A Walk-Through: The $1,000 Delivery

A Walk-Through: The $1,000 Delivery

TL;DR

This walk-through builds up delegation risk concepts step by step using a simple scenario: transporting $1,000. We start with basic exposure calculation, add risk-reduction measures, introduce an overseer, and show how visibility into delegation risk changes incentives.

This page walks through delegation risk concepts progressively, using a concrete example that grows in complexity.

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Part 1: The Simplest Delegation

Setup

Alice (the Delegator) needs $1,000 transported across town. She gives the cash to Bob (the Delegate) to deliver it.

flowchart LR
    Alice["Alice<br/>(Delegator)"] -->|"$1,000"| Bob["Bob<br/>(Delegate)"]
    Bob -.->|"Task: Deliver to recipient"| Recipient["Recipient"]

What Is the Delegation Exposure?

The moment Alice hands Bob the $1,000, she has created a Delegation Exposure—the set of possible harms from this delegation.

Bob’s Delegation Exposure (Alice’s perspective):

Harm Mode	Description
Loss	Bob loses the money
Theft	Bob steals the money
Delay	Bob delivers late, causing problems
Partial	Bob delivers only part of the amount

This is NOT a number—it’s the surface area of what can go wrong.

What Is the Delegation Risk?

Delegation Risk converts the exposure into a single expected-cost number:

Delegation Risk = Σ P(harm mode) × Damage(harm mode)

Let’s estimate for Bob:

Harm Mode	Probability	Damage	Risk Contribution
Loss (accident)	2%	$1,000	$20
Theft	1%	$1,000	$10
Delay (causes missed deal)	5%	$200	$10
Partial delivery	0.5%	$500	$2.50

Total Delegation Risk = $42.50

Interpretation

Alice’s delegation to Bob carries an expected cost of $42.50. This is the “price” of trusting Bob with this task, expressed as expected harm.

Exposure Lifecycle

Delegation exposure has a lifecycle:

timeline
    title Exposure Lifecycle
    section OPENED
        Alice hands Bob $1,000 : Exposure begins
    section ACTIVE
        Bob has the money : Exposure is LIVE
        : Risk: $42.50/delivery × duration
    section CLOSED
        Recipient confirms delivery : Exposure ends

Key insight: Exposure exists in time. If Bob takes 2 hours to deliver, Alice has $42.50 of risk exposure for 2 hours. If he takes 20 minutes, the exposure window is much shorter.

Closing the Exposure

The exposure closes when:

1. Success: Recipient confirms delivery → exposure closes with no harm realized
2. Failure: A harm mode occurs → exposure closes with harm realized
3. Cancellation: Alice retrieves the money → exposure closes with no task completed

flowchart LR
    Alice["Alice"] -->|"$1k"| Bob["Bob"]
    Bob -->|"$1k"| Recipient["Recipient"]
    Recipient -->|"✓ Confirmed"| Success["Exposure Closed<br/>Realized Harm: $0"]

    style Success fill:#90EE90

In this case: Delegation Risk: $42.50 → Realized Harm:$0

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Part 2: Reducing Exposure

Alice realizes $42.50 per delivery adds up. She designs risk reduction measures.

Measure 1: Escrow Lock

Instead of handing Bob cash, Alice uses a locked bag that only the recipient can open.

flowchart LR
    Alice["Alice"] -->|"🔒 Locked Bag"| Bob["Bob"]
    Bob -->|"🔒 Delivers"| Recipient["Recipient<br/>(has key)"]

    style Bob fill:#ffffcc

Only the recipient can unlock the bag—Bob transports but cannot access the contents.

Effect on harm modes:

Harm Mode	Old P	New P	Why
Theft	1%	0.1%	Bob can’t access the cash
Partial delivery	0.5%	0%	All-or-nothing lock

New Delegation Risk:

Harm Mode	Probability	Damage	Risk Contribution
Loss	2%	$1,000	$20
Theft	0.1%	$1,000	$1
Delay	5%	$200	$10
Partial delivery	0%	$500	$0

**New Total: $31** (reduced from$42.50)

Measure 2: GPS Tracking

Alice adds GPS to the locked bag, with geofence alerts.

flowchart LR
    Alice["Alice"] -->|"🔒📍 Tracked Bag"| Bob["Bob"]
    Bob -.->|"📍 GPS"| Alice

    style Bob fill:#ffffcc

Alice monitors Bob’s location in real-time and can intervene if the bag goes off-route.

