Josh Mischung and I explored construction systems including economic incentives, work planning, profits, and safety. The Easier, Better, for Construction Show is where people working to make building easier, better, faster, and cheaper share how.
Josh Mischung and I explored construction systems including economic incentives, work planning, profits, and safety. The Easier, Better, for Construction Show is where people working to make building easier, better, faster, and cheaper share how.
Follow Josh on LinkedIn at www.linkedin.com/in/joshmischung and at www.knoasis.io
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Felipe Engineer 0:02
Welcome to the EBFC show. easier, better for construction podcast. My name is Felipe Engineer-Manriquez this show is all about the business of construction, and how our guests are making it easier, better, faster, and cheaper. Hey, Josh, welcome to the show. Oh, yeah, man. Oh, good. There's nothing like having you walk on to the show. Extra fact, I love it.
Josh Mischung 0:38
That's exactly what I was shooting for. Obviously, I'm experienced to keeping an audience in suspense.
Felipe Engineer 0:45
Is he gonna come on? Welcome to the easier better for construction show, we talk about all things business for construction. My guest today is Josh and he's gonna get you introduce himself in just a second. Josh, you'll get introduced yourself in a second, I won't even try. I leave to the experts. And then no one knows you better than you. So you're working in a space, you've worked in the construction industry before we've worked together before different companies, different organizations. But it definitely count you among those making what we do easier and better for many.
Josh Mischung 1:22
So my background education and practice over the last 10 years is in the construction management space. It's from my undergrad and graduate studies are in. And I was exposed to lean and a contractor that I worked with, prior to going back from my graduate studies, but it heavily influenced the focus of my work. And I saw firsthand how important people were in the process. So you could design a great process. But if it looked at the human element as the weak point, instead of the opportunity, it almost inevitably failed. So my graduate studies looked at the impact emotional intelligence on project performance, team emotional intelligence to be specific. And then I spent three years with another contractor, helping to both design to lean processes, bring some of what I had learned from the other contractor, and then train that as well. The last couple years, I took a hard left turn. And I somehow wandered into the data science space. So I spend most of my time rummaging through large stacks of numbers and programming, building predictive models and dashboards, to help people pick up on that signal and tell the story that is embedded in their data, but can sometimes be a little hard to pull out.
Felipe Engineer 2:55
What a great, great story you've got there. And you glossed over some of the interesting parts to like, only because I know you so well, I know some of the the deeper parts of this. And maybe it'll come up in our conversation. And maybe you'll just leave us in suspense. But I was actually talking to somebody this week, Josh, that that work with your you're one of your past mentors can at the simpler Institute. Yeah. And they decided it had been in the spirit of continuous improvement is how they work together. And I just said, I can't believe how small of a world that is that I'm talking to somebody in Minnesota. That knows you can and I've actually met Ken and I'm going to talk to somebody tomorrow. That used to work with Ken quite closely. It's like What a small world. Such a small world.
Josh Mischung 3:46
You definitely see Ken's fingerprints on a lot of my thinking. And the way I process things. You're like, hey, there's a lot of overlap there. And it's for good reason. He was very influential.
Felipe Engineer 4:00
And again, we're talking about as consultant, right. Just check in checking my memory. Like we're sitting side by side. I even better. Yeah, and I'm in beautiful California today. And where are you today?
Josh Mischung 4:12
I'm in overcast Seattle.
Felipe Engineer 4:15
Nice. I can't tell Well, the light on you. It looks it looks quite bright. So it's you know what the overcast you've got some natural light hitting. Yeah.
Josh Mischung 4:25
I'm right next to my sliding glass door and the overcast kind of makes it like one of those movie style reflectors. Yeah. And then my makeup artist is obviously off screen. Obviously not one.
Felipe Engineer 4:41
Yeah, no, I almost call my hair today. So no worries. Yeah. So we were we want to talk about, you know, the construction industry and one of the things that you'd mentioned and we had like such a good conversation, you know, that wasn't captured. So we had to recreate some That hear about systems thinking as applied to two people that work in the construction business. And I think that's where that's one of the cool things that you and I have in common is this passion for thinking about things? systemically? It's not, it's not normal to think about that way. It's definitely something that I've acquired over time with, with some good study, but it's, it's influenced the way that I see the world, Josh, and I can say, you know, for me, my systems thinking study has made me more patient, you know? Because I'm always trying to figure out like, what are, you know, what are the feedback loops? Or what are the inputs? To what I'm seeing? What am I observing? You know, how deep does this go? Whenever I'm working with teams, or, or departments, or different businesses, those are interesting things to uncover. It's not always obvious.
Josh Mischung 5:55
One of the reasons I wanted to talk to you about this was because I noticed that when I came at it from an economic perspective, it just kept it a very system focus piece, instead of looking at the people and being like, why can't you just behave the way we want you to?
Felipe Engineer 6:15
What's like, I think it was like Matthew McConaughey said in some quote, people are gonna do what they're gonna do. All I can do is all I can do.
Josh Mischung 6:26
You got it.
Felipe Engineer 6:27
And it's a it's like such a simple phrase, but it really nails what we're talking about.
