Core Concepts #7: Options

Preparing for change

This is part seven of a seven-part series of posts on the core concepts of tradespace exploration, designed to help beginners become familiar with terminology and the general structure of tradespace data. Click here to find the other posts in this series, as well as other Tradespace 101 posts.

In a world of uncertainty and dynamics, we know that not everything will go according to plan — even for the best decisions. We will come on hard times when our chosen alternative performs worse than expected or stops generating value. In these circumstances, what we want are options: some way of responding to the situation that works to our advantage.

Benefits and resources are direct components of value: if one of my benefit criteria for a phone is battery life, then having a longer battery life directly increases my value. In contrast, options provide value indirectly by enabling improvements to benefits/resources when dealing with uncertain or dynamic situations. For example, my phone might only receive service in the USA — but if it has a removable SIM card, I have the option to use that flexibility to modify my phone and change networks when I go to Europe for vacation.

Critically, just having the option is not valuable: using the option is valuable. A removable SIM card gains me nothing if I never go on that vacation. It is important to keep sources of indirect or contingent value (like flexibility) separate from the more traditional value metrics of benefits and resources, which directly measure the function of the alternative — how good it is at doing whatever we need it to do.

We experience (direct) value by using an alternative in an epoch — in this case, the reception of my phone is a source of direct value and it changes depending on which “box” I’m in. The flexibility of a removable SIM option is an indirect source of value because it allows me to “change boxes”, not change the value inside a box.

Why is the value of options indirect? Don’t people always say they want things like flexibility? If that’s so, why can’t it directly affect the value/satisfaction of a stakeholder?

Good question! Returning to the phone example, it wouldn’t be unusual for a person, who both (A) expects they will probably travel internationally and (B) knows the flexibility of a removable SIM would allow them to use just one phone, to include “SIM flexibility” when asked what criteria they use to judge a new phone purchase. But wait: some SIM networks work in the USA and EU! If they bought a phone with one of these global SIM cards, would this person really care if the SIM was or wasn’t removable? They get the same reception either way!

When a stakeholder says they want a flexible solution, 99% of the time what they are really saying (whether they know it or not) is “I want an alternative that is robust to uncertainty/dynamics and I expect that flexibility is the right way to accomplish that”. Whether or not that expectation is correct, a problem is apparent: flexibility is revealed to be a means-based metric, desired only because it is believed to improve the direct benefit/resource metrics across whatever uncertainty/dynamics might affect them!

That’s what we are getting at when we say the value of options is in using them, not having them: they are primarily a means of getting more benefit or spending less resources, rather than a source of value in their own right. Instead of attempting to use a measure of flexibility as a benefit metric, we are better off simply assessing how robust both flexible and non-flexible alternatives are. If flexibility really is the right solution, we should see it in the data!

(What about that last 1%? See the Bonus Tips below)

To make this discussion less abstract, let’s use a more detailed example:

• Decision: I’m looking to purchase a car.
• Stakeholders: Me.
• Resources: Most important is the money I spend buying the car. I may want to account for operating costs too: things like gas expenses can vary depending on the efficiency of the engine.
• Benefits: I work from home, so I mostly want to drive to enjoy weekends at the nearby beach. I care about the car’s style, passenger room for my friends, comfort, and fun-to-drive factor.
• Uncertainty: The weather where I live can be a little unpredictable. I could easily leave home on a beautiful, sunny day and return in heavy rain.

Let’s say that, after looking at all the different cars available to me, I’ve narrowed my choices down to a single model based on its cost and combination of style, size, and fun-to-drive-ness. However, I still need to choose which version of the model I want: the classic hardtop, a topless variant, or the topless one with an added fold-up canvas convertible roof. The convertible roof comes at an additional charge.

The convertible has the option to put the top up or down depending on the weather. I get the best of both worlds in terms of comfort — enjoy the sun in nice weather, cover it up and stay dry if there’s a surprise rainstorm. The flexibility provided by the option increases my comfort and therefore my value, but only when the weather changes between rain and shine. The value of flexibility is contingent on changes in the weather, because otherwise I never use it.

This is easy to see by looking at the tradespaces for both the “sunny” and “rainy” epochs:

The convertible always scores high in comfort but costs more than the other cars: for any given type of weather there is an equally-good but cheaper option.

