Sunday, October 24, 2010

The Problem with Shortcuts

I'm visiting California and on Saturday toured the Donner Memorial State Park.

It's the site of the 1846 winter camp of the infamous Donner Party.

In case you've forgotten your American history, the Donner Party was the hapless band of Westward emigrants who resorted to cannabalism when their food supply ran out.

The fatal mistake the Donner Party madethe misjudgment that led them to wind up stranded in a wintry trap in a steep mountain passwas taking a shortcut.

How many times has taking a shortcut led to disastrous outcomes?

Consider these recent examples:

  • Wall Street took a shortcut in 2000 when it gauged the risk of mortgages by applying assumptions based on "credit default swaps."  The problem?  Credit default swaps had only been around for 10 years.  In their brief lifetime, the price of homes had skyrocketed and nobody knew how a crash in home prices might affect credit default swaps.
  • On the morning of April 20, the day the Deepwater Horizon oil rig exploded in the Gulf of Mexico, a BP executive ordered the engineers operating the rig to take a shortcut to speed up the drilling.
  • Toyota became so determined to beat rival GM, it took manufacturing shortcuts that have resulted in recalls of more than 10 million vehicles in 2010 due to faulty accelerators and brakes.
What shortcuts are you contemplating?
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