Josh Mischung 6:33
I agree, digging into it is some of the real fun. For me, what really helped to detach me from the being too engaged to in the weeds away that was taking that systems thinking that we share. And then when you're not getting the behavior from the people in the system, and stead of wondering like, why are they behaving the way I want, applying more of an economic perspective, in the sense of incentives? and optimization to understand, okay, well, if we're rational operators, and well, behavioral economics, shed some light on the overly reduced perspective that traditional economics holds. There's definitely still some value added. And the models still work in a number of areas in traditional economics, where we're rational operators who are looking to optimize our outcomes, given the situation. And I think that's the most important piece for me, it would almost by definition, be irrational for a human being, not to optimize their outcomes for the given situation they're in. And very often, we're not responsible for the incentives that are designed in a system where you're dropped into a system and told here's how it operates. And as rational operators, it's our idea to explore the space and eventually figure out, oh, here's how I optimize my output. To do anything less would actually be irrational on their part. And when I thought about it like that, I'm like, Oh, okay. Are they doing what? What would be desired? From a systems perspective? No. But that's not a reflection on them. That's a reflection on the system. So even if the system is right, maybe the incentives and I, for the most part, when I say incentives during this conversation, it'll be in the economic sense, not necessarily in the capital sense. The incentives might not be designed well. And there might worse still be some perverse incentives, where this is the outcome is completely predictable, given the the appearance of these perverse incentives within the system, or the presence of them.
Felipe Engineer 9:18
And that's the funny part. So I went on pack a couple of things you said first, I like you got my attention. You said perverse incentives, because it, I mean, you've got some perspective in there. So when you see people acting in the way that optimizes for themselves and some like on a construction project, if we're talking about like a crew, and, you know, since one day a long time ago, I studied to be an electrical engineer, and let me pretend like I'm on a, I'm an electrician, and I'm on an electrical crew. So I might be working with a handful of other people and we might be installing, say Raceway for lights. Right. So we we might have as an organization have some pretty Functional goals that our company wants us to hit. So I might have to, if we're sophisticated enough, our company might say, you know, this commercial office building you should be installing. And I'm sure I have all the estimators roll their eyes, no matter what number I say, I should be installing like 10 light fixtures a day and a commercial office building. Right? I'm just throwing out round numbers, right. So. So the incentive for me is that I'm going to do well, I'm going to meet the goal that my company has set. And there's going to be a lot of secondary and tertiary things that we do to make sure that I actually achieve the 10 per day. Right, it means someone has to procure the material has to be on site, I need to know where it is, I need to have some contract drawings Tell me what fixture goes where, and what room where there might be a sequence, if there's a general contractor involved, there's inevitably a critical path method schedule, it says I should go clockwise, counterclockwise odd rooms first, you know, checkerboard, some kind of logic to where I should go. So and those, those are different organizations, like even just having a general contractor involved, you know, versus if I was just hired directly by an owner doing a tenant improvement, completely different incentives for what I should do, if all my time and material, for example, to bring the economic peace back into our example, if I'm working on time and material, I'm going to get paid for the materials I install, and my labor hours right, at some set fixed fee that my company cares about. But me as the electrician, I'm getting paid by the hour, almost no matter what, right, I got to hit this goal, just so that I stay part of this crew part of this team. And I can keep working every day. Because if something catastrophic happens, and I missed the mark by like half, and I don't have a good story to tell as to why I'm probably not going to ask back. Right. Now with that, with those types of incentives that we've just described, of getting a paycheck, I've got the camaraderie of working with my crew, right, there's an intangible there, of being part of a team, right, we probably all wear the same, you know, types of vests, logos, I might even have like the company logo on the side of the truck, I drive, potentially, all nice things they might even pay for my gas. That's another nice economic incentive. I'm working far from home, potentially. Now with all those things in play the perverse incentives, what would you consider to be a perverse incentive in that scenario? You could pick a some Josh, because we want to give, let's give people some type of where's the dark side of our thinking?
Josh Mischung 12:40
Yeah, we'll explore this a little bit more. And then there's one other example that I'd like to get to at some point, because it's interesting in that a person's in the person stays constant, and their incentives change. And the person I was having this conversation with, explain how their behavior changed. And there was initially an opportunity to say like, Oh, you know, this person just gaming the system one way or the other? And it's a second, in fact, no, they're, they're doing exactly what economics would predicted each step of the way. They optimized for their incentives. And when their incentive structure changed, they did the rational thing. So you, there's no negative judgment there. But in terms of what we're exploring right now, especially in that time, the material one, you had an interesting one that is a quantitative nerd always makes me a little squeamish when you're like you said, a good story. And that right there, whether or not that story is accepted or rejected by itself, you're starting to create incentives, either beneficial or perverse. At each small step. I think this is very important. No system is ever designed, intentionally placing perverse incentives in there. And most systems are not static, especially anything that involves humans. They're dynamic. And they don't take gigantic leaps from one state to another. Instead of small, almost imperceptible ones. We bring your head up one day, and you're like, How the hell did we get here?
Yeah, a story is a good example. And this is tough.
Felipe Engineer 14:37
Boy, that that example we were talking about. So like, if I'm if I'm incentivized by my company to hit my goal of 10 per day, I might act in such a way that I'm good for my system, my electrical company, I hit my numbers, but I totally mess up what the GC needs and I might get ahead and start burying people. Right, I might start putting fixtures in the way of other trades, like fire sprinkler, or I mean, that's really super common like, okay, you know, it's like, What things do lights typically get in the way with and, you know, in the 20 years that I've been building fire sprinklers always heating, ventilation, air conditioning, things either piping systems or ductwork can happen. Because the even the way that things are designed in the system of construction, like the drawings typically are compartmentalised electrical drawings will show light fixtures, reflected ceiling plans will sometimes show them but on the other trades, they might not even be a half halftone they might not even exist, they might just show like routing, right and and totally ignore. You know, where the light should it be centered? Should it not be? Right? Is there a speaker in the room? Where's the speaker go if there's a light in the way, who gets precedent?
