# Andrew Templeton > Every operating decision is a capital allocation decision. Frameworks, tools, and vocabulary for deploying AI in private-equity portfolio companies. Built by a Group CTO with 15 years of production experience. ## About - [About](https://templeton.host/about/): The 8-dimension rubric every post must pass before publishing. - [Thesis](https://templeton.host/thesis/): Allocation is all you need. The unifying argument across the corpus. - [Answers](https://templeton.host/answers/): Problem-to-solution index. Start with the problem you have, not the tool you want. ## Frameworks Strategic models for finding enterprise value. - [Capital Allocation](https://templeton.host/frameworks/capital-allocation/): Treat each operating project as an investment with a return distribution. Rank by Sharpe (not NPV), map risk tolerances, handle correlations, construct the efficient frontier. - [The Demand Field](https://templeton.host/frameworks/demand-field/): Fix demand (immutable), vary means (mutable). Demand is a hidden force on your optimization gradient - map it or crash into it. - [Designed Convergence](https://templeton.host/frameworks/designed-convergence/): Design the game so rational agents converge to your outcome. Finite search space + Bayesian search + ratchet = structural guarantee of convergence. - [The Deity Problem](https://templeton.host/frameworks/deity-problem/): You cannot fully specify what you want. Use four evidence channels: structured elicitation, revealed preference, direct query when VOI exceeds attention cost, and a posterior drift detector. - [Directed Graph + Soft Spots](https://templeton.host/frameworks/directed-graph/): Your chart of accounts is a directed graph. Walk the edges. The soft spots are where value leaks - and the people closest to the work find them first. - [Kill Protocol](https://templeton.host/frameworks/kill-protocol/): Three decision gates for killing a project: marginal Sharpe, left-tail survivability, and base-rate verification. Portfolio math gives you the language for "no." - [Knowledge Capital](https://templeton.host/frameworks/knowledge-capital/): Knowledge work either compounds or depreciates. Invest in the appreciating side (verifiers, data, rubrics). Avoid the depreciating side (models). - [The Performance Frontier](https://templeton.host/frameworks/performance-frontier/): Map the distribution of human performance on the task. Find the 99th percentile. Compute the gradient toward it. That gradient is your training signal. - [The Promotion Protocol](https://templeton.host/frameworks/promotion-protocol/): A 3-state autonomy progression: Disabled, HITL, Autonomous. Promote on statistical evidence; roll back on drift. AI earns autonomy like an employee earning a promotion. - [Quality Hillclimb](https://templeton.host/frameworks/quality-hillclimb/): Ratcheted quality gates on stochastic agent output create emergent ascent. The agent does not need a plan - the gates create the climb. - [The Capital Value of Verifiers](https://templeton.host/frameworks/verifier-capital/): A verifier is one of the only operating assets that appreciates through use. Every failure caught is encoded; the next run inherits the catch. Most operating assets depreciate; verifiers ratchet up. - [Correlated Execution Risk](https://templeton.host/frameworks/correlation/): Shared team, stack, review queue, or narrative means shared failure mode. Operating portfolios are not sums of independent projects - the covariance matrix is the input that makes portfolio math non-trivial. - [The Operating Efficient Frontier](https://templeton.host/frameworks/efficient-frontier/): Markowitz (1952) applied to operating investments. The non-dominated set of portfolios at each risk level - by definition, points below the frontier are dominated. - [The Risk Tolerance Map](https://templeton.host/frameworks/risk-tolerance/): The map translates firm-level constraints (cash, runway, covenants, narrative) into the preferred point on the efficient frontier. Without it, two rational allocators diverge on identical inputs. ## Tools Interactive calculators for specific operating decisions. - [The Verification Quadrant](https://templeton.host/tools/verification-quadrant/): Plot any task by generation cost vs. verification cost. The Templeton Ratio T = time_to_do / time_to_check determines whether AI creates leverage or doubles the