Ask the Experts | JDS, Inc | Program Development, Asset Management, Facilitation

Environmental Risk and Uncertainty: The Role of Subjective Probability

JD Solomon
5 hours ago

Probability is based on our current knowledge of future uncertain events, which always makes probability subjective. JD Solomon Inc. provides practical solutions for environmental risk and uncertainty. — Probability is based on our current knowledge of future uncertain events, which always makes probability subjective.

Seldom do we run to failure the things that matter most. Take, for example, any one of the three high-service pumps that supply drinking water and firefighting capability to a city with a population of 1 million people. An accurate assessment of the probability of failure is not possible – we simply do not have the data, and never will. In Large Worlds, we don’t run the things that matter most to failure (at least statistically speaking). And, on the limited failures that occur, we seldom do the detailed root cause analysis that is required to determine the causation of the failure. Enter subjective probability.

Subjective Probability

Every event that refers to future occurrences is uncertain. What we refer to as probability is a reflection of our current knowledge. Probability is simply one valid method to express our degree of certainty (or uncertainty) in quantitative terms. Only clairvoyants and fortune tellers can predict the future with complete certainty.

When it comes to risk and uncertainty, all probability is subjective.

Objective, Numeric Analysis

Rational thought, as defined by objective, numerical analysis, is a modern one. Many technical professionals were trained in statistical hypothesis testing and, consequently (and usually unconsciously), have a “baked-in” statistical Frequentist tendency. It is simply flawed thinking that a conclusion drawn from the past will objectively predict the future.

It is not simply by chance that probability and risk originated about the same time, nearly 300 years ago, to help interpret an uncertain world.

So what does this mean?

The Laboratory versus The Real World

In the logic of Small Worlds, where variables can be isolated and assumed to be independent, there is potential meaning in the concept of objective probability.

In Large Worlds, in reality (and not in laboratories), all probability is subjective probability.

Probability is based on our current knowledge of future uncertain events, which always makes probability subjective.

All Models Are Subjective

Beware of those who say we should eliminate all subjectivity by using mathematical/quantitative models. At best, the insights from models help reduce some of the subjectivity but will never eliminate it altogether. All models include the subjectivity of the modeler, and even our cherished Monte Carlo simulations require subjective evaluations of the input probability distributions.

Embrace Subjectivity (and Uncertainty)

Subjective probability is not a flaw in our thinking but a reflection of how the real world actually works. The systems that matter most—our critical assets, our organizations, our communities—operate in Large Worlds where perfect data will never arrive and tidy statistical assumptions will never hold. The responsible path forward is not to cling to the illusion of objectivity, but to acknowledge the role of judgment, experience, and evolving knowledge in every assessment we make. When we accept subjectivity as inherent rather than inconvenient, we make better decisions, communicate more honestly, and manage environmental uncertainty with the maturity it deserves.

See John Moubray and reliability-centered maintenance (RCM) for more on the limitations of historical data for the things that matter most. In addition to early references related to probability and risk, more modern references to personal probability can be found in Frank Knight (1921), and to subjective probability in L.J. Savage (1954) and Kahneman and Tversky (1972). Karl Pearson, Fisher, and Neyman & Pearson are key references for statistical hypothesis testing. See G.L.S Shackle for more on the dynamic nature of knowledge and the limitations of objective probability.

This article was first published by JD Solomon on LinkedIn.

Solomon, J. D. (2018, October 18). Risk and uncertainty: The role of subjective probability. LinkedIn. https://www.linkedin.com/pulse/risk-uncertainty-role-subjective-probability-jd-solomon

How to Use Ethics to Communicate with the FINESSE Fishbone Diagram

JD Solomon
3 days ago

Ethics are the practical foundation for how we make decisions and communicate them to others.

Ethics is the second “E” in the FINESSE Fishbone Diagram®, and it is often the most underestimated. Technical professionals spend years mastering methods, models, and measurements, yet the factor that most influences whether senior management trusts their message is not technical at all. It is ethical clarity.

Ethics is not an abstract concept reserved for philosophers. It is the practical foundation for how we make decisions and communicate them to others. When uncertainty is high and consequences are real, ethics becomes a communication tool—one that separates trusted advisors from advocates, technicians, or performers.

