Project Management

People, Planet, Profits & Projects

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Richard Maltzman
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Sunk Costs Part 3 of 3 - Countering SMIRF Behaviors

In the last post, I introduced the SMIRF.  SMIRF® stands for Spending/Saving Money for Irrational Reasons Fallacy – As stated in that post:

SMIRF project behaviors are in the name of ‘saving money’ and ‘staying on budget’, or in some cases, ‘being on time’ – especially in beating a competitor to market.  When this happens, the project has become so narrowly driven by the cost and/or time constraint, that it consciously or subconsciously severs all ties with the objectives not only of the project, but the strategic goals, objectives, vision, and mission of the organization.  This can be worse than the Sunk Cost Fallacy, because the outcomes are not simply wasted money, but potentially horrific events and impacts that affect people and planet.

There are unfortunately many examples of these events in our recent past, including the Columbia Gas of Massachusetts explosions in the Merrimack Valley, and the crashes of the Boeing 737 Max aircraft. 

I won’t go into gory details of those two project disasters, in fact, there will be a book chapter devoted to them in an upcoming book to be published in 2022 by DeGruyter – The Responsible PM Handbook.

 But briefly:

  • Columbia Gas of Massachusetts, now defunct, changed their processes to save money, failed to communicate properly with subcontractors, and a severed pipe triggered tenfold pressure increases of natural gas to thousands of homes and businesses, resulting in 80 explosions and fires, a death, hundreds of injuries, and the demise of the company - read about the event in this Executive Summary from the US’ National Transportation Safety Board.
  • Boeing’s 737 Max aircraft introduction was apparently rushed into production to allow competition with Airbus, resulted in two crashes, hundreds of deaths, a reputational nightmare for Boeing, the grounding of the aircraft, and a US$2.5B settlement.  Netflix recently released Downfall, a documentary about this project.  It’s tough but important viewing for project managers.

Both of these cases exemplify SMIRF-like behaviors by the organizations.  What can a project manager do?  Are we powerless?

Not completely.  I’ll talk more in upcoming posts about speaking truth to power.  In the meantime, it’s important to consider some practical tips.  And here’s a source for those tips.

A publication of Harvard Business Review (HBR), Cultivating Everyday Courage, by James Detert (9 pages, $8.95) is all about the need – and the means – to speak up when decisions (in our case, project decisions) are being made that may be okay in the short term but which will quite obviously are counter to the mission statements of the organization.  Columbia and Boeing are not evil corporations.  But there was some SMIRFiness going on for sure.

To get an idea of what Detert is saying, literally, you can go to a 2018 HBR Ideacast (podcast) called Speaking Out Successfully.  This is 21 minutes of worthwhile listening.

A sample:

INTERVIEWER: …it sounds like you’re saying this is also a problem for organizations because they’re basically hamstringing themselves by not letting people speak up?

JIM DETERT: Yeah. What’s at stake when people who are closest to customers, who or who know most about the underlying technologies, what’s at stake actually when, when they don’t tell you why customers aren’t going to like something or why a product isn’t going to work? You know, you actually don’t have to work that hard to estimate why it really does matter in a dollars-and-cents way. And not just the costs of, you know, the Wells Fargo type, you know, multibillion-dollar settlements. There are lots and lots of other costs.

Have a listen.  And then consider if – when – and how – you should speak up!

Posted by Richard Maltzman on: February 28, 2022 10:41 PM | Permalink | Comments (1)

Sunk Costs Part 2 of 3: Introducing the SMIRF

In Part I of this post, I discussed the Sunk Cost Fallacy, by way of referencing the abandoned Cincinnati Subway project of the early 1900s.  It got some interesting feedback and generally readers agreed that this is an important aspect of human behavior – especially group behavior – of which project leaders should make themselves aware.

I indicated that Part II would discuss the sustainability aspects of this.  Warning: there is Post Creep here.  This is now a 3-part post.

So here is Part 2 (or II, if you count in Roman numerals)...

To move this post series over to the topic of sustainability and project leadership, let me start by dissecting the middle word of the Sunk Cost Fallacy – Cost.

