Episode transcript The transcript is generated automatically by Podscribe.
Hello, everyone, welcome to the 5 Minutes Podcast.
Today I like to discuss how time affects our judgment, our perception in this current volatile environment, in why I'm recording this is because this week, we are all watching on the news, the COP 21, the UN Convention for climate change. And we heard in the past few days, several government leaders saying, Oh, I will reduce the greenhouse effect by 80%, up to 2070. Or I will stop fossil fuels in 2100, I will stop doing something in 2050. And I'm not here. And this is not the objective of this podcast to discuss climate change. What is my concern is 2070, 2100, 2050.
It's how people can commit to something that is so so distant from today, even more in a volatile environment, we saw what happened two years ago, right with COVID. When you say 2070. For me, it's the same as saying 2400, it's the same as saying year 3000. By the year 3000, something will happen. It's technically impossible for you with minimum reliability to make a strong, and I would say reliable judgment, this is just an idea.
And why I'm saying this? Because many times in our projects, we face these challenges, because some projects, you can develop and see the results almost immediately. Some of them you see the results in the value, basically during the development, but some of them take time. It's a lot of time. Let me give you an example. I want you to do an exercise with me today. Let's try to forecast the cost of oil or the cost of gas in the next five days. So probably you have a decent guess on how much the leader or the gallon will cost next week. The second exercise I want you to forecast for me is the gallon or the liter of the gas in December 2022. Or in May 2031. Or in August 2038.
Do you agree with me that if I asked you to forecast these prices in 2038, there is massive chess that the actual price at that time would be extremely different from what you're guessing today? Why? Because of volatility because of changes because of things we cannot control. However, if any of you listen to me work in capital projects, this is a reality you need to live with, probably in 2038, I would say if not all, the vast majority of the oil refineries will be still operating the same way they operate today, of course, with some improvements, but the same way.
So how do you calculate the payback of this kind of investment, when the time horizon is so long. This is the challenge. This is why these projects are so complex, and so hard to estimate precisely the valley. This is why, for example, many times governments and other entities need to support because it's too risky for many enterprises to undertake the fort alone themselves.
But what I want is to give you three quick advice, three quick tips for you when you face this, for example, in an absolutely simple example, imagine that you are growing your kids, it's the same, you have an expectation for your children in the future. But it's not very easy for you to say if I do this today, it will become something tomorrow because maybe the profession of today I'm just talking professionally, will be quite different from the professional in the future.
So the first thing is that you need to accept that when time passes all your estimates become far less reliable. And your strategy is just to adapt and react. So as soon as you receive new information, you adapt, you adjust. It's not a fixed point.
And this drives me to the second tip you should commit to the direction of travel and not with an exact arrival point. Let me explain this. You should never commit in your project that Okay, after 10 years, the profit will be 1,500,057.33 This doesn't exist, there is no machine on earth that could give you such a sharp, precise forecast. It doesn't exist. So what do you need to do? You need to commit to the direction of travel in not with an exact arrival. So you need to say, Okay, we are working with this refinery under these assumptions under this scenario, and we believe that the world is moving towards this direction. And based on that, I decided to do this investment. Because nobody knows exactly how things will unfold 10 years down the road, it's like you raising a child that is two months old, and you look to her and say, Oh, she will become a doctor. It's very hard. It's very, very hard that you'll find perfect, absolutely perfect conditions to meet your forecast. It's not like that, because there are so many things down the road that you need to be aware in how do you solve this,
and this is my third tip, you should propose intermediate goals, you know that the direction of travel in the next 10 years is this one, but how you can see that you are doing the right things. These are these intermediate goals. So you know, okay, if I do this, and if I see that, I know, I am going in the right direction, next year, or in six months. So if, for example, I released this product in this marketplace, and the growth rate on this marketplace in the first three months is X percent, I can predict that maybe when I release this feature of my software, in other countries, I will face something around x percent in countries that are similar. Of course, there is a risk, but at least you know, the direction of travel.
These are like I would say in the predictive approach the milestone so you have some milestones down the road, it doesn't matter the technique you use. And these are value milestones that you see, okay, am I delivering value at this point, maybe it's not the total value, but am I delivering? So it demonstrates that I'm in the right direction. And if you're not, you need to adapt, you need to change, or even maybe you need to terminate the project and do something else to stop your losses on a project that will never deliver the value not because you are not competent or because your ideas not nice is just because the environment is so volatile, that it changes its behavior, and it does not need your product or service anymore. This is just life. So you need just to be aware and react.
And these are for me the key thing so every time you listen now someone saying 2070, 2050 You should ask them and say okay, but what will happen in the next six months, how we can see in the next six months that something is driving us towards that target in 2070?
This is the million-dollar question. Think always about that.
I hope you enjoyed this podcast and see you next week with another 5 Minutes Podcast.