Why Ethics Shapes Effective Communication

Ethics determines how we choose what to share, how we present it, and how we guide decision makers through complexity. Three ethical frameworks influence how people make decisions:

Virtue ethics: grounded in right versus wrong, good versus bad.
Consequential ethics: focused on outcomes; the end justifies the means.
Duty‑based ethics: centered on motives, process, and full disclosure.

Most people blend these approaches, but technical professionals communicating to senior leaders benefit most from a duty‑based approach. Duty‑based ethics aligns with the expectations placed on licensed engineers, physicians, and public officials: present the facts, disclose the risks, and respect the decision maker’s role.

Ethical communication is not about being perfect. It is about being responsible.

The Ethical Trap: When Communication Becomes Advocacy

One of the most common pitfalls in technical communication is sliding, often unintentionally, from informing to advocating. Advocacy is rooted in consequential ethics: “If the outcome is good, the method is justified.”

That mindset leads to:

Selective data
Overly optimistic projections
Minimizing uncertainty
Visuals that simplify too much
Recommendations that sound predetermined

Advocacy has its place in sales, politics, and persuasion. It does not belong in a trusted advisor's toolbox.

Ethical communication requires resisting the temptation to steer the decision maker. Instead, it focuses on equipping them.

Duty‑Based Ethics: The Trusted Advisor’s Default

Duty‑based ethics emphasizes process over outcome. It asks:

Have I presented all relevant facts—positive and negative?
Have I disclosed uncertainty honestly?
Have I avoided manipulating the narrative?
Have I respected the decision maker’s authority?

Technical professionals rarely own final decisions. Their responsibility is clarity, not control.

A trusted advisor does not hide the hard parts. They surface them.

Three Practical Ways to Communicate Ethically

1. Fact‑Check Relentlessly

Fact‑checking is not a bureaucratic step. It is an ethical obligation.

No process guarantees perfect accuracy, but diligence signals respect for the decision maker and the organization.

Ask yourself:

What assumptions am I relying on?
What data sources have I not verified?
What could be misunderstood if I don’t clarify it?

Ethical communication begins with intellectual honesty.

2. Present the Tradeoffs

Every decision has winners, losers, risks, and consequences.

Ethical communicators do not hide tradeoffs—they highlight them. Remember, senior leaders do not fear tradeoffs. They fear surprises.

3. Disclose Uncertainty

Uncertainty is not a weakness. Concealing it is.

Ethical communication explains:

What is known
What is unknown
What assumptions bridge the gap

Decision makers can handle uncertainty. What they cannot handle is being blindsided by it later.

Ethics Is the Backbone of FINESSE

The FINESSE Fishbone Diagram® is built on the idea that communication is a system. Ethics is the stabilizing force that keeps that system honest. When technical professionals communicate ethically, they strengthen trust and improve decision quality.

Ethics is not just the second “E” in FINESSE. It is the way we make decisions. And the way we help others make decisions, too.

The elements of the FINESSE Fishbone Diagram® are Frame, Illustrate, Noise reduction, Empathy, Structure, Synergy, and Ethics.

JD Solomon Inc. provides solutions for program development, asset management, and facilitation at the nexus of facilities, infrastructure, and the environment.

JD Solomon writes and consults on decision-making, reliability, risk, and communication for leaders and technical professionals. His work connects technical disciplines with human understanding to help people make better decisions and build stronger systems. Learn more at www.jdsolomonsolutions.com and www.communicatingwithfinesse.com

Why Replacement Asset Value Gets Misunderstood … and why it matters most

JD Solomon
Feb 19

RAV works well when we need quick, comparable benchmarks, when evaluating maintenance effectiveness, and when aligning multiple facilities with different histories.

Replacement Asset Value (RAV) is one of the most commonly cited numbers in maintenance and reliability. It shows up in benchmarking, performance metrics, and budgeting. Yet for something so widely used, RAV is also one of the most inconsistently defined terms in asset management. The confusion isn’t because the concept is complicated. It’s because different disciplines use the same word—replacement—to answer very different questions.

If we want better decisions, we need to get the frame right.