Josh Mischung 15:59
Here's a really insidious one that comes from this very example here. So if you're on a large enough project, which we both worked on large projects, you have a number of different groups for each trade. So the examples you gave are an example of one trade, potentially creating what would be considered an externality. And that impacted another person that wasn't part of that transaction. You're the GC and I'm the subcontractor, the agreement of 10 lights per day, that is an agreement between you and I. And in the process of that agreement, if I get ahead, or I'm like, Hey, you know what I'm just going to install here today. And that impacts the fire sprinkler subcontractor in such a way where they then can't do the work, they weren't even part of them. So that creates what's considered an externality people assuming that there was a mutual exchange benefit. you're hiring me to install it. And as such, I take your money, install the lights, we both come away feeling that we benefited from it, but someone else pays the cost of it. Yeah, you have that but the real insidious one. And this is interesting, it's sometimes a little bit harder to tease apart if you haven't seen it. on large projects where you have numerous teams within the same subcontractor, I have even seen where in order for Team A to install their 10 fixtures. They'll take resources from Team B. So that way, they can say, Hey, I hit it. So over all, the subcontractor we're referencing here, someone still has to give a story for why work was not completed. Yeah, who the general contractor, but now you even have factions within that that subcontractor, we're not even talking about externalities with other subs and ensure...
Felipe Engineer 18:16
They're just staying in the same, the same company logo.
Josh Mischung 18:20
Exactly. And it's still it's never, at least in my experience, I have never seen it firsthand where someone's maliciously like, you know, I'm absolutely going to screw so and so over, never seen that.
Felipe Engineer 18:35
I've seen general contractors pit trades against each other. Ah, that was way early in my career. But it's left a mark on me. Like, I remember that installing work, where people might not have been ready, just because the schedule said it was ready, whether it was or wasn't right. Yeah, get people to be pushed and start moving forward faster. That's a push mechanism. That's i would i would classify as insidious. Absolutely. intentional and serious. And, and there's a lot of jokes, Josh, I mean, I've gone to conferences and and spoken in a few places. And I've heard general contractors say things like I'm a recovering general contractor. And like the trade people laugh, because they know sometimes, you know, it's tough. And I've spent more of my career on the general contractor side. So yeah, I've seen it both ways.
Josh Mischung 19:30
I've worked on the subcontractor side, and I've also worked on the owner side. And there's a saying that one of my professors during school would often say and I'm quite fond of repeating, and it's the golden rule. Who has a gold makes tools. Yes. And I saw this firsthand, really when I was working on the owner representative side where like, you can downstream impacts of these decisions are beyond predictable. So you don't even get to feign ignorance. Yeah, that one's right to check.
Felipe Engineer 20:10
Exactly the owner wants to see progress, right? We've all, we've all been on a job where, where someone says something like, you know, the owner needs to see this happening, right this thing, right, the owner might have a lot of experience and, and they understand certain systems better than others. And they want to see, like, you know, we hear things like, want to see all the walls turn white with primer rephrases. Like that, we want to see the, you know, the, the mass excavation, so we want to see that the big trucks roll. Right. So these are all things that that they say, because people understand those parts, and they latch on to that, and it looks like progress, even though it might be the worst possible thing for the overall project as a whole system. Right, because the point of the point of most construction projects is that you're creating something that an owner will use to solve a business problem themselves. and generate revenue, if it's a healthcare client is to treat patients, if it's a school, it's to teach, you know, students, if it's a cultural center, it's to have people come together, and, you know, like, in a museum, or art, all these different buildings, if it's a road, it's so that people can go from point A to point B literally, you know, in a total way, so they can generate revenue as they go from point A to point B. Right kind of pays for itself, even though I've never seen a toll stop collecting money. I'm not sure how that that's a that's another conversation.
Josh Mischung 21:32
You're right. I mean, things are meant to it's kind of the equivalent of to stick with the being transported from point A to point B, we see the car going down the street, most people don't understand how it works. It's like, Oh, yeah, I know, there's an engine and transmission and wheels. And it's like, Okay, well, what does the engine do? And, you know, it produces power, internal combustion, how does that work? You can see, we live in a complex environment, most of the time serves us very, very well. But any one thing you recognize there's an appreciable amount of things going on, where if we try to just get the...
Felipe Engineer 22:16
The 140 characters of it? Well, we, we say something, but if we're, it may not necessarily be communicating anything. We're gonna think about in our in our system example our poor little electrician trying to get 10 pictures a day in the stent end up bearing the the fire sprinkler guy or the are same those story with electricians got to hit their mark, and they steal from our borrow from another crew do to their detriment, and they might not even realize that it's to their detriment, because maybe one foreman is more sophisticated than the other one, or has more clout on on the staff with their general Superintendent than the other one. So they get preferential treatment, because that happens. There's human dynamic and relationship component part. But from from different people's perspective, Josh, it doesn't look perverse. You know, it looks it looks right. And it feels right. And the people that are making the, the the changes and affecting the outcomes. They're acting rationally, from a from a step back perspective, like, you know, as you know, me, I have this unique perspective, when I work with project teams, I get to come in completely detached, completely detached, I'm seeing things. I think I'm seeing things closer to as they are, I'm still super biased, right? I've got a lot of bias. But I'm seeing things close to how they are. And it, it looks very different to me. And I can tell it's very different because of the way that the questions that I asked and how people react to my questions, I can tell that, that my perspective is very different than people working inside the system versus someone outside looking in. It looks different. And I always try to give people the benefit of doubt, like you said to they're not designed to be bad, or they're not designed to, to run people over or to get people hurt. But that can be an outcome and it can be very predictable.
Josh Mischung 24:16
Yeah, I think you brought up an interesting point there. That's really worth exploring a little bit further in that the agent operating within the system, it is not for them to say this is a perverse incentive. It is only for them to understand the constraints and incentives, both positive and negative of the system. They're operating in and optimize accordingly. At minimum, it's the responsibility of leadership typically the ones who create the systems. It's their job to assess is this A perverse incentive is creating unintended externalities, or, hey, we solved the first order consequence, maybe that's being able to deliver the necessary production report on Friday. But it hadn't the second and third order consequences were in the programmatic and data science space. It's called technical debt. And it's amazing, the overlap between these two spaces. It's funny, in the data science space, or computer science, people hate when I'm like, Oh, this actually shares a lot in common with construction. Because what we do is really, really smart. goes down a minute, we're still talking about bringing a diverse group of people together who all have different competing interests and incentives. And we're trying to deliver a product, does that sound pretty applicable to construction sounds.
