at a catastrophic level of 50% or more), in portfolios that progressively increased in size from 2 to 50 bonds. Taken together the two measures of risk predicted which bonds would default.  Interestingly, the simulations revealed that both kinds of risk were reduced by increases in portfolio sizes up to 10 bonds, and in both cases, these benefits began to diminish with bond number 11.  
 

The group’s credit risk analysis brings good news for both investment advisors–it simplifies their work–and investors–it reduces the cost of investing!  For the juicy details, go to the BondDesk website.

The Summit Looms!

IQPC
There’s an important event coming up in just a few short weeks–"Profit through Process," the IQPC Lean Six Sigma summit.  The summit is an almost week-long conference in Orlando, January 17 through January 20. IQPC has rounded up about 800 experts to deliver their knowledge, insights, and often inspiration to the folks who attend.   These presenters represent some high-profile companies like BP and PayPal, as well as leading consulting firms.

The sessions have been organized to satisfy the hankerings of everybody in the Six Sigma-process optimization crowd, from the chief quality officer to the Black Belt. And one thing I think will be really productive for the folks who get down to Orlando is the conference’s emphasis on integrating a Lean Six Sigma program so that it becomes a living part of the organization.

Eight hundred is a lot of experts, who should have a lot of useful ideas about driving profit through process improvement.  And will be a lot of useful tools to check out.  Which brings me to my role at the summit–how can I sign off on thes blog without putting in a plug for Palisade?  I’ll be there with our Monte Carlo software–booth #7–extolling the virtues of Monte Carlo simulation for Lean Six Sigma.  Monte Carlo simulation is a relatively recent addition to the Six Sigma toolkit, and while you may not think risk analysis is central to process optimization, it is really about getting a grip on uncertainty–and you can certainly relate to that.

Please know the IQPC is offering a "Free Hall Pass" for those interested in networking or exploring the latest Lean, Six Sigma & BPM solutions.

Remember, it’s January, and you can come to Florida!  Here’s the website–www.leansixsigmasummit.com/Event.aspx?id=341814.

I hope to see you there!