Project Management

How The General Ledger Makes A PM Misinformed

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Modelling Business Decisions and their Consequences

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Regular GTIM Nation readers are probably familiar with Hatfield’s Incontrovertible Rules of Management #3, which reads

The 80th percentile best managers who have access to only 20% of the information needed to obviate a given decision will be consistently out-performed by the 20th percentile worst managers who have access to 80% of the information so needed.

So, what happens when managers experience a decline in the amount of the information they need to consistently make optimal, or even appropriate, decisions? Sure, they make poorer and poorer choices, but the results that come from a management environment where the information systems are falling short, in my experience, follow a very predictable path: management becomes increasingly reactionary.

And by reactionary, I mean that these actions become more dramatic, intense, and far-reaching, because the problems they address have been allowed to become more dramatic, intense, and far-reaching than they would have been if they had been discovered earlier. For example, the problems behind the Control Account that’s about to significantly overrun next reporting period call for more extreme remedies than when that same CA experienced a mild out-of-threshold negative Cost Variance six months ago. Make no mistake – over-correcting is often just as damaging to the situation than no correction at all. A pilot once told me that they even have an axiom for this phenomenon, I think it’s along the lines of “if you get behind on your controls, you’re lost.” I interpreted this to mean that if the pilot is surprised by the reaction of the aircraft to the changes to the controls, he’s likely in trouble.

So, how does the PM or PMO Director prevent an erosion in the Project Management Information Systems (PMISs) needed to keep the decision-makers informed? Let’s pull out the Game Theorists’ favorite analytical tool, the Payoff Grid, shall we?

 

 

Valid PMIS Not Available

Valid PMIS Available

PM Elects To Use System

(A) PM forced into reactionary mode.

(B) Best scenario.

PM Refuses To Use System

(C) Management in complete reactionary mode.

(D) PM selects reactionary mode.

 

Note that, unlike many other Payoff Grids, this one has only one acceptable scenario, (B). In the other scenarios, even if the PM is savvy enough to know the value of Earned Value or Critical Path Methodologies-based systems, if such systems are unavailable, chances are that, sooner or later, they will enter into the downward spiral of purely reactionary management. But here’s the kicker – I have personally witnessed (and I’m sure many other PMs have, as well), time and again, the PMs themselves will interfere with or even defeat attempts to set up the very PMISs that not only should they seek, but the other, more enlightened PMs will need to attain Scenario (B).

It follows, then, that this battle must be fought on two fronts: (1) Any PM who eschews the basic MISs needed to measure the Project’s cost and schedule performance should be given only the most basic, least-technically challenging scope to work, and (2) a valid PMIS must be available to all of the PMs, wanted or not. I’ll admit right now that front #1 is easier to work, because front #2 raises the question “what counts as a valid Project Management Information System?” For this we turn to Hatfield’s Incontrovertible Rule of Management #22, which reads:

All useful management information has the following three characteristics:

    • It is accurate,
    • It is timely,
    • And it is relevant.

If I could add a corollary, it would be that the General Ledger is incapable of providing all of the information needed to assess a Project’s cost performance. That crucial piece of information only comes from a working Earned Value Management System, even if that system is very basic. Indeed, the practice of using only the budget and actual cost data elements, typically from the general ledger, to determine the Project’s cost performance is nicknamed the “watching the actual costs go by” method, and is a clear indicator that the PM doing so is doomed to enter the reactionary scenarios above. Also noteworthy is the fact that comparing budgets to actual costs remains a useless analytic technique even when the level of granularity is increased. Whether performed at the total Cost Account level, or at the Basis of Estimate (BoE) line-item level, it still has nothing to do with cost performance. As far as deriving Project cost performance is concerned, comparing budgets to actuals is not only inaccurate, it has a 50% chance of being flat-out wrong, meaning that decisions based on it have an even chance of also being wrong.

PMs struggling to bring in their projects on-time, on-budget while facing an institutional lack of information are tragic figures. PMs who choose to be misinformed are just irksome. In my opinion.

Posted on: February 07, 2024 11:24 PM | Permalink

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Kwiyuh Michael Wepngong Senior Accountant| Africa Eye Foundation; Magrabi ICO Cameroon Eye Institute Yaounde, Centre, Cameroon
Your 80/20 rule is interesting .... mmany thanks

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