Sunday, January 06, 2008

Risk Management Lessons Learned From Texas Hold 'Em

A couple years ago, I was an avid Texas Hold 'Em player. For about a year, I played 4 tables at a time online for a few hours a day, I read poker books, and I made enough money to pay my rent. (Because you're playing against other players rather than against a casino, it's actually possible to make money at poker.) Eventually it started feeling like a grind instead of a hobby, and I gave up on the game to spend more of my spare time on software-related pursuits.

These days I just play occasionally for fun, but I'm glad I put so much thought and energy into the game for a while. Hold 'em is a true meritocracy; you will only win in the long term if you are better than your opponents. There is no vagueness to the result. You either quickly learn to plug the holes in your game or you lose. Because it's a non-trivial undertaking but the results are so unavoidable, there are several life lessons that the game illustrates quite well.

Here are a few of my favorite lessons from hold 'em as they apply to risk management in software development projects:

Understand expected value, and use it!

Players who don't understand the concept of expected value don't generally do well at hold 'em (or any form of gambling, for that matter) in the long term. If you understand your chances of winning, the cost of losing, and the reward for winning, the decision of whether to call a bet or fold becomes purely mathematical. If you don't, the best you can do is guess. Often, you'll guess wrong.

Often project managers and sponsors usually don't know how much a project will really cost them or how much value they will gain from it. Even if cost & benefit projections are available or relatively easy to calculate, no one calculates the expected value.

I know of one company that began calculating the expected value (or ROI) of projects and realized they had signed a deal with a development cost ten times higher than they would get paid for it. Obviously projects like this have a negative expectation, but they get undertaken surprisingly often if no one checks the numbers.

The same analysis can (and should) be applied at a more granular level. It's old news that the majority of features in an average software product are rarely or never used. I have a suspicion that these features sneak into software products because no one bothers to think about their expected values.

One more thing: expected values aren't just for deciding whether to play a hand or not. You can (and should) also use them to decide whether to stay in a hand. We all know perfect project cost estimation is impossible, so continuously revisit your estimates once you have a few iterations under your belt. If the expected value of a project or feature changes, don't ignore that information! That brings us to lesson number 2:

Don't throw good money after bad.

The biggest mistake most players make is putting more money into a pot when they have very good reason to believe they are going to lose. Why would someone do this? They've crossed their threshold of pain. In other words, it's likely they've already lost $100, but there's some slim chance they haven't. The psychological difference between losing $100 and $200 is minimal, but the psychological difference between losing $100 and winning a few hundred is huge. Unfortunately, when you make decisions based on the emotional distance between different outcomes, rather than based on the statistical likelihood of those outcomes, you'll get yourself in trouble.

The same thing happens on software projects. Even when it is clear a project is a train wreck, if enough money has already gone into it, people will get really good at coming up with reasons to continue putting money into it. Don't be one of them. The fact that you made bad decisions is not a good reason to continue making bad decisions.

- - -

The interesting thing about these two lessons is that they aren't by any means earth-shattering; they're basic common sense. They basically boil down to this: only make decisions that make financial sense. After reading this article, you may find yourself thinking "Well, duh!"

It's tempting to dismiss the above lessons for that reason. We'd all like to think we are above irrational behavior, so we don't need to be reminded of such common-sense lessons. In poker at least, that's clearly not the case. The biggest challenge for would-be poker pros isn't knowing when to call, when to fold, when to raise; it's having the self-discipline to fold when you know you should. Optimism, pride, and desperate hope drive them to keep putting money into a pot they're unlikely to win.

I think the same thing happens in software development. Everyone realizes that they shouldn't pay twice as much to develop a product as they will be paid for it. The problem is that we don't always have to self-discipline to stop, measure both sides of the equation, and make the hard decisions based on the results.

42 comments:

Whim said...

All in!

T-Pup said...

Great post - being an avid poker player as well - i know exactly where you're coming from and how that can benefit one in the development world. You used only 4 table though? AMATUER hehe j/k :)

Anonymous said...

World Of Warcraft gold for cheap
wow power leveling,
wow gold,
wow gold,
wow power leveling,
wow power leveling,
world of warcraft power leveling,
world of warcraft power leveling
wow power leveling,
cheap wow gold,
cheap wow gold,buy wow gold,
wow gold,
Cheap WoW Gold,
wow gold,
Cheap WoW Gold,
world of warcraft gold,
wow gold,
world of warcraft gold,
wow gold,
wow gold,
wow gold,
wow gold,
wow gold,
wow gold,
wow gold
buy cheap World Of Warcraft gold a3m6p7rk

Anonymous said...

