Provisdom FAQ
What is Provisdom’s area of specialization?
Provisdom helps publicly-traded corporations maximize shareholder value from their decisions and all types of relevant information.
What is Provisdom’s new technology?
Provisdom has developed a simple, fast, and transparent decision software platform, allowing complex strategies to be rapidly and transparently analyzed.
Who are the key members of Provisdom?
Provisdom is led by Mark Erickson (see Mark Erickson Biography).
What is the size of Provisdom?
Provisdom currently has one full-time employee (see About Us).
Where do I begin understanding Provisdom’s fundamental invention?
Start by browsing a few case studies and this FAQ. Then explore the basics of the
Decision Platform, how the fiduciary duty of a publicly-traded corporation is to
maximize True Shareholder Value, and
Provisdom’s Foundation of IP.
Shareholder Value FAQ
Why should I maximize shareholder value?
The fiduciary duty of publicly-traded corporations is to maximize shareholder value, where shareholder value is the value the Market would place on the corporation if the Market
had the same information as the corporation’s insiders. See True Shareholder Value.
Why should I use a different discount rate for every possible outcome?
Using outcome-specific discount rates is the most accurate possible method of discounting and profoundly influences the optimal strategy of most corporate decisions. Using a
single discount rate implies that every payoff has the same risk type and leads to
inconsistencies. See Discount Rates.
My problems are “local” and not global top-down problems, and I’ve been charged with a different goal, like
say “minimize total costs” or “maximize profits”. Can the Provisdom Decision Platform still help me achieve my goal?
Yes, you can choose any goal and discount scheme you’d like. To “minimize total costs” or “maximize profits”, you’d just set all discounting to zero. However, it
requires no extra effort to maximize shareholder value, so you might as well “do it right” from the start.
In my problem, shareholder risk is a secondary uncertainty. Can the Provisdom Decision Platform still help me?
Yes, the Provisdom Decision Platform works extremely well with any uncertainty, so a lack of a Market relationship will not affect its performance. Secondly, unless you’ve used the
platform on your problem, you won’t know for sure what the effect your uncertainty’s relationship with the Market will have. Our experience tells us that most
corporate problems contain Market risk and that it is nearly always a first-order effect.
My company’s problems’ unknowns don’t have any relationship with the Market. Can the Provisdom Decision Platform help me?
If there is no Market relationship in the model, all discounting will be done at the risk-free rate. Many or even
most relevant business unknowns have a positive relationship with the Market. Even in problems with no Market relationship, the Provisdom Decision Platform provides considerable
benefits in terms of specifying information simply and intuitively, increasing understanding of complex strategies, etc.
How do individual investors benefit from the maximization of shareholder value?
Investors are becoming increasingly well-diversified as seen through the growing popularity of diversified instruments such as index funds and the growing
majority of investment dollars coming from institutional investors. A well-diversified investor of a corporation owns a small amount of many investments, perhaps through various
index funds. His or her investments will often be a close reflection of the global markets, that is, he or she owns a small piece of “the Market”. Similarly, each
investment in the global market is owned by many of the world’s investors, that is, it is a tiny piece of the Market. A corporation that maximizes True
Shareholder Value is then maximizing the value of the well-diversified investor.
A poorly-diversified investor of a corporation also benefits when the corporation maximizes shareholder value. As the value increases for other potential shareholders, the
poorly-diversified investor is able to sell his or her shares for more than they are worth to themselves and better diversify.
How do individual investors with a sizable amount of restricted stock fare under the maximization of shareholder value?
An individual investor with a sizable amount of restricted stock will be taking on more risk than is optimal for his or her portfolio. When a founder of a private company
decides to go public, they are in essence agreeing to put aside their own goals for the good of the global shareholders in return for the public’s investment. Similarly, any
employee who agrees to hold restricted stock should be aware that their stock is at risk and their duty at work is to maximize shareholder value, not the value of their own portfolio.
Particular Model FAQ
How do we measure the value of our particular model?
To see the value of the optimal strategy, a decision maker can compare the difference in shareholder value between their old strategy and the optimal strategy. The value
of increased transparency, communication, judgment, and other benefits of the Provisdom system are not directly measurable.
How do we know if our particular model is valid?
A model is valid if it contains and properly processes all of the relevant information. The transparency of the
Provisdom Decision Platform makes it possible for model-builders to quickly test the validity of the model.
Should we build a template of our particular model?
Although every corporate situation is unique, most corporate problems share common structural elements. For corporate problem structures that are repeated, a template may
be built. A template may contain building blocks that can be arranged to reflect the specific situation. The more structure that is repeated,
the less needs to be done to the template to build a customized model. The remaining part of the model is built from the unique set of choices and information coming from employee
knowledge, internal and external documents, internet searches and other sources.
If the entire structure is repeated, the same customized model can be re-used with different input information. Re-usable models are highly amenable to automated interactions
with customers, employees, and suppliers. Such decisions are often, though not necessarily, based largely on structured data from corporate information systems or external
sources such as customer interactions with a website.
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Provisdom Decision Platform FAQ
What is the Provisdom Decision Platform?
It is the first decision making solution to:
- Rigorously maximize shareholder value with the flexibility to handle all types of relevant information.
- Make transparent the myriad complexities surrounding multiple uncertainties, decisions, payoffs, and their relationships.
- Show how much shareholder value is added with every use.
- Build models as simple or as realistic as needed.
See Decision Platform.