Felipe Engineer 26:00
Just like construction, and technical debt? I mean, even my Scrum practice and learning that's talked about software development all the time. Yeah, that's a huge piece of it. I was like, it's something that, you know, no, project manager wants to tell you what it is, for this given effort to make this program, this much is going to be debt. Right? I mean, they call it re, I think they call it refactoring. refactoring. refactoring are basically just cleaning up code.
Josh Mischung 26:37
Which is extremely important, because not cleaning it up with that is actually the technical debt. A good example of that is, and this is another thing that kind of maps to construction reasonably well, as you write different pieces of code that are meant to be reused. If you're doing it properly, you provide sound documentation. So I find code to actually be something of a misnomer. Because when people hear code, it's almost like the idea of my code is for you not to be able to interpret it. And that's the furthest from the truth. Good code is code that you can pick up and be like, I understand what Josh is saying here. Okay, this is how I would use it. Got it. This makes sense. It's more, I like to call it instruction ng when I'm teaching people, because you're really just telling the computer how to behave. That's it. Sure. But as it applies to technical debt, if I don't write them just for the sake of getting it out quickly. Let's face it, none of us ever factoring to our plans, our schedules, oh, go back and do that thing we should have done the first time around, though, and I don't, exactly. So as a result, if I rush real quick, and I don't refactor, the refactoring is not even necessarily taking on technical debt. It's just more good housekeeping. It's kind of cleaning up your toolbox afterwards. Yeah, if I don't do that, the next time I go in, I'm like, Where the hell is that tool? Where is that instruction manual that tells me how to install this. And those are some of those second order consequences that often get overlooked. Because the incentives of this system, they will reward that behavior.
Felipe Engineer 28:34
Yeah, they were word to just get it done. Even the, you know, a lot of leaders talk about having a bias to action. And they want to incentivize their people to a bias to action. But there's a limit to that. Because you can end up having a lot of people just cobbling stuff and getting things done. And then they're like, look at me, I'm biased actually look, all these things that I'm doing. Right? And they never go back and do those other parts. Like, as you're talking about the technical debt and the refactoring, I was thinking like in and lean terminology that's like five s or can do or you're, you know, you're systematically daily throughout the day, cleaning things up making it ready for the next day. Right, or just keeping a tidy for the next day, right? When we look at our what our estimates like doesn't matter what trade you are, you don't see anything calling out like general cleanup unless you're doing general conditions for a general contractor. And there's never enough money in a Josh, no matter what it is like it's always underfunded. And people always think like every trade, we'll just do it but it's not called out. It's not because that's not what we get rewarded for. We get rewarded for putting work in place. Even the way that owners pay us. They pay us based on progress. We can have progress and the job site can be a pigsty. If the works installed, you still get paid. You don't get the merits for having a messy.
Josh Mischung 29:58
This was something that And that I can and Dean cash lagi they teach in in their methodology. Because all the systems approaches that you see Ken and Dean teach or apply respectively. There's underlying human psychology acting as a foundation there. These are not just nerds that sit around and build beautiful, you know, flowcharts and diagrams, they understand the human element in there. And they just tried to put alignment points in there to make sure that we're all talking about the same thing. And they recognize do that early and it has a bigger impact at the beginning of projects, it's interesting, I can't tell you how many times I was told I'm a pessimistic person. Because at the beginning of a project, when it's just like dating at the very beginning, you're like, Man, this person is awesome. And my new girlfriend is great. And then one of my buddies is like, Hey, man, I don't know if you guys are good fit. And I'm like, Dude, don't be a jerk. And what do you got to be raining on my parade for you don't want me to be happy? Yeah, your projects are kind of the same way. You're in that honeymoon phase. And the most effective relationships that I've ever seen. Even in the honeymoon phase, people go into them very deliberately, like, some of my friends, they've gone through marriage counseling with their fiance's, because they're like, Hey, we should just get ahead of this stuff. So some might say like, Oh, that's being pessimistic, you know, oh, that's bad luck. You know, you're setting yourself up for failure. But instead, they're like, Hey, we're going to get the skeletons out of the closet now and at least figure out, Okay, well, now that you know, I'm not perfect. And I know that you're not perfect, are we signing up for a set of complications that we're both in agreement with, so reduce the surprises, and you can even have countermeasures in place for when challenges inevitably arise? That's a very pragmatic approach to things that many, just then doesn't release the same amount of dopamine, oxytocin and serotonin saying, like, hey, let's practically talk about the hardship. It's totally different. The other is totally different. Yeah, the other piece that you hit on there with the bias towards the action, and that, to me is a beautiful space to really explore the human psychology piece, as well as the economic incentives of it. And it's something that I think is unbelievably important. I can't remember where I read this was many, many years ago. But again, this is speaking, generally. But when you talk large populations, it's about all you can do. Western culture seems to have a desire for absolutes. We love binaries, like, just tell me what the damn rule is. Where is Eastern cultures tend to take a more nuanced and contextual approach. They're like, if this Tell me what that they look at things more in a conditional sentence. And I think that bias towards action is a great one and one of one of my favorite thought leaders Jocko willick. I'm sure he's familiar to many people in your audience. So he says something very different, very similar to his team. Did he train default? aggressive?