World Of Warcraft gold for cheap
wow power leveling,
wow gold,
wow gold,
wow power leveling,
wow power leveling,
world of warcraft power leveling,
world of warcraft power leveling
wow power leveling,
cheap wow gold,
cheap wow gold,
buy wow gold,
wow gold,
Cheap WoW Gold,
wow gold,
Cheap WoW Gold,
world of warcraft gold,
wow gold,
world of warcraft gold,
wow gold,
wow gold,
wow gold,
wow gold,
wow gold,
wow gold,
wow gold
buy cheap World Of Warcraft gold l3x6d7oj

wow gold said...

In fact wow gold, the results wow gold are quite a buy wow gold surprise; according buy wow gold to a study cheap wow goldby the University cheap wow gold of Delaware, wow power leveling most wow power leveling hardcore players power levelingare actually power levelingfemale. This wow goldnew high was reachedbuy wow gold following the cheap wow goldof the Lich KingTM.

Anonymous said...

Yee 5-6 tables in same time ..:)


Hey, you have a great blog here! With good writing and Nice writing style, Keep up the good work. Nice for share this article. This is Really nice tutorial. That's one thing I'm really looking forward. I'm definitely going to bookmark you! Looking forward to reading more from you.
Thanks for information and good day for You. Till next time.

------------------------------------------
Are you play online poker ? Get Free $50 for start.
Regards

xiaoxu said...

I like your blog, it's very good!
By the way, do you like spyder down jackets, I think they are very fashionable and chic, especially the spyder ski jackets, I love them so much. In my spare time, I also like playing tennis rackets, it can keep healthy, what do you like to do?
kids north face jackets
polo vest
polo jacket
abercrombie fitch mens shirts
polo jackets for men
polo jackets for women
burberry shirts for men
polo hoodies for women
columbia jackets women
polo sweatshirts for women
north face jackets on sale
polo shirts for women
polo shirts wholesale
spyder jackets
ralph lauren polo shirt
polo pants for men
abercrombie fitch shirt
wholesale abercrombie fitch shirts
polo vests
polo jackets
polo hoodies for men
burberry shirts for women
burberry shirts on sale
polo shirts for men
north face jackets cheap
north face jackets for women
north face jackets for men
polo sweatshirts for men
columbia jackets for men
columbia jackets discount
spyder jackets for men
discount spyder jackets
cheap spyder jackets
spyder jacket
spyder jackets for women
tennis racquets
cheap tennis rackets
discount tennis rackets
tennis rackets on sale
prince tennis racquets
head tennis racquets
wilson tennis racquets
babolat tennis racquets

Anonymous said...

Nice to meet you!!!
[URL=http://superjonn.50webs.com/5-ninth-restaurant-week-menu.html]5 ninth restaurant week menu[/URL]

Anonymous said...

Nice to meet you!!!
[url=http://tennis-avenue.cphoster.com/]http://tennis-avenue.cphoster.com/[/url]
http://tennis-avenue.cphoster.com/

kimberly sayer said...

Texas hold 'em is a version of the game of poker. Currently the most popular and also the most played in most casinos.Su betting unlimited version is used in the main event World Series of Poker broadcast on ESPN sports channel, and also at the World Poker Tour televised on The Travel Channel. There are other variants as pot limit and fixed limit
fishing jaco costa rica,
costa rica surf fishing,
fishing in costa rica,
tours of costa rica,
costa rica fishing,
saltwater fishing,
offshore fishing,
manuel antonio,
salmon fishing,
sport fishing,
fishing guide.

http://www.fishingcostaricaexperts.com

Anonymous said...

Good day, sun shines!
There have were times of hardship when I felt unhappy missing knowledge about opportunities of getting high yields on investments. I was a dump and downright stupid person.
I have never thought that there weren't any need in large starting capital.
Nowadays, I'm happy and lucky , I begin to get real money.
It gets down to select a proper partner who utilizes your money in a right way - that is incorporate it in real deals, and shares the income with me.

You may ask, if there are such firms? I'm obliged to answer the truth, YES, there are. Please be informed of one of them:
http://theinvestblog.com [url=http://theinvestblog.com]Online Investment Blog[/url]

Anonymous said...

I love to play in online casinos, almost any of the games are fun your sites has a lot of info. Will visit you again.

pedro velasquez said...