work. - [TaskVector](https://templeton.host/tools/taskvector/): Score any task across 9 dimensions to determine if it should be automated. Any single dimension scoring 1 is a landmine - a hard no regardless of the composite. - [Dollarized Confusion Matrix](https://templeton.host/tools/dollarized-confusion-matrix/): Replace accuracy with dollars. Optimal threshold theta* = C_FP / (C_FP + C_FN). Stop setting AI decision thresholds by feel. - [Quadrant Shifting](https://templeton.host/tools/quadrant-shifting/): Five capital moves that raise the Templeton Ratio: build a verifier, decompose, enrich inputs, constrain outputs, build a rubric. - [Automation NPV](https://templeton.host/tools/automation-npv/): Compute NPV, IRR, and payback period for an AI automation investment. Same DCF math your CFO uses for physical capital, applied to knowledge work. - [The DoG Test](https://templeton.host/tools/good-dog/): A 60-second Claude prompt that audits an AI roadmap idea on three checks: Backing, Bite, and Bet. Verdict: GOOD DoG, NEEDS TRAINING, or BAD DoG. ## Lexicon Vocabulary for deploying AI in production. Each term names something that existed but had no word for it. - [Templeton Ratio](https://templeton.host/lexicon/templeton-ratio/): T = time_to_do / time_to_check. - [Soft Spot](https://templeton.host/lexicon/soft-spot/): An edge in the directed graph of your business where value is leaking that no one has named yet. - [Verification Trap](https://templeton.host/lexicon/verification-trap/): A task that is easy to generate but hard to verify. - [AI Sweet Spot](https://templeton.host/lexicon/ai-sweet-spot/): A task where generation is hard but verification is cheap. - [Proof Layer](https://templeton.host/lexicon/proof-layer/): The verification rubric, asymmetry profile, and verification cost analysis built BEFORE the capability. - [Autonomy State Machine](https://templeton.host/lexicon/autonomy-state-machine/): A graduated trust system for AI deployments with three states: Disabled, HITL (human verifies every output), and Autonomous (spot-check only). - [Gold Standard](https://templeton.host/lexicon/gold-standard/): A set of human-verified, ground-truth examples used to calibrate and evaluate AI output. - [Compile Time](https://templeton.host/lexicon/compile-time/): Time spent building systems, frameworks, rubrics, and processes that produce returns across many future periods. - [Runtime](https://templeton.host/lexicon/runtime/): Time spent executing tasks, fighting fires, reviewing outputs, and attending meetings. - [Dollarized Confusion Matrix](https://templeton.host/lexicon/dollarized-confusion-matrix/): A confusion matrix where counts are replaced with costs. - [Quadrant Shifting](https://templeton.host/lexicon/quadrant-shifting/): Capital investments that move a task to a better position on the Verification Quadrant. - [Operational Alpha](https://templeton.host/lexicon/operational-alpha/): Excess return on enterprise value generated through systematic identification and capture of mispriced edges in business operations. - [Construction Spread](https://templeton.host/lexicon/construction-spread/): S = (annual_value x P(success)) / build_cost. - [Dual Curve](https://templeton.host/lexicon/dual-curve/): The simultaneous depreciation of AI models (distribution shift, competitive erosion) and appreciation of knowledge assets (verifiers, labeled corpora, institutional rubrics) - where the appreciating side gets better through operating use, not in spite of it. - [Verifier Capital](https://templeton.host/lexicon/verifier-capital/): A verifier is one of the only capital assets that appreciates through operating use. - [Quality Ratchet](https://templeton.host/lexicon/quality-ratchet/): A CI-enforced floor that only moves up. - [Oracle Gradient](https://templeton.host/lexicon/oracle-gradient/): The computed vector from your current performance toward the unobservable optimum in a domain's performance space. - [Structured Elicitation](https://templeton.host/lexicon/structured-elicitation/): A controlled experiment designed to learn the operator's preferences. - [Revealed Preference](https://templeton.host/lexicon/revealed-preference/): Inferring the operator's preferences by watching what they actually do - not what they say they want. - [Direct Query](https://templeton.host/lexicon/direct-query/): A question posed to the operator, used only when the expected value of