The convertible is never the best choice for a single type of weather because there is always an alternative that is the same but cheaper. In my “sunny” epoch the topless version would be equally good but less expensive, and in the “rainy” epoch the hardtop would be equally good but less expensive. However, I prefer the convertible overall because I never get stuck with low comfort when the weather changes, unlike the other two cars.

So we’ve established that sources of contingent value like flexibility are means by which we can improve the function of our alternative, not a desired function in and of themselves. That’s why they are often referred to in the engineering community as nonfunctional requirements or, informally, the -ilities.

The -ilities are a group of properties that have been found to enable useful options across a wide range of different types of problems — and it just so happens that many of them end with -ility. Flexibility, changeability, reconfigurability, modifiability, adaptability, extensibility, versatility, survivability, and many more: all of these are means of maintaining or improving value in the face of uncertainty and/or dynamics.

The approach for intentionally creating options in our alternatives varies for each -ility. Each is associated with different design patterns that historically correspond with successful options. For example, extensibility (the ability to add new functions) is often associated with the use of standardized interfaces: my computer would be much less extensible if it didn’t have standard ports on the outside to connect to other devices. Those ports give me the option to add many different types of functionality, via the plethora of devices that can use them. Following design patterns is typically the first step to including options in your alternatives.

Any computer with enough ports to use all these devices at once is pretty extensible (but also pretty cluttered)

In contrast, measuring the value of options is relatively similar between the -ilities. At the most basic level, contingent value can be measured as the difference between the value we would get with versus without an option. This contingent value can be measured for a single use of the option and can be accumulated over time if the option is reused: my convertible’s flexibility generates a little more contingent value every time the weather changes. You might use different metrics to calculate the value of different -ilities, but they all return to this idea of comparing the with/without outcomes.

One final piece of advice for working with options: because they provide value only when used, you have to know when to use them! Sometimes it may be obvious when an option can be executed to gain value, such as if I get caught in a rainstorm with the top down on my convertible. But many options should be executed in response to more subtle indicators: maybe the federal interest rate goes over a certain threshold, or the average water level of a reservoir drops to a record low. To utilize an option successfully you must also monitor the conditions that would merit its use. Don’t forget this part! Managing uncertainty/dynamics with options is a full-lifecycle process, and doesn’t end when you make the decision.

Congratulations, you’ve reached the end of our core concepts crash course! We covered the basic skeleton of the decision: stakeholders spend resources to acquire alternatives that collect benefits. Then we introduced the wrinkles of uncertainty (different possibilities), dynamics (changes over time), and finally options (means to maintain value despite those changes). We didn’t go into exhaustive detail on the mechanics and techniques of capturing these concepts in practice using tradespace exploration, but we will do deeper dives in other posts here on The Tradespace. Hopefully you at least feel a little more comfortable with the terminology and underlying ideas so you are ready to hit the ground running with us!

Earlier, I said that 1% of the time it may make sense to use an -ility directly as a measure of benefit. Specifically, if you are not able to model uncertainty/dynamics well enough to measure the value of options in terms of their impact on benefit/resource metrics, then something like flexibility can be used as a metric for the “peace of mind” it offers stakeholders. Flexibility is inherently open-ended, in that it can sometimes be used to address unforeseen changes and scenarios. So while this approach is less recommended than treating options as means-to-an-end (after all, there’s no guarantee that the option will be useful on any unforeseen problems), it can be a useful tool in your toolbox when making a decision with minimal information.

Another useful way to think about flexibility specifically is to think of it as the ability to have dynamic alternatives. A stakeholder can change the form of a flexible alternative (or the way it is used) in order to move around the tradespace, presumably either to increase benefit or reduce cost. The action of using the option can be represented as an arrow indicating the move from one form to another. The image below demonstrates this using our convertible example by adding separate markers for the “top-down” and “top-up” states of the convertible:

Marking both the before and after states of a flexible alternative makes it clear how using flexibility delivers value: in this case, by increasing comfort.

If in the lower-benefit state, I could use flexibility to move to the higher-benefit state, and the value of the option would be the increase in value I get by moving along the arrow. When these connections are drawn for all alternatives, we refer to the tradespace as a tradespace network, because it imitates the appearance of a network flow diagram. There are powerful mathematical techniques that can be leveraged on this type of connected network to measure the value of flexibility, including when there are costs associated with executing those changes.