Texas hold 'em or Texas holdem is the most popular of community card poker games and is the most prevalent poker variant that is played in casinos in the United States. bet basketball Its no limit form is used in the main event of the World Series of Poker (WSP). It also happens to be the main game in the World Poker Tour (WPT) that hosts international poker tournaments around the globe. Here is a brief glimpse into the history of the game. sportsbook Origins of the name and game "Texas Hold'em"
While there is no clear evidence as to where the game emerged from, it is sure that the game originated in Texas. The legend says that the earliest version of the game was played by Robstown, Texas in the early 1900s. march madness The game is said to have first come to Dallas, Texas, in 1925 and the word ‘Poker’ of which it is a popular version, comes from the German word ‘pochen’, which means, “to knock”.

http://www.enterbet.com

britney sayers said...

Costa rica tours, shopping online, costa rica fishing, jaco fishing charters, costa rica whale watching, costa rica dolphin watching, costa rica party boat, panama fishing, fishing costa rica los suenos, los suenos fishing charters, costa rica fishing los suenos, los suenos costa rica fishing, costa rica los suenos fishing, fishing costa rica los suenos, los suenos fishing charters, costa rica fishing los suenos, los suenos costa rica fishing charters, costa rica los suenos fishing, Los suenos fishing, Fishing costa rica los suenos,
http://www.kingtours.com/.

Herbal penis enlargement pills said...

I am really amazed to see that you have done a lot of work on this sector. Great work I must say.

Natural stress relief pills said...

There are several life lessons that the game illustrates quite well...

Prosolution erectile dysfunction gel said...

I have very poor idea about this topic, bur the way you presented everything is awesome.

Hersolution female stimulant gel said...

Development of the world is so called hard topic..But this is informative as well..Thanks for sharing your idea!

Duramale anti premature ejaculation pills said...

Such a great post . Very informative and useful . Lots of thanks goes to you .

NeosizeXL increase penis girth pills said...

There's no guarantee a given practice will be right for your situation.

Duramale delayed ejaculation pills said...

Often project managers and sponsors usually don't know how much a project will really cost them or how much value they will gain from it.

Un26d4003 review said...

i think in the Texas taxes are lower

Duramale stop quick ejaculation supplement said...

love to play in online casinos, almost any of the games are fun your sites has a lot of info. Will visit you again.

Increase low semen volume supplement said...

This puts an end to the trap customers, management, and developers so often find themselves in: not realizing until very near the deadline that you're way off schedule.

Infrared grills review said...

Poker is a great game but if you do not have experience and live xp you can loose a ton of money...

Poker said...

Free Poker play free and easy no purchase need no deposit bonus and poker tournaments bonus bez depozytu darmowy poker.

--------------------------
Poker Sans Depot & Bonus Sin Deposito Poker & Bonus ohne einzahlung poker & Poker Bonus senza deposito

pay per head shop said...

Hello I want to congratulate to them by its site of the Web of the excellent looks like entertained and very good very to me it elaborated.

Anonymous said...

I have only used this product one time since I purchased it. I purchased it specifically for a special occasion where I would have my hair down. I have tight

curly hair gets very big and frizzy as it dries. The product did define the curls and they did not frizz after they dried. I have not used it regularly because I usually keep my hair pulled back in a twist.

I am satisfied with the product, but I prefer to use the Moroccanoil oil for daily use.

Anonymous said...

I loved the definite hold and curl this

product kept in my hair. I did not try it alone as another reviewer did, but instead used it with the Moroccan Treatment (oil) product and they seemed to complement each other perfectly. If you have curls

like me and want them to look defined and beautiful, then you will like this product in conjunction with Moroccan Treatment.

Anonymous said...

I am an African American woman with naturally kinky/coarse hair. I decided to stop using

relaxers over a year ago, furthermore straightening my hair became a difficult task. I could never seem to get the results I was looking for out of a flat iron without going to a professional hair salon and

spending $65.00 a visit. I previously used FHI ceramic flat irons which straightened my hair and then left it frizzy again within the next hour. A hairstylist friend of mines suggested the Babyliss Pro

Titanium irons. I purchased them from Amazon for $70 bucks and received them in about 5 days. "A miracle!!" I can't live without them now. My hair goes from frizzy/kinky to silky/straight/shiny in the blink

of an eye. The best part is that it "STAYS" silky and straight until the next time I need to wash and straighten. No gimmic here. I highly recommend them over chi and fhi.

Anonymous said...

This product is perfect for my curly hair. It leaves it looking beautiful w/o being

crunchy. I live in a very humid place and I've finally got my go-to product. It's taken me years to find something this good!

Anonymous said...

I have to say this stuff dries and holds the curls in place for great curl

definition. I dont like that my curls were rather dry though. I'd say you must must must use the oil or some sort of moisturizer w/this product if you have thick (curly hair: type 3C) hair like mine.

