Conquer complex with simple

Complexity.

A long time in building, this has become a major challenge. Author Atul Gawande’s key concept is that we live in a complex world that demands an effective method for simplifying and controlling complex tasks and processes. Particularly in industries such medicine, construction, aviation, and, arguably, financial services, our knowledge and science enable us to attempt things that were unthinkable just a few decades ago—potentially with a poor result.

Consider this, from Gawande: “We don’t look for patterns in our recurrent mistakes or divise and refine potential solutions for them. But we could. When we look closely, we recognize the same balls being dropped over and over, even by those with great ability and determination. We know the patterns. We see the costs. It’s time to try something else. Try a checklist.”

As a former Army aviator, and a historian by training, my attention was caught immediately by Dr. Gawande’s provocative book title. My days as a military pilot drilled into me the importance of following a checklist, and the word “manifesto” carries with it a sense of urgency and importance.

And then, of course, there was that big, red check mark on the jacket, delivering its own compelling message.

Gawande is a surgeon and medical professor who has made a name for himself writing in The New Yorker and elsewhere on medicine. His book begins on turf familiar to him, the medical profession. Gawande illustrates how a simple technique can drive dramatic improvements within the medical industry. Early on, he notes that in the U. S., some 150,000 people die as result of surgery each each. He believes that half of those deaths could have been prevented.

Gawande illustrates how a simple technique—the humble checklist—can drive dramatic improvements within the medical industry. The author takes us from simple problems, to complex problems, and then on to cases of extreme complexity, using examples from industries outside of medicine. One such is the construction of highly complex structures like the Citicorp (now Citigroup) building in midtown Manhattan in the 1970s.

 

As Gawande recounts, the checklist was born in 1935, as the U.S. Army Air Corps struggled with development and adoption of its first four-engine aircraft, the Boeing 299, which later became the B-17 of World War II fame.

The Boeing 299 almost ended its career when the test aircraft crashed on takeoff during an Army procurement flight competition. The Army pronounced the 299 “too complex to fly,” and the contract went to a smaller Douglas Aircraft Co. entry.

Boeing engineers and test pilots responded by developing a simple, one-page checklist that enabled pilots to effectively fly the 299. The rest of the story, literally, is history. “Because flying the behemoth was now possible, the army gained a decisive air advantage in the Second World War, enabling its devastating bombing campaign across Nazi Germany,” Gawande writes.

Gawande provides many such case studies in the book, in a fast, fascinating, manner. You almost certainly will find something directly applicable to your bank.

The example we likely are most familiar with is U.S. Airways Flight 1549.  Captain Chesley B. “Sully” Sullenberger glided that jet to a landing in the Hudson River after an encounter with a flock of Canadian geese that killed both of the plane’s engines just after takeoff.

Captain Sullenberger and his copilot were incredibly skillful in handling their aircraft that morning, and they will forever be remembered for their extraordinary flying abilities.

But Sullenberg’s flying skills were complemented by an almost unknown but critical piece of cockpit equipment—their checklist.

Every aircraft has a checklist that leads the cockpit crew through the tasks that need to be accomplished in emergency situations. Checklists focus the crew’s attention tightly on what needs to be done and in what sequence, what the author refers to as the “killer tasks.”

On his own ground, Gawande discusses lessons learned during an eight-hospital test of surgical checklists. Gawande says that the test, conducted for the World Health Organization, reduced  major surgical complications declined by 36% and surgical deaths declined by 46%.

 

A very intriguing example in Checklist Manifesto comes from the investment fund world. The author interviewed Mohnish Pabrai, managing partner of Pabrai Investment Funds in Irvine, Calif. Mr. Pabrai has incorporated a formal checklist process in his investment due diligence to help him manage the phenomena of “cocaine brain.”

The term “cocaine brain” was coined by Guy Spier of Aquamarine Capital Management, Switzerland. Neuroscientists have discovered that the prospect of making money stimulates the same primative reward areas of the brain as cocaine. For Spier, cocaine brain equates to greed, which leads to emotional decisions.

Pabrai analyzed all of the investment mistakes he had seen and created a list of those mistakes. His investment research checklist now contains a step corresponding to each of these mistakes, producing a more systematic evaluation process that has yielded a signficantly higher return.

 

Banks face uncertainties every day, from changes in the economic climate, a business downturn for a major borrower, the departure of key personnel, or new regulatory requirements. And some days everything happens at once.

Knowing that a flock of geese is somewhere along your bank’s flight path, the critical questions are, of course, “Can I reduce that risk?”  And, if it’s possible, “How do I do it?”

Some risk is systemic and external to your bank. You can’t do much about that. But banks also have a substantial amount of risk associated with the internal processes, staff, and systems.

The issue with policies and procedures may be that they are simply more complex than necessary. Processes seem to grow like weeds. They start simply enough, and then requirements get added one-by-one to the point where they become so complex that even the people that created them to begin with can’t remember all the things that need to get done.

On the other hand, many processes in banking are mandated by regulation, and you need to ensure accurate execution. What then, is the answer to managing complexity and ensuring accurate execution?

Captain Sullenberger and his team followed their cockpit checklist precisely and pulled off a miracle. You can apply the same principle in your bank.

The processes you use to operate your bank really are nothing more than a series of linked tasks, each of which needs to be accomplished in a certain sequence by designated members of your staff. According to Gawande’s book, you simply need to identify the “killer steps” in each process and then put them into a “cockpit” checklist.

 

At first, the thought of creating a checklist for your internal processes seems like a daunting task. But it really isn’t. That’s because it won’t be a major effort. Your checklists already exist in the form of your policies and procedures.

Those documents tell you what needs to be done and who should be doing them. The only real challenges are determining which steps are critical and if they are being accomplished and recorded as required. Simple checklists will change your policies and procedures from inert objects gathering dust on the shelf into a proactive system that guides your bank’s critical daily operations and that can be monitored for omissions and improvements.

Why invest the time in developing checklists?

• Regulators can easily see that you are following your stated policies and procedures.

• You now focus on critical tasks and actions, saving staff time and simultaneously improving your internal effectiveness and your efficiency ratio.

• Recovered staff time can be applied to other important tasks on that never-ending “To Do” list.

• You will have an accountability system to support your incentive programs.

 

Getting started with checklists isn’t difficult. Based on Gawande’s book, I see it comes down to three key steps:

1. Jot down your top five problem areas.

2. Write down the tasks, people, and steps for each of those problem areas. You now have identified your top five problem processes.

3. Think about the information (control points) you need to monitor the performance of those processes. Now you have a basic checklist for each process. What’s next?

While developing a checklist system sounds expensive at first, it’s actually quite straightforward and affordable.

Begin with your shortlist of critical process and then sit down with the people that actually do the work and map out the tasks they perform and with whom they coordinate—i.e., where they receive information from, what they do with it, and where they send it.

Once this information is assembled  (usually no more than two days of effort), management determines which tasks are most important and should be tracked, and which tasks really don’t need to be done and can be eliminated or changed. This information ensures that process execution matches policies and procedures.

Finally, the tasks and information requirements are placed into a simple checklist (a “To Do” list) that everyone follows.

 

Just as a checklist saved the passengers of Flight 1549, a similar checklist saved me and my crew on a helicopter mission over Germany in October 1974. I’ve been a checklist devotee ever since.

If you only read one business book this year, make it The Checklist Manifesto. I found the book so insightful that my firm has purchased several hundred copies for distribution to our clients.

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