Effect:

Harm Mode	Old P	New P	Why
Loss	2%	0.5%	Alice can intervene if off-route
Theft	0.1%	0.05%	Theft attempts are visible

New Total: $16.50

Measure 3: Bonded Courier

Alice requires Bob to post a $1,000 bond that he forfeits if delivery fails.

Effect:

Harm Mode	Old P	New P	Why
All intentional harms	varies	~0%	Bob’s incentives now aligned

New Total: $5.25 (only accidental losses remain)

Summary of Risk Reduction

Each measure targets specific harm modes, progressively reducing total delegation risk:

xychart-beta
    title "Delegation Risk Reduction"
    x-axis ["Baseline", "+ Lock", "+ GPS", "+ Bond"]
    y-axis "Delegation Risk ($)" 0 --> 50
    bar [42.50, 31.00, 16.50, 5.25]

Cost-Benefit

Each measure has a cost. Locks cost money. GPS requires infrastructure. Bonds require Bob to have capital. The optimal setup balances risk reduction against implementation cost.

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Part 3: Enter the Overseer

Now we introduce Carol (the Overseer)—a third party who monitors all delegations in the organization.

graph TB
    subgraph Oversight["🔭 Oversight"]
        Carol["Carol (Overseer)"]
    end

    subgraph Delegators["📋 Delegators"]
        Alice["Alice"]
        Dave["Dave"]
        Eve["Eve"]
    end

    subgraph Delegates["🚚 Delegates"]
        Bob["Bob"]
        Frank["Frank"]
        Grace["Grace"]
    end

    Carol --> Alice
    Carol --> Dave
    Carol --> Eve

    Alice --> Bob
    Dave --> Frank
    Eve --> Grace

What Carol Sees

Carol maintains a Delegation Risk Dashboard:

Active Delegations

Delegator	Delegate	Amount	Risk	Duration
Alice	Bob	$1,000	$16.50	0:45 active
Dave	Frank	$5,000	$180.00	2:15 active
Eve	Grace	$500	$8.25	0:12 active

• Total Active Exposure: $6,500
• Total Active Delegation Risk: $204.75

Alert

Dave→Frank exposure exceeds 2hr guideline

Carol’s Analysis

Carol can compute several useful metrics:

1. Risk-Weighted Exposure Time

For each delegation:

Risk-Weighted Exposure = Delegation Risk × Duration (hours)

Delegation	Risk	Duration	Risk-Weighted
Alice→Bob	$16.50	0.75 hr	$12.38
Dave→Frank	$180	2.25 hr	$405.00
Eve→Grace	$8.25	0.2 hr	$1.65

Finding: Dave→Frank is 97% of the organization’s risk-weighted exposure!

2. Delegate Risk Profiles

Carol tracks historical performance:

Bob (30 deliveries)

• Success rate: 97%
• Average duration: 42 min
• Incidents: 1 minor delay
• Estimated Delegation Risk: **$12.00/delivery** (↓ from$16.50)

Frank (15 deliveries)

• Success rate: 87%
• Average duration: 2.1 hr
• Incidents: 2 losses ($800 total)
• Estimated Delegation Risk: **$220.00/delivery** (↑ from$180)

3. Organizational Risk Budget

Carol sets limits:

Total Delegation Risk Budget: $500/day
Current Usage: $204.75 (41% of budget)

If Dave wants to delegate another $10,000 to Frank, Carol’s system would flag:

• Frank’s estimated risk: $440
• Would push total to $644.75 (129% of budget)
• BLOCKED until Frank’s risk profile improves or measures are added

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Part 4: Bob Sees the Numbers

Now we make the delegation risk visible to Bob (the Delegate).

Bob’s Risk Profile

Metric	Value
Delegation Risk	$12.00/delivery
Rank	3rd best of 12 delegates
Trend	↓ 27% (improving!)