RAV in the Real World

The chief operating officer of a Midwest utility with five facilities put the O&M budgets on the table. “How do we know if our maintenance budgets are correct across all five plants?” he said in frustration. “We seem to arm-wrestle every year, and I don’t think what we are doing is defensible.”

“The historical trends are a decent way to do it,” interjected one of the plant managers. “But Joe’s plant is getting old, and I think he needs more than what we are giving him. I don’t think we have a good standard to judge our performance.”

“We recommend replacement asset value,” I explained. “If Ramesh Gulati were here, he would tell us to start with 3 to 5 percent of RAV as an initial starting point.” (At the time, Ramesh and I worked together, albeit in different divisions of the same Fortune 500 company.)

The plant manager smiled. “I thought you would say that”, said the COO. “That’s what we used when we worked together a few years ago. But this place is different. As you know, we don’t have a good handle on any asset value for our system, much less understand or evaluate RAV.”

“It may take us one more cycle, but we will get there,” I replied.

Three Ways People Think About “Asset Value”

Before we get to RAV, it helps to understand the three dominant perspectives that determine how organizations think about asset value.

Book Value (Accounting)

Book value answers, “What is this asset worth on the financial statements?”

It shows historical cost minus depreciation. Book value is useful for audits and tax reporting, but it has almost nothing to do with what it would take to replace the asset or keep it running.

Replacement Value (Insurance)

Replacement value answers, “What would it cost to buy another one like it today?”

This is the insurer’s number. It’s based on market pricing for the equipment itself. Installation, engineering, and commissioning are usually excluded.

Replacement Asset Value (Maintenance & Reliability)

RAV answers a different question: “What would it cost to replace this asset in its operating context?”

This is the number used for maintenance benchmarking and reliability analysis—not capital project planning.

These three perspectives are all valid. The problem is assuming they are interchangeable.

What RAV Really Means in Practice

Here’s where the rub comes in: Most practitioners do NOT use a fully burdened capital replacement cost when calculating RAV.

In real‑world maintenance and reliability practice, RAV =

Equipment cost + removal/disposal + installation/commissioning.

That’s it. The things that are not included are:

Engineering and design
Permitting
Procurement and bidding
Construction management
Owner’s overhead
Controls redesign
Project contingency

Those belong to a capital replacement estimate, not RAV.

This is why RAV often ends up being roughly 1.5× to 2× the equipment cost. It’s a practical number—simple, consistent, and repeatable across a portfolio.

Consistency, not precision, is the point.

Where Ramesh Gulati Fits In

Ramesh Gulati, who has probably done more than anyone to standardize maintenance and reliability practices, emphasizes that RAV should reflect the cost toreplace the asset in service, not the cost to run a full capital project.

In his books, presentations, and interviews, Gulati consistently uses RAV as a maintenance benchmarking tool, especially for metrics like:

Maintenance cost as a percentage of RAV
Maintenance effectiveness comparisons
Portfolio‑level performance indicators

Gulati’s examples are consistent with industry practice: RAV =

equipment + installation + removal, not a fully burdened capital estimate.

If RAV were inflated with engineering, permitting, and project overhead, the benchmark would be meaningless. A bloated denominator makes everyone look like a maintenance superstar.

Ramesh knows that. Most practitioners know that. The confusion comes from people importing capital‑project thinking into a maintenance metric.

Why the Confusion Matters

When RAV is misunderstood, organizations:

Misjudge maintenance performance
Misallocate capital
Misinterpret benchmarking results
Inflate or deflate asset criticality scores.
Talk past each other in planning meetings.

None of these are technical failures. They are framing failures.

Communicating RAV Effectively

This is where the first F, Frame, in the FINESSE Fishbone Diagram® becomes essential. Before debating costs or performance, teams must define the terms.

A well‑framed discussion clarifies:

What definition of RAV is being used
What costs are included
What decision the number supports

Why RAV Matters Most

Replacement Asset Value is a maintenance and reliability metric, not a capital project estimate. Its power comes from consistency. RAV works well when we need quick, comparable benchmarks, when evaluating maintenance effectiveness, and when aligning multiple facilities with different histories. RAV is also a powerful measure when establishing O&M budgets. The most important thing is to develop RAV and avoid over-engineering a simple (and powerful) concept.

Experts