Improved Outcomes Without an Increase in Skill
Sunday, April 8th, 2012
That is how the manager of a billion dollar investment fund described the benefits of his pre-investment checklist in Atul Gawande’s book, “The Checklist Manifesto.” It turns out several fund managers feel the same way. Mohnish Pabrai of Pabrai Investment Funds and Guy Spier of Aquamarine Capital Management both incorporate formal checklists into their analysis of investments.
Pabrai’s checklist started from his lifelong study of Warren Buffett and the “mental checklist” that Warren uses to make his investment decisions. Over the years, he has added to the checklist from mistakes he has made and the mistakes he has observed others make.
His checklist isn’t complicated, but it includes all the basic checks that can be easily overlooked. Checks include things like review the fine print of mandatory stock disclosures and the footnotes of the financial statements. It’s simple stuff, but things that are often clearly overlooked. The Enron debacle could have been easily uncovered with a thorough review of their financial statements, but nobody did it!
Their checklists allow these investors to evaluate more investments in less time and greatly reduce mistakes, which greatly increases returns. Despite the constant search for even the smallest edge in the financial world, these investors find very few people interested in using checklists to improve their returns. Everyone seems to think they are too good for a checklist!
Most people hate checklists. We feel that if our job is so simple that it can be broken down into a checklist, then our job is somehow less important.
In a great illustration of resistance to checklists, Dr. Gawande surveyed members of the staff at eight hospitals about a checklist developed by his research team that nearly halved the number of surgical deaths. 20 percent said they thought the checklist was not easy to use and did not improve safety, but when asked whether they would want the checklist used if they were having an operation, 93 percent said yes!
In fact, Guwande reported that a five point checklist implemented at Intensive Care Units in Michigan decreased infections by 66% within three months and saved an estimated 1,500 lives within a year and a half.
If a checklist used by physicians with years of specialized training and excellent native intelligence can save 1,500 lives, what could a checklist do for your organization?
Think about it. A 5-point checklist saved 1,500 lives (real actual people) in a year and a half. That was just in one state!
This checklist was not used by high school drop outs, but trained medical professionals – doctors. Doctors who are incredibly bright and have been studying how to be great at their jobs for at least 8 years!
How could doctors with as much training as surgeons have make mistakes that are simple enough to be fixed with a 5-point checklist?
The answer is clear. Even the brightest among us are overwhelmed with information. All this knowledge and experience is great when we need to make split second decisions, but we often make the simplest mistakes in our routine tasks. Checklists help us get the “stupid” stuff right. They can’t help us make the split second, high-level decisions that only experience and knowledge can prepare us for, but they can make sure we get the other 80% of our jobs right!
The usefulness of checklists is not limited to the medical field. Checklists are used to save time and money (and sometimes lives) in the airline, construction, restaurant and even private equity industries. In my work in industries ranging from telecommunications to manufacturing, I have seen checklists and processes save tremendous amounts of time and money by helping people get the simple stuff right. When working to close real estate projects worth hundreds of millions of dollars, I always used a checklist to make sure I got the countless little things right (or at least didn’t make the same mistake the next time!). After a deal was closed, I would always update my checklist to improve it for the next deal.
Making and adhering to a checklist enforces discipline and reduces the errors that humans will always make. They improve training and help to capture institutional knowledge. They are simple and they are cheap. They save lives, money and time.
Is your organization utilizing the power of checklists? Do you know when to use them and how to create great ones? I’ve put a simple (you guessed it) checklist on my website that you can use to get started. You can find it at here.
Please reach out to me if I can help. You can reach me at firstname.lastname@example.org, or via phone at 229-375-5613.