Cost includes, of course, the dollars, yuan, pounds, Euros, yen, dinars, rubles and/or cryptocurrency, that we continue to “throw down a black hole of a project”.  But what about the non-monetary elements of cost?  How about the social and environmental impacts of a project that don’t show up at the ribbon-cutting ceremony?

I want to challenge your thinking here and talk about the converse of the Sunk Cost Fallacy and instead ask you if you have ever considered the Spending/Saving Money for Irrational Reasons Fallacy – SMIRF® (I just coined that!).

There are indeed SMIRF examples in which projects DON’T spend money (or effort, or research, or resources) on efforts that have to do with long-term impacts of the project’s outcome, when those outcomes should be front-and-center during planning.

There are other SMIRF examples, in which organizations spend money to try to work around a compliance item (usually involving safety or environmental controls or constraints imposed by a government agency).

Sometimes SMIRF is  not really even about saving money, but rather an odd cultural motivation to ‘outsmart a government agency’ - to make this an 'us-versus-them' battle (when really 'us' and 'them' are on the same overall team).

In all of these cases, these SMIRF project behaviors are in the name of ‘saving money’ and ‘staying on budget’, or in some cases, ‘being on time’ – especially in beating a competitor to market.  When this happens, the project has become so narrowly driven by the cost and/or time constraint, that it consciously or subconsciously severs all ties with the objectives not only of the project, but the strategic goals, objectives, vision, and mission of the organization.  This can be worse than the Sunk Cost Fallacy, because the outcomes are not simply wasted money, but potentially horrific events and impacts that affect people and planet.

Since this blog post is one that challenges your thinking, I will avoid blathering on and on here, and instead seek some reaction and even examples.  I have my own that I will share with you in Part III.

They won’t be pretty.  But they’ll be fodder for lessons learned to avoid SMIRF.

Posted by Richard Maltzman on: February 19, 2022 10:59 AM | Permalink | Comments (4)

A Clean Start for the 2022 Project Leader, Part 2 of 2

In part 1 of this blog post, “A Clean Start for the 2022 Project Leader”, I make a point – or rather I try to make a point – in the very title of the post.  Project Leader is a term I am beginning to favor greatly over Project Manager.  I won’t go through my full rant here, but think about it: what do you do as a project manager?  Do you oversee daily arrival time of employees? Do you assess their performance for raises?  Do you see if they are following company policies day-to-day?  No, no, and no.  You aren’t generally performing supervisory/management functions.  Do you need to inspire your team, to serve them?  Do you get roadblocks out of the way, and often work with diverse teams from different groups that don’t directly report to you?  Yes, yes, yes, and yes.  That’s leadership.  Congratulations.  You’re a Project Leader.

OK, good.  We covered the title. Now back to the topic. In that blog post, I refer to a podcast episode by Malcom Gladwell’s Revisionist History.  In that episode, he visits the Procter and Gamble HQ and talks with Todd Cline, Director of R&D, North America Fabric Care.

Cline walks Gladwell through a lab where testing is taking place on detergents that can work in cool or even cold water.  It’s not a trivial thing – in the US, we do 300 loads of laundry a year and each load uses 41 gallons of water.   Do the math.  And that is just household laundry.  Commercial clothes washing adds a bigger chunk of impact.  The carbon impact of a washing machine or detergent has very little to do with manufacturing or shipping it, or even disposing of it (although these should also be considered).

 Environmental impact is almost all in the “use” phase of the life of a washing machine.  This is because most of the carbon footprint comes from the energy to heat the water.  A 70% reduction in carbon footprint is achieved simply by using cold water.  And to bring it closer to home, use of cold water would also make your clothes last longer.  So, the “holy grail” of laundry is washing clothes in cold water.

This whole idea of a Life Cycle Assessment (LCA) and in particular, the LCA of a washing machine, was actually covered in our 2010 book, Green Project Management, with the intent to wake up project leaders (yep, it’s that term again) to the idea that their project’s product goes on (sustains) well beyond the project’s existence.  We refer to this paper (see reference below) and use the figure below to make the point that Gladwell is hearing about at P&G headquarters, 9 years later.

