Real Options and Personal Flexibility

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What has flexibility got to do with options?

Quite simply if you have more options, you have more flexibility. In uncertain situations, or if you are somehow keen to grow (wealth, skills, influence, reputation, character development), having options is valuable.

Of course, having more options isn’t useful if you can’t make a decision when time is pressing. And having a set of options that aren’t relevant to the problem you’re facing isn’t particularly helpful either. Unless you can trade them for the ones you actually want.

What are real options?

They’re not as scary as they sound. Wikipedia says ‘a real option itself, is the right—but not the obligation—to undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a capital investment project’. In the personal flexibility sense, real options are rights we have paid for in the past and hold.  If the conditions are right, they can be used (exercised) at some point in the future, to buy or sell something to benefit ourselves.  Or benefit those we choose to help.

There are a couple of different types of real options. Call options are options we have purchased in the past, that give us the right to buy something. Put options are options we have purchased in the past, that give us the right to sell something.

What are some examples of call options in our personal lives i.e. things we’ve paid for in the past that give us PFL in the present and future?

  • Loyalty points, or frequent flier points accumulated, that are still valid. Purchase qualifying items and you have the right to use the points to obtain discounts on future purchases.
  • Multiple passports (the legitimate right to citizenship in multiple countries). Pay the application fee and once the passport is issued, you then have the legal right to buy the same things the other citizens can buy.
  • Insurance policies with a claim excess. Pay the insurance premium, make the claim, pay the claim excess and the item will then be replaced.
  • Personal credit cards and overdraft facilities. Pay the annual account fee and any interest charges to access the credit amount.
  • Fitness, health and knowledge you’ve built up, if they qualify you for access to something fairly exclusive in the future, that costs money.
  • Physical and data security measures and investments made. Pay the fee, log your security breach event, pay for the investigation and hopefully damage will be remedied.
  • Divorce papers – once signed and the divorce lawyer costs are paid, the papers give you the right to legally marry another person (providing they’re not already still married).

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What are some examples of put options in our personal lives i.e. things we’ve paid for in the past that give us (or our loved ones) the right to sell and hence PFL in the present and future?

  • Trial period agreements.
  • Product warrantees, price-matching features and money-back guarantees.
  • Sublease clauses. For example, you rent a two-bedroom flat and there’s a clause in the lease agreement allowing you to rent out the second bedroom for financial benefit.
  • Your estate (once you’ve paid the solicitor to draw up your will). Ownership of this option transfers to the beneficiaries of your estate, upon your death.

Real options and student career advice

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In the general education system, little emphasis seems to be given to teaching students how to manage their real options. Then, when students graduate & join the workforce, they lack awareness about real options management in the workplace. Instead, at best, students receive advice from relatives, friends or teachers about getting a good education and working hard, to open up more life choices to them.

Perhaps too many young people learn from life experience – the ‘school of hard knocks’ (why doesn’t Western culture strongly preach the folly of learning this way?). And learn from repeat situations (once bitten, twice shy), that having choices is valuable.

What the young people need is more advice on how not to get bitten. And coaching to position themselves to have choices other than getting bitten. Young adults may also learn from observation – being inspired by designers to mimic the design flexibility that they see.

In the view of this blogger, one of life’s ironies is that for many young people, by the time they realise that older people’s advice to them on the above things is just as relevant today as in yesteryear, the consequences of have few options and choices is already hitting them hard.

In summary, holding real options in our personal lives, is a tangible form of personal flexibility. It follows that if we want to increase our PFL, we should accumulate real options in advance, in the areas of PFL that we want to improve.

Some areas to look at, if personal growth and uncertainty management are some of your goals; obtaining real options concerning wealth, skills, influence, personal reputation and/or character development. A key point is to build up an ‘options portfolio’ i.e. don’t just concentrate on obtaining real options relating to one of them.

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Periodically, we will use or ‘exercise’ many of the real options we hold, so another key point is to replenish our stocks of real options regularly.

If you found this blog helpful, feel free to tell others. Constructive comments are also welcome.

 Simon

Flexibility and Flexiscribes

It’s hard to talk about flexiscribes without first referring to flexibility. Flexibility like air, fitness or financial savings is invisible. But vital.

We go to great lengths to monitor our personal savings. We aren’t so good at monitoring our air quality, our fitness, or our levels of personal flexibility (PFL). Perhaps now is the time to change that.

