Checklists are not sexy, but their results are. I just finished The Checklist Manifesto by Atul Gawande. I am sold, and you should be as well. Checklists save lives, make money and make life less stressful.
Outperformance seems to be associated with repeat process and efficient group communication. Checklists allow for managing individual and team processes for better outcomes. The book gives a great overview of how, where and for whom checklists work. How to design and apply a checklist for super-ordinate goals is an emerging science/art.
As a hedge fund guy and anthropologist, I am fascinated. Checklist dynamics applied correctly could be a hugely important innovation in group dynamics and in increasing human potential. As a tool for facilitating group activity they appear to be incredibly effective. Read the book to understand how they work. It involves group dynamics, social interactions, reducing cognitive load and a host of other things.
Checklists allow for efficiency of semi-structured tasks and better individual and group goal-directed behavior. Effective checklists are finely tuned for effectiveness, brevity and looseness. Looseness is required for creativity to come in.
Great design of a bridge, airplane, product or service comes from the understanding of a goal and the design problems constraints. Checklists seem to work the same way but in a behavioral, real time way. By providing cognitive, behavioral and group constraints, individuals are freed to contribute more effectively and, when need be, collaboratively.
The Checklist Manifesto is a great book and gripping read. Converting process into gripping human drama is no easy feat, but this thing reads like an action movie. My copy of this book is already on loan request to a friend who is a risk manager for a multi-billion $ Fund of Funds.
See and here a checklist in action saving lives as Sully lands in the Hudson river. The video is also described in the book.
I am working on a Charlie Munger -type approach to the investing problem. Charlie preaches inversion as a way to solve problems. So here is an inversion technique to build a value investing checklist: Find some great-sounding investments that failed or companies that disappeared from an industry and then list why they failed. That causal list becomes your checklist. You can start with firms or experiences that didn't work out. After collecting data on 30-50, a few patterns should emerge.
Group the failure points or weaknesses into clusters, management, competitive loss, industry type etc. You could even group according to Porter's 5 forces, etc. That becomes your checklist. Each industry has its own subtleties and the key is to identify the moats in each one and then run checklists around them.
If you succeed you will end up with a few key rules or heuristics that make groups able to makes decisions and act faster, better and safer. As a hedge fund you might try organizing into teams either by sector/asset class or specialty. Instead of a beverage analyst, auto, tech, etc. how about forensic accounting specialist, emerging threat specialist, regulatory specialist, organizational psychologist to analyze corporate culture, etc. to analyze impact for a firm; even an anthropologist to capture major cultural trends that may be fading or rising. This approach is probably cheaper and more effective than trying to find all those skills in one person.
One more note on process and safety: As many other have called for, I wish we had our own version of the NTSB (national transportation safety board) to do post mortems on financial 'accidents'. Ideally the crash board would have better resources than a university and be independent of industry and congress. Seeing bubbles after the fact is easy, determining true causation isn't.