Complementary thought: the ability to accept tradeoffs against reliability increases with slack. This is one possible way to “monetize” slack, i.e. turn it into value. Conversely, if slack is held to absorb shocks from unreliability trade-offs, then if we want to ask “how valuable is this slack?” then we must ask “how much excess value do we get from this trade-off?”
Continuing along those lines: (unreliability + slack) is a strategy with increasing returns to scale. Suppose 1 unreliability tradeoff requires keeping 1 unit of slack in reserve, in case of failure. Then N independent tradeoffs, which each require a similar form of slack in reserve, will require less than N units of reserve slack, because it’s highly unlikely for everything to fail at once. (It should require around sqrt(N) units of slack, assuming independent failures each with similar slack requirements.)
That suggests that individual people should either:
specialize in having lots of slack and using lots unreliable opportunities (so they can accept N unreliability trade-offs with only sqrt(N) units of slack), or
specialize in having little slack and making everything in their life highly reliable (because a relatively large unit of slack would need to be set aside for just one unreliability trade-off).
I’ve heard it said (and am inclined to believe) that contemporary firms maintain less slack than their analogs did in the past (more just-in-time purchasing, etc.). Under this model, I guess that means they should need to maintain greater reliability, and to need to pay greater “costs of reliability”?
My model here is that new technology has allowed firms to maintain mostly-similar levels of reliability with less slack. Inventory seems like a central example: faster, more decentralized logistics enable low- or even zero-inventory models, while still ensuring that the product is there when the buyer wants it. (Concretely: within seconds of a customer buying X in a store, someone in a warehouse can be alerted to pack one more X in the next truck headed for that store, which makes restocking dramatically faster than it used to be.) There are still reliability costs sometimes, e.g. if the logistics chain falls apart entirely due to a disaster, but the main point is that the whole slack/reliability trade-off curve has shifted.
Complementary thought: the ability to accept tradeoffs against reliability increases with slack. This is one possible way to “monetize” slack, i.e. turn it into value. Conversely, if slack is held to absorb shocks from unreliability trade-offs, then if we want to ask “how valuable is this slack?” then we must ask “how much excess value do we get from this trade-off?”
Continuing along those lines: (unreliability + slack) is a strategy with increasing returns to scale. Suppose 1 unreliability tradeoff requires keeping 1 unit of slack in reserve, in case of failure. Then N independent tradeoffs, which each require a similar form of slack in reserve, will require less than N units of reserve slack, because it’s highly unlikely for everything to fail at once. (It should require around sqrt(N) units of slack, assuming independent failures each with similar slack requirements.)
That suggests that individual people should either:
specialize in having lots of slack and using lots unreliable opportunities (so they can accept N unreliability trade-offs with only sqrt(N) units of slack), or
specialize in having little slack and making everything in their life highly reliable (because a relatively large unit of slack would need to be set aside for just one unreliability trade-off).
I’ve heard it said (and am inclined to believe) that contemporary firms maintain less slack than their analogs did in the past (more just-in-time purchasing, etc.). Under this model, I guess that means they should need to maintain greater reliability, and to need to pay greater “costs of reliability”?
My model here is that new technology has allowed firms to maintain mostly-similar levels of reliability with less slack. Inventory seems like a central example: faster, more decentralized logistics enable low- or even zero-inventory models, while still ensuring that the product is there when the buyer wants it. (Concretely: within seconds of a customer buying X in a store, someone in a warehouse can be alerted to pack one more X in the next truck headed for that store, which makes restocking dramatically faster than it used to be.) There are still reliability costs sometimes, e.g. if the logistics chain falls apart entirely due to a disaster, but the main point is that the whole slack/reliability trade-off curve has shifted.