Flexibility like fitness, savings, career options, or even a tidy house, is something that can dissipate over time. A university graduate or aspiring actor considering their first serious role, might have various choices about which area to specialise in. Further along their career path, they’re perceived to have become more typecast.

The key point is a simple one. That net flexibility in your life will disappear. Unless you try to replace it at a similar rate that it is disappearing at. Or better still, grow your net flexibility above the current level.

A device to replenish your flexibility is a flexiscribe. In other words, a flexiscribe is a mechanism that codes for flexibility. The coding might be automatic. Or only happen via manual effort.

For people of all ages, working in what they regard as a declining industry, or for people who might be at the tail end of their working career, perhaps thinking about an encore career, or doing flexible portfolio work, flexiscribes are probably of particular interest.

Ownership/control versus choice

Business range (choice) can help create personal flexibility. An example of growing choice is the range of rental services from businesses that are available to consumers – the rise of the so called ‘sharing economy’. But business range isn’t a flexiscribe for PFL. Access is firstly about entitlement, then choice. Therefore, access to the range is the flexiscribe.

Business flexiscribes helps create business flexibility (BFL). Likewise, ownership/control of personal flexiscribes help create personal flexibility (PFL).

A key general point is that by consciously thinking about creating flexiscribes, you increase the chances of flexibility occurring.

Regarding business and personal flexiscribes, what are some examples of each type? Some business flexiscribes operating in R&D businesses, or education (universities and high schools) might include the organisations:

  • having multipurpose rooms,
  • having multiskilled staff. In universities, the staff may be good at both research and teaching. Or be staff who are talented in two fields of research,
  • having high free cash reserves,
  • having flexible working practices and incentives. For example, project secondments. These will force new experience to emerge, which itself will encourage new skills development.
  • owning some intellectual property e.g. patents and trademarks that enable commercial success,
  • holding some real options – more about these in a later blog.

What are some personal flexiscribes? Firstly, if Personal flexibility can be divided into PFL relating to ‘be’ (personal identity and image) and ‘do’ (personal actions), then perhaps that’s a useful way to split out the personal flexiscribes too.

Some personal flexiscribes (things that code for PFL), relating to identity and image are as follows:

  • Continuing professional development (CPD) hours. By having to do a minimum number of training hours each year to remain registered with a particular professional body, it forces the person belonging to the membership body to develop new skills, techniques & knowledge. The advice of this blogger is to make at least some CPD training in areas transferable beyond your current sector & role. Ideally, invest in training that’s relevant to sectors where you have a good chance of working in the future.
  • Developing a strong CV and network of contacts. Both can promote your achievements and skills to date.
  • The daily work commute by train or bus. If your work commute is a decent length e.g. about an hour or more and you don’t have to cycle, or drive yourself to work, then there is enforced time available to build knowledge. Which itself builds flexibility. Building knowledge might be in the form of reading text articles, watching YouTube ‘how to’ guides, or listening to say Ted Talks on relevant subjects.
  • Personal savings. Clearly, if you can save some funds, your scope to access anything that money can buy will increase.
  • Family support. For families that help one another when things become hectic, or rally round when one family member suffers a set back, simply having that support creates more PFL for the person concerned.

Some personal flexiscribes (things that code for PFL), relating to ‘doing’ activities are as follows:

  • Working in the ‘gig’ economy. Typically, each assignment is different in scope, duration, location and the issues also vary. This variety encourages skills development and adaptability from the gig worker.

  • Doing volunteer work. Obviously you need to continue paying your bills. And maintain relationships with friends & family. Therefore the time commitment and the quality of effort you make is about achieving balance with those things. Because it is voluntary, the scope of activity is flexible and you have more power to direct how your time is used to gain useful skills and achieve impact, for a win-win outcome.
  • Renting rather than buying. Access to the rental, not the rental itself (choice) is the flexiscribe. Using the power of access, extra capacity is only rented when needed. Specialist items are hired at short notice for one-time events. People take advantage of ‘try before you buy’ offers, to manage uncertainty. A side question for the reader – if the ‘sharing economy’ is rapidly growing amongst both established and new entrant providers, e.g. in room rentals & transport, then business providers boost consumer flexibility. Is there then an opportunity for the reverse to also happen? To elaborate, in the sharing economy, the values of some consumers may emphasise; minimalism (small storage footprint), variety, instant access, group access and/or personal image not tied to asset status. Can those values be accessed & harnessed, not only to boost demand for business products & services. But to also code for business flexibility itself?

If you find these blogs useful, please spread the word for others to read them and comment too.

Simon