Felipe Engineer 33:40
Josh Mischung 33:41
I mean, that is always the default. But even Jocko recognized He's like, if I'm always telling them to be default, aggressive. Now, it means at times, my troops that I'm responsible for are going to rush into a dangerous situation, where had they detached and evaluated for a moment, they would have actually been able to take a more effective and safer approach. So he still advocates Yes, you want to be default aggressive in that. You're always looking for that opportunity to flank, you're always looking for that opportunity to advance. But that doesn't mean you're turning out the prefrontal cortex and operating from the limbic brain. Instead, default aggressive just means Okay, my first thought is, go after it. But let's stop for a second MC one second and third order consequences. Might this create so that's your default, but he's not saying don't think he's just saying when you're thinking you start out, get after it, and then evaluate why that might be a bad idea.
Felipe Engineer 34:53
Well, you can't even mention Jocko not using the word dichotomy at least once. Oh,
Josh Mischung 34:58
I don't know how long the podcasts go. I figured we'd have plenty of opportunity.
Felipe Engineer 35:02
It's like, guy watches podcast too, and for a long time, and I've read all his books, and I'm a big fan of his and, and that dichotomy of like, default aggressive, like you said, still got to think getting people to think and make decisions, like, what's the next decision I'm gonna make if we do this, what's the next is and just putting that little if and he says you just start making these little moves. And the next thing you know, you survived. And I think some of it when you mentioned it, you talked about that like, the concept wise, If This Then show me what this will be, you know, that Eastern thinking some of its language based, like the English language is very like that, that that that that that very like one thing leading to another black and white, the words, the meaning to the words are you we can get to a common ground very fast, like on off binary, like you said, whereas in some of the other Eastern traditions, I've read some things that have been translated in English. And the footnotes on the translations are just insane. Like you can read for days. You try to read like a paragraph, and then you're reading like three paragraphs of footnotes to explain all the nuance subtleties. And there's just it seems to have a way more broader meaning. Yeah, that's just so that's, it's very different.
Josh Mischung 36:26
I've read two translations of the Tao de Ching. And it's interesting because you're like, hold on, am I reading and translation of the same book here? Right, almost reads like two separate books. It you nailed it. meditations by Marcus Aurelius is another example of the translation matters greatly. So I was chatting with a friend of mine, he works to add another contractor. And he was talking about the change in behavior that he saw from an individual when they went from union to Aesop. And he's like, you know, when this person was union, and they were paid hourly, this person worked massive hours, 60 hours a week was like, hey, sign me up. That's awesome. Yeah, and you'd easily see 7080 hour workweeks. And the friend that I was chatting with, he said, once this person went to Aesop, you rarely see them doing more than 4050 hours a week.
Felipe Engineer 37:30
For those that don't know, employee stock ownership program, and I'm assuming your friend went salary. Yes. Right. So salary, no longer hourly, no more overtime salary, and employee stock?
Josh Mischung 37:43
That's correct. Right.
Felipe Engineer 37:45
Yeah, it's it's a change.
Josh Mischung 37:46
There was there was nothing explicitly stated saying like, you know, oh, man, this not so much accused of being lazy, but it's like, oh, now that he's not making a bunch of money. He's not, you know, raking into overtime. So almost more, speaking negatively about the excessive hours, while being paid hourly. But in this specific space, I did hear just kind of the tone a little bit, it was just something in the tone, implied some frustration with man, this person just the way, you know, they're behaving or were behaving. It just goes to show they're just looking to take advantage of the system. And...
Felipe Engineer 38:32
I'm sorry for laughing because I've heard that.
Josh Mischung 38:36
Okay, I know this person. So gives me the benefit of suspending judgment for just a moment being like, okay, I don't always agree with their behavior. But I know they're not a bad human being they're not a malicious actor. So let's look at what's going on here. Well, when they were financially incentivized to work as many hours as they did. That's what they did. And then when their incentives changed, again, based on this person had been pushed to go Aesop for a while, and you've put it off for a while. So it was still the system trying to nudge him in that direction. And then once his system that the environment changed, you saw the behavior change, and I'm like, this is a perfect example of perverse incentives. There wasn't incentivization on this specific outcomes that were desired, or the specific inputs to go from, measure what matters and objectives and key results, because you really want to look at what are the key results and kind of feed into them to reach the objective do not incentivize on the objective. You can increase profit by staring your profit You can help increase profit by impacting the inputs. That's right into the system, where profit is the output. And when I worked at them, I saw I'm like, oh, okay, this explained to them, then my friends started sharing. You know how this person still creates a lot of QA QC issues? And he's like, you know, I don't know, I worry about QA QC. I don't even pay attention to, you know, costs or schedule. And I'm like, that's because if your incentives...
Felipe Engineer 40:34
That's right, no reason for you to...
Josh Mischung 40:37
Exactly both of these individuals, hierarchically speaking are about parallel. The project needs both of them. Alright, if we quickly deliver crap, or slowly deliver a Ferrari, the owner is not happy in either situation. Yeah, you gotta find that overlap in the Venn diagram between delivery time, cost, and quality. But it just became blindingly apparent at that moment. I'm like, okay, the superintendent is incentivized by constant schedule, a QC person incentivized by QA, QC, these two need to work together, but their incentive structures has them opposing each other, and to expect them to work together. That to me is not a failure on their part, that is a failure on the people that design the system.
