Uncovering Big Hidden Value in "Small" Problems

By Dan Dworakowski

Have you ever felt guilty after a particularly overindulgent meal? Although it is quite normal for people to feel as though they have betrayed their bodies, one meal alone will not cause significant weight gain. But consider how many people you may know that add a small snack or treat to their lunch each day, such as a bag of chips. Adding up the additional calories consumed by eating one small bag of chips each day can amount to over 15 pounds of additional weight gained in a year, a much larger effect than that one bad meal would have.

A cognitive bias known as Misleading Vividness can explain why we would feel guilty after the big meal and not the additional bag of chips. Misleading Vividness is a behavioral bias in which the vividness of a particular event, or events, is taken to outweigh a significant amount of statistical evidence. In this case, the vividness of the one bad meal took precedence over the small, but consistent accumulation of calories by adding chips to lunch daily.

A lack of vividness can also cause highly valuable business opportunities to remain hidden. Since one bag of chips is relatively a small amount of food, we would likely not focus on it as a cause for potential weight gain. However, repeating these un-vivid events over and over can be much costlier in the long run.

To highlight how this problem may manifest itself in a manufacturing setting, take this hypothetical example: Imagine you are working to improve a chocolate chip cookie facility (lucky you!) and you’ve found some key opportunities to invest your time in. How would you choose between the following two opportunities?

  • After the annual shutdown of the continuous oven for preventative maintenance, it must be recalibrated, which requires throwing away two day’s worth of production in order to first ensure correct baking specs.
  • During production, you notice that each cookie gets, on average, 1 more chocolate chip than the spec. This does not cause any performance issues with the line.

Looking at this at first glance, most people would probably decide to fix the oven recalibration, as it is a big, stressful problem that requires a lot of work to clean, and 2 days of wasted production. The additional chocolate chip per cookie is so small, and more importantly, doesn’t cause anything to stop running, so it would likely be deprioritized.

To instead accurately determine which problem to pursue first, some quick calculations can be done to obtain their financial value. Let’s say our company makes 500 million cookies a year, which is about 1,000 cookies per minute if the line was running non-stop.

For the oven shutdown problem, the lost value is in the lost revenue per cookie, as we’re making cookies but then throwing them out. For a large facility such as this one, that revenue might be about 5 cents. The cost of this problem would be:

$0.05/cookie * 1,000 cookies/min * 60mins/hr * 24 hrs/day * 2 days of production =
$144,000 per year

This seems like a sizeable chunk of money, but let’s see what our extra chocolate chip is costing us. One additional chocolate chip per cookie, at 0.02 oz. of chocolate per chip, means that 625,000 pounds of chocolate chips are being given away each year. Estimating that chocolate chips are worth $1 per pound:

500,000,000 cookies/year * 1 chip/cookie * 0.02 oz/chip / 16 oz/lb * $1/lb =
$625,000 per year

This seemingly small problem is, in fact, worth almost five times more than wasting 2 entire days worth of product!

There is a natural human tendency to naturally gravitate toward the problems that are the most vivid. However, these may not always be the right problems to prioritize, especially when looking at processes repeated at very high frequencies. Recall the potato chips in the beginning of this article: there is a lot of hidden value in looking for those small losses which are repeated at a large scale. To do this effectively we must wrestle with the human limitation of grasping very large numbers. For example, 50 plates for a dinner party or the 100 pennies equaling 1 dollar are easy to envision. But try to visualize every dinner plate in every home and restaurant in America or the size of the pile of pennies equivalent to 1 billion dollars. These numbers are extremely difficult, if not impossible, for our mind to accurately grasp. In our cookie example, would you have guessed that one chocolate chip per cookie equates to over half a million pounds of chocolate per year?

How can we ensure that the most valuable problems are always worked on first, regardless of how vivid they are? The answer lies in the definition of misleading vividness: follow the statistical evidence. Use data to keep yourself from succumbing to the vividness bias or the natural difficulty to tacitly comprehend the magnitude of very large numbers. But don’t just check the data on the opportunities you think are big. Value every opportunity numerically. Prioritizing at any point on anecdotal evidence or subjectiveness can leave large amounts of opportunity on the table. Sticking to the actual numbers will instead uncover these valuable opportunities for you and allow you to realize more than was thought possible.