What Affects Bob’s Risk Score

Factor	Score	Rating
Delivery Time	42 min avg	Good
Success Rate	97%	Excellent
Route Compliance	98%	Excellent
Incident History	1 minor	Good

Opportunities to Reduce Risk Score

• Reduce avg delivery time to <30 min: -$2.00 risk
• Complete certification course: -$1.50 risk
• 10 more clean deliveries: -$1.00 risk

Why Bob Cares

Bob now has incentives to reduce his delegation risk score:

1. More Assignments

Alice's decision:
  - Need to send $5,000
  - Bob's risk: $12/delivery → $60 for this amount
  - Frank's risk: $220/delivery → $1,100 for this amount

Alice chooses Bob. Bob gets more work.

2. Higher Value Assignments

Carol’s rules:

Delegation limits by Delegate risk score:
  - Risk < $15: Can handle up to $10,000
  - Risk $15-50: Can handle up to $2,000
  - Risk > $50: Can handle up to $500 only

Lower risk score = access to larger deliveries = more fees.

3. Faster Exposure Closure

Bob realizes: exposure × time is the real cost to the organization.

Two deliveries of $1,000:

Bob (42 min avg):
  Exposure time: 0.7 hr
  Risk-weighted: $12 × 0.7 = $8.40

Frank (2.1 hr avg):
  Exposure time: 2.1 hr
  Risk-weighted: $220 × 2.1 = $462.00

Bob’s deliveries impose 55× less risk-weighted exposure than Frank’s!

Bob’s Optimization

Bob actively works to minimize his delegation risk:

1. SPEED — Take shortest routes, minimize exposure window

• Before: scenic route (longer exposure)
• After: direct route (shorter exposure)

2. TRANSPARENCY — Provide real-time updates

• “Package picked up”
• “En route, ETA 15 min”
• “Arrived, awaiting confirmation”
• “Delivered and confirmed”

3. PROACTIVE RISK REDUCTION — Request verification measures

• Bob to Alice: “Can we use the GPS bag? It’ll lower my risk score and your exposure.”

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Part 5: The Full Picture

With all parties seeing the same delegation risk framework:

graph TB
    subgraph Oversight["🔭 Oversight Layer"]
        Carol["Carol<br/>Sets budgets, monitors, alerts"]
    end

    subgraph Delegators["📋 Delegator Layer"]
        Alice["Alice<br/>Chooses low-risk delegates"]
        Dave["Dave<br/>Improves measures"]
        Eve["Eve<br/>Rewards best performers"]
    end

    subgraph Delegates["🚚 Delegate Layer"]
        Bob["Bob<br/>Optimizes speed"]
        Frank["Frank<br/>Invests in improvement"]
        Grace["Grace<br/>Maintains low risk"]
    end

    Carol --> Alice
    Carol --> Dave
    Carol --> Eve

    Alice --> Bob
    Dave --> Frank
    Eve --> Grace

    style Bob fill:#90EE90
    style Grace fill:#90EE90
    style Frank fill:#ffcccc

Aligned Incentives

The framework creates alignment:

Party	Wants	Achieves by
Carol (Overseer)	Low org-wide risk	Setting budgets, monitoring, intervening
Alice (Delegator)	Low exposure on her tasks	Choosing low-risk delegates, adding measures
Bob (Delegate)	More/better assignments	Reducing his risk score through performance

Everyone benefits from lower delegation risk.

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Summary: Key Concepts

Concept	Definition	In Our Example
Delegation Exposure	Set of possible harms from a delegation	{Loss, Theft, Delay, Partial}
Delegation Risk	Σ P(harm) × Damage(harm)	$42.50 baseline, reduced to$5.25
Exposure Window	Time during which exposure is active	Pickup to confirmed delivery
Risk-Weighted Exposure	Risk × Duration	$12 × 0.7hr =$8.40
Risk Reduction Measures	Controls that lower harm probabilities	Lock, GPS, Bond
Delegation Risk Budget	Org-wide limit on total active risk	$500/day
Delegate Risk Score	Estimated risk per task for a specific delegate	Bob: $12, Frank:$220

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Next Steps

• Delegation Risk Overview — The full framework and formulas
• Risk Decomposition — Accidents vs. defection: two types of harm
• Trust Interfaces — Formalizing the delegation contract
• Trust Accounting — Ledgers, dashboards, and auditing