Anonymous said...

I love this product my very good friend who

is a hairstylist recommended this to me and I have loved it. It's a great product. I have always had naturally curly hair and frizzy when I have dried to round brush it straight. With 1-2 pumps my hair is

silky smooth! The smell also is very nice! I always hated stinky hair products and this one I do not mind at all smelling. It has been a wonderful product for me so far. I've had it now for about 2 weeks

now.

Anonymous said...

I

starting using this oil when I colored my hair at the recommendation of my hairdresser because my hair sometimes felt limp and lifeless. I still use it now that I've let my gray grow out. It makes my hair

feel and smell great. I found that I don't have to wash my hair every day; I just spread some Curl Cream on my hands and scrunch it through my hair and it works out the "bedhead" look. I don't have super

curly hair; in fact, when I wash it, it looks straight. My hairdress is the one who showed me, using the Curl Cream, that my hair is actually naturally curly..not just wavy. I love it and use it nearly every

day.

Anonymous said...

I first tried this product when visiting in Portland and mistakenly assumed this product left my hair so nice-to-the-touch because the Oregon water was so soft. Not so. Using it in my own hometown, I

have had the same results -- soft, natural curls. Too many styling products on the market leave hair stiff and crinkly. Moroccan Oil Intense Curl Cream is well worth the cost. Be advised that only a

dime-size amount is necessary to great results

Anonymous said...

[url=http://onlinecasinose25.com ]online casino bonus [/url]comme père, inengendré (_ingenitus_), il a, comme tout-puissant, http://onlinecasinose25.com online casino make money casino online only one, perhaps, whose writings are in keeping with our best

Anonymous said...


After looking over a handful of the articles on your blog, I truly like your way of blogging. I added it to my bookmark site list and will be checking back in the near future. Please visit my website as well and let me know your opinion.

Anonymous said...

It's remarkable to see your nice runescape gold introduction, and I'm going to bookmark rs gold this and come back to it. Keep writing! I really love your blog and benefit of your buy runescape gold easy decriptions.

Anonymous said...

is selena gomez dating nick jonas http://loveepicentre.com fake identification on dating websites
dating game theme music [url=http://loveepicentre.com/]handicap dating online[/url] dangers of dating drug dealers
herpes dating seattle personal ad [url=http://loveepicentre.com]smoo online dating[/url] interracial herpes dating [url=http://loveepicentre.com/user/Grimmjow/]Grimmjow[/url] online dating single friends

Anonymous said...

I am extremely impressed with your writing skills and also with the
layout on your weblog. Is this a paid theme or did you
modify it yourself? Anyway keep up the excellent quality writing, it is rare to see a nice blog
like this one these days.

Here is my blog; book of ra kostenlos spielen ohne anmeldung online

Costa Rica Weddings said...

Costa
Rica Fishing Packages
, Costa
Rica Fishing Boats
, Costa Rica Fishing,
Costa Rica Sport
Fishing Packages
, Costa Rica
Fishing
, Costa Rica
Fishing Packages All Inclusive
, Fishing Trips Costa Rica,
Los Suenos Costa Rica Fishing,
Los Suenos Costa Rica Fishing Charters
, Costa Rica Fishing Vacation Packages,
Costa Rica Fishing Packages All
Inclusive
, Costa Rica Fishing
Trips
, Costa Rica Fishing Trips
All Inclusive
, Sport Fishing
Costa Rica
, Costa Rica Sport
Fishing Charters
, Sportfishing
In Costa Rica
, Jaco Costa Rica
Fishing Charters
, Jaco Costa
Rica Fishing Packages
, Jaco
Costa Rica Sport Fishing

Costa Rica Weddings said...


Costa Rica
Weddings
, Costa Rica
Wedding Packages
, Costa
Rica Weddings All Inclusive
,Wedding In Jaco Costa Rica,
Costa Rica Beach Weddings,
Los Suenos Wedding,
Jaco Costa Rica Wedding,
Jaco Wedding Planner,
Costa Rica Married,
Wedding Planning Costa Rica,
Costa Rica Wedding Locations,
Costa Rica Wedding Venues,
Costa Rica Wedding Packages All
Inclusive
, Costa Rica
Wedding Planner
, Getting
Married Costa Rica
, Costa
Rica Destination Weddings


Los Suenos Costa Rica,
Los Suenos Costa Rica Condos For Rent,
Los Suenos Costa Rica Vacation Rentals,
Los Suenos Condos For Rent,
Los Suenos Vacation Rentals,
Los Suenos Condominiums,
Los Suenos Condo Rental