Felipe Engineer 41:34
There's the the irrational part. And you know, in the beginning, when you first talked about and you use, you use the word, you use the modifier if we act rationally. And I thought immediately of Dan Ariely, right, predictably irrational, as I described human beings, right. And even even in that work, it's the it's just how our minds operate. Like when you get put into a system, you very quickly, I mean, this is our whole childhood. We're geared in to just pick up what environment we're in and adapt to it. People very quickly adapt. And then they can only act as the system allows them to without I mean, with some exceptions, you'll have some outliers, it's fascinating, your friend couldn't do anything different. And then, you know, your one friend to say, I don't care about cost and schedule. And whereas the QA QC people totally different environment. I've even worked with teams, Josh, that are in QA, QC. And I said, What's a measure of success, and we've explored the topic and come to find that a good measure of success for them, it's not obvious is passed inspection rates on the first attempt. Right, and that's a good quality metric. Like if you're doing, you know, 1000 inspections a month, and you're passing 99% of them. That's really good. Right? If they're all equally sized, right? I mean, there's some assumptions in there. But if you're failing half of your inspections, that's automatically means you're doing rework, you got people coming back to areas, you're having to mobilize people away from the what's deemed to be critical for the job to finish, you're pulling people away from those activities, you're slowing down the whole job. So you can almost look at that quality inspection rate as a predictor of job speed in of itself, when it was going back to your friend?
Josh Mischung 43:31
Well, I think there's one other piece worth unpacking a little bit here, in the economic sense incentives. And it's kind of like acceleration in physics, acceleration doesn't mean moving fast. It just means change the rate of change in momentum. And economics incentives is the same thing. It does not necessarily mean good. So now we need to consider what would be considered negative incentives or undesirable incentives. And there it's not a one to one ratio. In fact, what Kahneman and Tversky have showed us with Prospect Theory is it's actually closer to a one to two or two to one, you need double the positive incentive to offset one unit of a negative incentive.
Felipe Engineer 44:25
Oh, that makes sense. Yeah, I've not heard that before. But that makes total sense.
Josh Mischung 44:29
If I lose $100 in a bed or falls out of my wallet, my day is more negatively impacted emotionally than if I found $100 in my wallet, 500 bucks.
Felipe Engineer 44:46
But if you're over it, like in five minutes, you're losing 100 bucks. You're gonna carry that till the time you go to bed. You'll be thinking about that before you close your eyes.
Josh Mischung 44:55
Economics even hits this some in Future discounts, where you're we're not as swayed as much from the potential of earning tomorrow as much as we are from the potential of loss today. So, the saying to someone I go, you might lose your bonus, or you're gonna lose a portion of your bonus that doesn't have the same impact as negatively berating someone, you know, like, here, we use the terminology we've all heard over laying into them, you know, just reaming them, bulldozing them, just whatever it is just basically ripping someone apart.
Felipe Engineer 45:42
Getting on somebody's case, you got it kicking somebody when they're down.
Josh Mischung 45:47
Yep, at least week by week basis, a lot of times, if not day, by day or on tough projects, a multiple times a day. So you would need double the incentive of that. And that's a lot of psychological stress. Well, you're also worked long hours potentially even sleep deprived. Oh, guaranteed. The behavior we see. Not only doesn't make sense, but it actually goes as far as to think okay, one. If we take the, our intimate knowledge of the construction space out, and we just heard about a human being that, hey, they could have made to x, but instead, they just went for AXA deck when I was done. So then...
Felipe Engineer 46:35
Without any context, we automatically think that was stupid. Exactly. But then thinking like you should go for the maximum.
Josh Mischung 46:41
Yep. But then when we watch someone do it, we're like, Ah, that manipulative jerk. They're gaming the system? Yeah, well, they're operating. They're operating rationally, we would label them as dumb if they acted any other way. So safety, what a lot of people are doing a lot of projects they're trying, they're attempting some sort of payout incentive to safety. And basically saying, okay, the fewer incidents you have, the higher your payout is, or your panel can be a max of x. And the thinking is, okay, well, we're incentivizing for better safety, the converse of them the perverse incentive, what you're actually doing is incentivizing for not reporting.
Felipe Engineer 47:29
That's right. That's absolutely right. And we see that time and time again, the pressure to underreport and not report and to make things first aid that should be going to the emergency room. It's unbelievable. It's deafening. The pressure is, it's it's unbearable. I My heart goes out to the safety professionals that have to operate with those types of incentives in play. Because you still if you look back and look at fatalities, right? Because that's like the worst case someone dies. Those numbers don't go down. And then you look at and then people are like, How did it happen? Because they're looking at these trend. And the trends and they're saying, like those that are less first aids now, right on on a given job, or for a construction company. But all of us, but they still keep having these fatalities, like every other year, like clockwork.
Josh Mischung 48:27
Or rate has stayed consistent, right? The potential leading indicator, first aid has decreased.
Felipe Engineer 48:35
Yeah, I've even heard some safety professionals say, I don't want to see a single report. I walk into a trailer or a job box for a particular trade. And they just look at first aid supplies. And if they see that the band aid package looks like totally beat up to or empty or Tylenol missing. That's another thing that like any kind of headache medicine, you could tell the team was overworked when the Tylenol and the aspirin start to be used for the medicine cabinet. Some some teams will buy those types of things and put in the first aid. And that's an that's a leading indicator that that team is under substantial stress when people are having to Medicaid at work for headaches, or when you see band aids being used or medical tape gone, or eyewash stations or even fire extinguishers being used on the site. And not reported no fire reported. Those are all indicators of like, you can't report you absolutely cannot like it's a it's an unspoken rule, Josh. Yeah, the people operating those systems they know like I can't say a thing. That is a very, very dangerous topic for I think a lot of people are put in a bad situation and it's the people that set those up had good intentions when they set it up, but they didn't think about the second order, third order and most human beings like until you get out Like professional chess players, very few human beings are thinking third, fourth, fifth order.