This is also covered nicely in a National Geographic piece called Lightening the Load.  And it’s also covered by P&G laundry detergent Ariel in this piece. P&G is of course, pushing their product, but they are indeed tackling an important problem and the article does have good information – and it provided us with a really cool (pun intended) lead-off picture..

PMI®  has been talking about life cycle thinking for a while, but it has never been as relevant and PMI has never been as holistic and expansive in its standards and PMBOK® Guides as it now has been in the PMBOK® Guide, 7th Edition.  Now, PMI is saying things like: “It is becoming more common…to consider social and environmental impacts in addition to the financial impacts…this may take the form of a product life cycle assessment which evaluates the potential environmental impacts of a product, process, or system…” (PMBOK® Guide 7th Edition, section 2.4.1, Planning Overview).

So, here’s the thought for our clean new (well, somewhat new) year.  Think clean through the end of your project.  Plan in considerations for how the product of your project (which could be a chunk of hardware like a washing machine or a piece of software, or a highway surface, or a house-cleaning service) impacts social and environmental AND financial long-term outcomes.  Imagine the product of your project in action, 3 years from now.  What does it use?  What does it produce? Who does it impact?  Now expand that to 10, 30, 100 years.  I know.  This is hard for us.  We are get’R’done folk.  On to the next project.  But we are doing a disservice to our stakeholders (some of whom are our grandchildren) when we don’t take the bigger picture into account when we plan.

 

Reference: Koroneos, Christopher & Achillas, Ch & Nanaki, Evanthia. (2013). Life Cycle Thinking in the Use of Natural Resources. Open Environmental Sciences. 7. 1-6. 10.2174/1876325101307010001.

Posted by Richard Maltzman on: January 26, 2022 11:34 PM | Permalink | Comments (1)

Literally Sunk Costs – Part 1 of 2: Tunnels to Nowhere

My project management “antennae” were raised by this story : Cincinnati’s Unused Subway System Is a Century-Old Dream That Won’t Die.  The idea of an abandoned infrastructure project buried under a major US city?  The idea of reuse?  The aspects of human irrational behavior as they relate to projects?

I’m all in.

Here’s how the story opens:

“American history is rife with grandiose public works projects, some successful—like interstate highways—others less so…. Some wound up somewhere in purgatory; partially complete, with millions of dollars spent and many more required for completion. One such project is the subway in Cincinnati, Ohio; at more than two miles in length, it could be the longest unused subway system in the world. And more than a century since construction began, some hope remains that it may one day be put into service.”

You can watch a short video about this and traipse through the tunnels below:

So what is the Sunk-Cost Fallacy?  Basically, it’s the drive deep within (adult) humans related to the proverb, “waste not, want not”.   As in the figure above, it’s about not ‘losing all of the toil (blood, sweat, tears) you have put into something.  So we put MORE effort into it.  That’s why the character in the last frame is pouring money into a burning project.

Test it out on yourself.  Imagine you bought $35 tickets to a new hit movie.  Due to the risk of getting COVID-19, you hesitate going.   Also, friends who have gone say that it’s really just not that good.  In fact, the roads are icy and you’re a little bit tired.  But you bought the tickets.  And, you go.  And…it turns out that your friends were wrong.  It’s worse than “not that good”, it’s absolutely terrible.  Yes, you have just experienced the Sunk Cost Fallacy.  There’s a nice, easy-to-read article about it here: https://thedecisionlab.com/biases/the-sunk-cost-fallacy/.

Another excellent post on it (and the source for the excellent image that goes with this post) is here: https://blog.doist.com/sunk-cost-fallacy-comic/

 

In projects this happens when we spend more money on a project that should have gone through a “phase gate” or “kill point” and should have been stopped right there in its tracks (pun intended again!).

The Sunk-Cost Fallacy was first described by Nobel Prize-winning economist Richard Thaler, and more recently described in this slightly embarrassing-to-homo-sapiens article: The sunk cost and Concorde effects: Are humans less rational than lower animals?

You can find very easy-to-read articles on the Sunk-Cost Fallacy here or here.