the answer exceeds the cost of the operator's attention. - [Drift Detector](https://templeton.host/lexicon/drift-detector/): A posterior predictive check that detects when the operator's preferences have drifted from the learned model. - [Demand Gravity](https://templeton.host/lexicon/demand-gravity/): The inescapable pull of real demand on product trajectories. - [The Designer's Seat](https://templeton.host/lexicon/designers-seat/): The position of designing the game rather than playing it. - [Serial Composition](https://templeton.host/lexicon/serial-composition/): A pipeline topology where each node feeds the next. - [Parallel Composition](https://templeton.host/lexicon/parallel-composition/): A pipeline topology where a source fans out to N independent branches that later merge. - [Verifier-Producer](https://templeton.host/lexicon/verifier-producer/): A two-node topology where a producer P emits a candidate and a verifier V either accepts it (forwards to output) or rejects it (loops back to P for a rerun). - [Rework Loop](https://templeton.host/lexicon/rework-loop/): The cyclical structure introduced when a verifier rejects a producer's output and the producer must retry. - [Partial Rework](https://templeton.host/lexicon/partial-rework/): A pipeline design where the producer emits N independent parts and the verifier checks each part independently. - [The Conviction Fraction](https://templeton.host/lexicon/conviction-fraction/): f* = (mu - r) / (gamma x sigma^2). - [Causal Yield](https://templeton.host/lexicon/causal-yield/): yield = E[Y | do(X=1)] - E[Y | do(X=0)]. - [Portfolio Alpha](https://templeton.host/lexicon/portfolio-alpha/): The excess return that exists only when the allocation decision and the operating execution are both right. - [Bayesian Alignment Kernel](https://templeton.host/lexicon/bayesian-alignment-kernel/): A typed contract for running an AI loop on two posteriors instead of one score: an operator-preference posterior and a reality-outcome posterior with disjoint evidence channels, a per-evaluator reliability ledger that gates every update, and a divergence statistic between the two that rings when the proxy is being gamed. - [Reliability Ledger](https://templeton.host/lexicon/reliability-ledger/): A per-evaluator audit trail of measured trust: agreement with prevalence, calibration, test-retest variance, cross-provider disagreement, recorded as a typed entry with a date and a quarantine flag. - [Verifier Battery](https://templeton.host/lexicon/verifier-battery/): The ordered stack of checks that decide whether an output ships: deterministic gates first (cheap, sharp, false-negative-free), graded checks second (LLM or human judges, always from a different provider than the generator), each carrying its precision weight from a reliability ledger entry. - [Evidence Channel](https://templeton.host/lexicon/evidence-channel/): A typed pipe with one source of truth and one destination posterior - preference evidence (tournaments, keep/drop verdicts) updates only the preference posterior; realized outcomes (the thing that shipped, then what happened) update only the reality posterior. - [Divergence Alarm](https://templeton.host/lexicon/divergence-alarm/): A scale-free statistic between the preference posterior and the reality posterior that rings when the two stop agreeing under continued optimization. - [P&L Engineering](https://templeton.host/lexicon/pnl-engineering/): Engineering as a discipline practiced from the financial statements down, not the tech stack up. ## Writing Long-form essays. Markdown source available at the same path with a .md suffix on the slug (e.g. /writing/{slug}.md). - [When a Free Model Can Replace the Frontier (and How to Prove It)](https://templeton.host/writing/free-model-replace-frontier/): - [The Eighth Ledger: When Intellectual Labor Becomes a Capital Asset](https://templeton.host/writing/capitalizing-intellectual-labor/): - [Any Sufficiently Advanced Technology: A Taxonomy of Magic](https://templeton.host/writing/technology-magic-taxonomy/): >- - [What AI Actually Made Scarce](https://templeton.host/writing/scarcity-inversion/): >- ## Optional - [Sitemap](https://templeton.host/sitemap.xml): Full URL list. - [RSS feed](https://templeton.host/feed.xml): Subscribe to new writing. - [Lexicon index (markdown)](https://templeton.host/lexicon/index.md): Flat markdown index of all defined terms.