Josh Mischung 50:05
In with chess players, it's worth noting that they themselves, it's not like they're predicting the future, they've just run through MOOCs. So many times in this configuration, this is the only, there's only a small set of options here. So it would look like this. If we're operating in a space where we don't have that benefit of having run through it a couple different times. I think this is what creates a good argument for more nimble experiments, like each time policy is said, like I'm hypothesizing here. So please, let me know if you have a different perspective on it. Setting policy is typically an emotionally and cognitively exhaustive thing for many people, because they are trying to essentially predict an unknown future. And if that's the case, I'm a big fan, you see this in the way I model and the way I go about a lot of my work in the data science space, make sure that anything I roll out is not going to make the situation any worse. But once it's crossed that threshold, put it out. So I can get feedback, because I'm going to learn things I did not know before that I could not have possibly speculated my way too. So it's less emotionally exhausting. But what it does require from me, is instead of putting it out and being like, Oh, I'm done. Instead, I put it out fully ready for it to come back. And I'm like, Okay, got it got the next piece, let's tweto. And it, it's a much more nimble approach, as opposed to treating policy as closer to static.
Felipe Engineer 51:57
That disconnection between like you mentioned it on profit. And I think a lot of people don't realize this, unless they've spent a lot of time. You know, what can you do? What are the levers to improve my profit? Some people just set profit goals blindly. Like they'll say, like, we should, we should bring back 10%. Right. And I'm not speaking as a GC because no, GC brings back 10% just by the way for for all of those lists. But like, yeah, like, let's, let's bring back 10%. And they just fixate on that 10% number and they start making sacrifices and other things, instead of thinking like, does my team have the right tools to do this job? Are we starting at the right time? So we can be productive? Yeah, those are the right questions to ask. And if you if you can answer yes to both of those, you will sail past or 10% forecast is the same way we take care of our family. Right. So you think about as a member of a family, you don't want anyone to be intentionally harmed. Right. So that's, that's where I think the answer to the safety problem is, it's not in reporting 00 incidents. It's not the reporting. When you focus on the right things. It's obvious what the actions are. That's extremely, but if you're focused on the reporting, or the dashboard, or making something appear to look good, then you're focused on the wrong thing. And you're you're going to act accordingly. And it's not by bad intention, like the people that say like our goal is zero. They want known to be hurt. But sometimes what gets communicated is don't report anything. Yeah. Right. And especially if there's a monetary incentive, this is where a lot of people haven't, and I'm not going to do Dan pink, any justice. He's done amazing work and talking about incentives. And what in cash incentives in particular, monetary incentives are good for simple things. And he showed an experiments like when as soon as you make something, you give somebody a problem that's complex, and you put a cash incentive on it, their brain turns off, and they can't think clearly. But when you when you give somebody a problem, and don't give them a cash incentive, their creativity just flows. I look at the same thing like in lean projects, you know, where the owner says, I want to see last planner system bowl planning, and I'm gonna give you guys, I'm gonna give you money to hit a certain PPC plan percent complete. Inevitably, it gets gamed, it gets gamed, rather than I want my project yesterday, all the owner needs to tell you is that I wanted my project yesterday, and then leave it to the Create, let the creativity flow to the people that are designing the sequence in the world quality will increase and everybody gets happier and the owner gets their building yesterday like they wanted it or as close to yesterday as possible. Rather than trying to pull these lovers we're just pulling levers in the dark and don't understand the machine works. And like you said the bedrock of all of this is human psychology.
Josh Mischung 54:55
Yeah. You know, in the evolutionary biologists that I follow. He was talking Talking about the importance of systems being dynamic instead of static, because he explained that no matter how well a system is designed, very much to your point about as soon as you tie an incentive to PPC give it enough time in that static state, it will figure out how to be gained. Yeah. But if it is, if the target is continuously moving, and this is one, I'm not proposing it so much as a solution as much as a first stepping stone, for potentially more creative and sound ideas, the idea of keeping it moving so that way, it can't be figured out too, too easily or too quickly how to gain that, and then move it again. Like, okay, our focus has actually shifted. I feel like I'm addresses this static piece of it. And so you don't get people figuring out how to brilliantly game because I haven't seen incentive structures not gained, but brilliantly gained. It's like no one have applied 25% of that creativity, to the how you game to the incentive structure, just to your work. And what had helped the game, the incentive structure?
Felipe Engineer 56:24
Well, maybe the work is so boring that they have to game stuff to stay interested. Because that can happen to Yeah. And that's another thing to human intelligence is not fixed. It's also dynamic, it changes. Yeah. And your interest in something actually makes your intelligence increase.
Josh Mischung 56:44
Or your stress levels cause it to decrease. Yes. regurgitating this secondhand, so I have not read the paper that talks about this. But I remember hearing, Andrew Yang talk about the impact of he wrote a study that showed the stress of not paying just one of your bills on an IQ test. People were a standard deviation below the main Wow, yes, by being stressed about paying a bill. So if you're at the meme, which I think right now and what 2020, somewhere around 105, give or take, I think that's where we are, I know it was set at a baseline 100. Right now it's about 105. and standard deviation, roughly still being about 15 points. So that would take you from 105 iq to 90 iq just by that stress alone. What is one thing that is consistent on every construction project you've ever been on?
Felipe Engineer 57:51
A high level of stress.
Josh Mischung 57:53
And unanswered amount of level of stress? I don't know that people were that stressed on the Titanic.
Felipe Engineer 57:59
It was on the Titanic, they still played the band played on. Alright. People commonly walk to the lack of boats, there weren't enough boats.
Josh Mischung 58:12
Okay, that was meant to just be, you know, more comical, but wow, that that worked.
