Sunday, December 13, 2015

The Effort-Outcome Model For Evaluating Your Portfolio Life

One of the perils of living a portfolio life is the need to decide how to allocate your time and energy among potential initiatives.  The challenge is that most initiatives are full of uncertainty.  In an effort to structure my thinking about my own life, I decided to create a classic chart, with one axis representing the level of personal control I had over the outcome, and the other the expected value.

I dealt with the uncertainty over outcomes by creating a bar that I thought was roughly equivalent to the 20th and 80th percentile outcomes, and added a yellow star to indicate the median outcome.  Here is the chart:

As you can tell, I've anonymized the different options.  It's not surprising, therefore, that I've chosen to focus more effort on the top outcome, which offers both the greatest personal control, and the highest median expected value.  But I can envision plenty of other cases where I might need to make a tradeoff between expected value and personal control over outcomes.  Personal control matters, because it indicates how much your efforts are likely to help; going "all-in" in terms of effort on an initiative where you have little personal control over the outcome is wasteful.  But expected outcomes also matter; you might personally control an outcome, but if the value of the outcome is negligible, such effort is also a waste of time.  Note that this is necessarily an incomplete picture--it doesn't take into account total effort/investment required, or how much you enjoy the work--but most useful tools focus on a subset of the situation.

How does your own life look?

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