How does the Provisdom Decision Platform build a model?
Provisdom uses a six-step process (see The Process):
- Gather the Initial Information
- Choices you have now and in the future
- Uncertainties and other factors that affect those choices
- Future payoffs contingent on uncertainties and choices
- Input the Information Rules
- Run the Initial Model
- Analyze
- Make Corrections
- Automate or Update Model Periodically
What are the best applications for the Provisdom Decision Platform?
The Provisdom Decision Platform can handle any types of choices, uncertainties, and payoffs. This encompasses all
real business decisions, allowing the platform to take part in every decision of significant value made by a corporation, regardless of industry, function, or management level. See
Corporate Applications.
What are the limitations of the Provisdom Decision Platform?
The Provisdom Decision Platform helps you find the strategy that maximizes shareholder value. You can have a
conversation with the computer, treating it as a business collaborator. You can investigate the emergent properties of your information and gain valuable insights and wisdom (see
Benefits). However, the platform does not add
any information. You are the expert. There is no “magic” in the platform; indeed, a major benefit of the platform is that it mathematically ensures you do
not make “something out of nothing”. To get value out of your data, you must also include some knowledge about what those data may say about the future (see
Climbing the Decision Ladder).
Also, computing power is finite and maximum transparency occurs at a balance between realism and simplicity, so only relevant information should be included
in the models (see Maximum Transparency Modeling).
What information is generated by the Provisdom Decision Platform?
For each of the numerous future possibilities, there is associated data, including the variable values, the calculated discounted rates, the discretized
uncertainty probabilities and values, and the shareholder values. Once the data is generated, ad-hoc queries may be made of the data.
Can I make simple models with the Provisdom Decision Platform?
The Provisdom Decision Platform can handle simple or complex models in a consistent framework. However, the
business world is often complicated, so useful models generally have some necessary complexity. It is often
helpful for learning and as a first cut to a new business problem to build an over-simplified model. Models can be
made more realistic with each iteration. Provisdom helps decision makers manage complexity and provides the big
picture and tools to drill in to critical factors. The desire for “simplicity” is often more related to issues of agility and transparency (see
Speed and Information). The platform allows even complex models to be rapidly constructed, and
provides transparency as to how information affects strategy and shareholder value.
As Einstein said, “Make everything as simple as possible, but not simpler.”
How can we show that the Provisdom Decision Platform works?
Understanding the foundations of uncertainty, information, and shareholder value maximization is not a trivial task. The mathematics used for the application of
information theory and calculation of discount rates is difficult to understand. Since complex mathematics does not increase transparency, we have created numerous
models and illustrative graphs showing simple examples of how partial information and various relationships with the Market affect discount rates and
values, providing a deep understanding of how information affects strategy. The overall effectiveness of the system can be demonstrated through visuals, simplified
fundamental examples, and dynamically complex and realistic corporate decision models. Additionally, the Provisdom Decision Platform can be tested against known solutions.
Has the Provisdom Decision Platform been tested against known solutions?
The Provisdom Decision Platform has been tested on numerous problems with known solutions (and many more without known solutions). These include Real Options
problems (e.g., see Deep Water Oil Exploration) and finance problems like
financial derivatives, loans, and leases. For example, the Black-Scholes formula gives the value of a simple call-option on a stock. Given the same information,
Provisdom’s answer closely approximates the analytical Black-Scholes
solution (see Testing Corporate Decision Making
Systems). We have also matched textbook examples from decision analysis (DA) and business dynamics. In all, we have performed over 175 case
studies, including simpler examples that were able to be calculated by hand. In addition, we have had many successful test cases with customers, including matching the results from a
customer’s spreadsheet analysis when asked (see Data Center Management).
Given that decision making is most sensitive to forecasting skills, why is having the solid underlying
foundation with no ad-hoc assumptions or excessive modeling limitations found in the Provisdom Decision Platform so valuable?
The Provisdom Decision Platform will help you ask the right questions and understand the most relevant information for your decision. You can then focus on gathering the
best information available. With what you know and what you don’t know clearly in focus, the platform will help you find the optimal strategy for your corporation.
There’s an issue of how one defines “forecasting skills”. An individual might exhibit some skill in predicting uncertain future outcomes. This might reflect greater
information possessed by that individual (e.g., detailed knowledge of customer behavior), or this person could just be lucky. In the first case, the extra
information should be included in the model so its effects will be included and made transparent to other stakeholders. In the second case, “lucky” predictions lead to an
assumption that the individual has more information than really exists, which leads to bad decisions and losses in shareholder value.
Many of the world’s top executives and businesses seem to have achieved their status through skills entirely unrelated to
modeling. In addition, many other decision makers in large companies have poor quantitative and analytic skills and seemingly little potential for
improvement. Given the way the world works, why would using the Provisdom Decision Platform be so valuable?
While many of the world’s top executives have been successful through people skills or luck, many others have superior mental models of how their business
works. The Provisdom Decision Platform can include whatever information the corporation has, and an internal
or external consultant or analyst can help guide the decision-making process when appropriate. The better the decision maker’s information, the better the model, but the
Provisdom Decision Platform will improve the decision making of nearly any decision maker in a large company.
A good analogy comes from the game of chess. Grandmaster chess players show a superior ability for mental analysis; but a below-average player, armed with chess software, can
defeat the mental prowess of a grandmaster the majority of the time. A grandmaster armed with a computer represents a truly formidable
opponent (see Corporate Grandmaster).
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