Felipe Engineer 58:18
Yeah. I mean, I remember being on a job this year, a construction project. And we were looking, we were walking around with some of the supervisors. And some of the the craft people started, like, running around. Because they didn't know who we were. And it was not a well communicated visit. I told the one of the former, I said, Could you let your people know that? We're not judging them right now. We're looking at how we've set the stuff like how you, foreman has set this up for them to work, take the pressure off of them and tell them like do not run around. Like the site was pretty Rocky and the chances of trip in the fall due to running around was like exponentially higher. But the people felt the pressure was just looking because we were just standing there for like two hours. And that and of itself, you've probably never seen on a construction project. Somebody just standing still for two hours straight. Looking and trying to understand how things are working and what's not working. And they did they calmed down, but it had to be explained. So that's another phenomenon. Josh, it's the Hawthorne effect. You're just looking at a system influences how it behaves, and people are no exception. Sir, did you answer your unanswerable question? Was it the safety thing? Was your your question?
Josh Mischung 59:40
It was um, I thought what you talked about with measuring the supplies? Definitely a good start. I can still see how that could.
Felipe Engineer 59:53
I mean, the consensus from the safety professionals that I've talked to Josh is don't trust the reports. Yeah. Everybody, I mean, it's like, and like everyone, like you said, they're not bad people. We don't hire liars. In construction. We don't. They're honest good people, you get to know them. They are just like we are like they respond to incentives and pressure. Yeah. So you got to, that's one of the the tenants that we try to teach people that are adopting any type of improvement of a system is, don't do it from a boardroom, don't do it from a conference room, don't do it from the trailer, go out and see it happening. spend the time right as close to it as you can immerse yourself in it, and then figure it out, you'll see what it is like, overall construction today is way safer than it was even just in the 1970s. You know, and with OSHA coming into play and that OSHA coming into play being legislated. I'm not a fan of legislation, by the way to make people behave better. That's when we really started tracking construction fatalities to a higher level because it was getting obscene. I mean, now like our, the rates are way lower, the fatalities are lower. Like, you know, a lot of people look at the Empire State Building is this grand thing, from an insurance company perspective they had factored in the fatality per floor. Acceptable loss of human life, at least one point, I think, was one point, something almost closer to two people per floor was acceptable human loss. Whereas today, we're like, no one should die. Like, that's pretty common. Like you go, I've never been on a job. And my 20 years in the business, and people were under the assumption that it's okay for some people to die. That's not been the case. So that's a different mental mindset shift. from two generations ago, work, or fatal fatalities were acceptable.
Josh Mischung 1:01:51
I think there's some benefit to acknowledging the progress that has been made before working harder and harder to get to zero because it gets harder and harder to grow. And if you just because of that amnesia that we are all born with, if you just start immediately putting that pressure of, you know, hey, going from, you know, five to three, three to two, two to one, it can be an overwhelming task. And I also wonder some of it, I don't at all expect us to get to a solution. But even if we ended up at a countermeasure, where someone listening, you know, reached out to you and I came up in conversation, we try this, just try it, it could fail dismally. That's part of experiment. You're not experimenting, if everything has to work, right. But you know, we don't. And this is just my, my experience here. So this may not generalize well. It's not talked about one, like how much better things have gotten for Samsung good. And I think the concern at times could be like that fostering a sense of complacency. It's my experience, it actually is more empowering and embolden, it's like, hey, the appearance of these perverse incentives within the system, or the presence of them.
Felipe Engineer 1:03:15
We've gotten this far, we can get a little further. Well, that's where you're, you're standing on the shoulders of giants, like the people that came before us to make the industry to say to stand up and say, a fatality per project is unacceptable. Right? That's a huge first step that we just take for granted today. Yeah, like you and I just take it for granted. We're so young, that we're not had to go to a lot of funerals. for construction people, we haven't, because there aren't a lot of construction, but they still are. Now, there are other things happening. Like there's a large number of suicides in construction. So it's not all better. Whereas in the past, there weren't so many suicides.
Josh Mischung 1:03:54
Do you know what that trend line looks like for them?
Felipe Engineer 1:03:57
I've heard I hear I've heard of the just the last two years, I've not read anything directly. But for people that have looked at it, they said it's increasing over the last couple of years. But to go back to the the safety part, yeah. What's the first thing we can do is like, yeah, I think we should acknowledge, you know, how do we get here? What what safety measures have we put in place like, maybe even just looking at the tools that we have now, the tools that have like, an angle grinder or something so simple as that. They all come standard with guards. Like today, every manufacturer that sells an angle grinder, has a guard on its standard, standard. I remember when I first got into the business in when I was in my 20s so I'm dating myself that was 20 years ago. You could buy angle grinders that didn't even have a guard. There were still readily like, in fact, getting a putting halfway one with the guard was the oddball right and i know you can still buy him today. They have removable guards because sometimes you have to take the guard off in order to get into certain places. But you have to actually take it off. It comes like out of the box with it on.
Josh Mischung 1:05:11
I can speak to him. So I'm in construction because I've spent plenty of time there. But even as I play in a number of other industries and domains, you see this disturbance attempt to decouple cause and effect. I can behave irrationally, but I don't have to pay the consequences up. And it's like, that's terrible, because you can only do that so far. before eventually reality find its way back in. And the longer you go without reality, reminding you how to operate within it. That that's Mac is even harder.
Felipe Engineer 1:05:50
So they say there's no such thing as a free lunch, Josh. Yeah. Everything you do has an effect. Even not acting as an effect.
Josh Mischung 1:06:00
Felipe Engineer 1:06:02
No, this is great, man. This is a great conversation. We we hit on some I never would have imagined we're going to talk about safety, or we're talking about economics. A nice twist. Thank you for spending the time with me and we'd call it a show.
Josh Mischung 1:06:20
That sounds great. It's been a pleasure for you.
Felipe Engineer 1:06:23
Yeah, man. Have a great rest of your day and I'll talk to you again soon.
Josh Mischung 1:06:26
Excellent. Take care.
Felipe Engineer 1:06:28
Thanks for listening to the EBFC podcast. Let's go build!