The bottom (pun intended) line is that as project managers, we sometimes spend good money after bad.  That is, we feel like we should finish a project because ‘so much has already been invested’.

This project actually was killed after several years.  The timeline is roughly as follows:

  • In 1916, with an overwhelming vote of almost six to one, the citizens of Cincinnati said yes to spending $6,000,000 to solve its transit problems
  • The project was delayed due to the US involvement in World War 1.
  • Actual loop construction began after the war. There were a few minor delays because some Cincinnatians doubted that the $6,000,000 was going to complete the job. They felt that inflation from the war would cause costs to skyrocket, but the rapid transit board was not listening to any critics.
  • On January 28, 1920, the first steamshovel. of ground was lifted from the canal at Walnut Street.
  • Early 1921 inflation woes strike.
  • 1922: Negotiations with nearby cities for rights-of-way delay the project further
  • The two mile subway tunnels were finished early in 1923. The above-ground sections of the loop were near completion by early 1927, but there was no money to equip any of it. Tracks had not been laid, several crucial links to the system were missing and the dollar balance in the books was near zero.
  • October, 1928: Central Parkway opened on top of the subway using some of the right-of-ways purchased for the rapid transit loop.
  • 1929: problems continue.  The city mayor discontinues the Rapid Transit Commission.
  • 1939 the tunnels were researched for possible automobile traffic
  • In the 1950s, a massive 52-inch (1.3 m) water main was placed in the northbound tunnel to save $300,000 by not digging a new tunnel for the water main.
  • 1966: The original $6M bond is paid off (with actual cost to the city being about $13M including taxes and interest)
  • 1970s: Developers wanted to turn parts of the tunnel into an underground mall and a night club similar to Atlanta Underground (that plan fell through)
  • 1980s: The city pitched the tunnels to filmmakers as a location to shoot subway scenes (that didn’t come to fruition)
  • 2002: A regional light rail system was proposed to use the tunnels which would cost $2.6 billion and take thirty years to build.  The tunnels were favored because they were in an ideal location, they could easily be used to connect the east side and the west sides of Cincinnati, and they would have saved the city at least $100 million in construction costs at the time. Interestingly, and showing voters’ low appetite for large government projects, the light rail plan, called MetroMoves, proposed a tax levy that would have raised sales tax in Hamilton county by a half-cent, and yet, the plan was voted down by more than a 2-to-1 ratio.
  • 2017: shortly after the 100th anniversary of the tunnel construction, mayoral candidate Rob Richardson Jr. ran unsuccessfully on a platform that included reviving the subway system; however, this did not provide tangible construction plans or feasibility studies.
  • Currently: The abandoned tunnel is used to carry the relocated water main and as a route for optical fiber cables.

 

More detail on the tunnels here from the City of Cincinnati itself:

https://www.cincinnati-oh.gov/dote/about-transportation-engineering/historical-information/the-cincinnati-subway/

To view a full walkthrough of the Tunnel system from a couple of folks who call themselves The Forbidden Explorers, have a look at this:

In Part II, I will discuss the sustainability aspects of the decisions and relate them to some of the challenges facing the US in terms of infrastructure projects.

Reference: Arkes, H. R., & Ayton, P. (1999). The sunk cost and Concorde effects: Are humans less rational than lower animals? Psychological Bulletin, 125(5), 591–600. https://doi.org/10.1037/0033-2909.125.5.591

Posted by Richard Maltzman on: January 16, 2022 05:51 PM | Permalink | Comments (4)

A Clean Start for the 2022 Project Leader

For our last post of 2021, I am going to leave your head spinning.  Almost literally.

It’s going to be short and sweet, but I am going to follow up with you in the clean new year.

What’s all this about spinning…and cleanliness?

I want to end 2021 by sending you to a podcast episode from Malcolm Gladwell.  He has an OUTSTANDING podcast series called Revisionist History.  I would say every episode is worth a listen.

In its own words, here’s what the podcast says about itself:

Revisionist History is Malcolm Gladwell’s journey through the overlooked and the misunderstood. Every episode re-examines something from the past — an event, a person, an idea, even a song — and asks whether we got it right the first time. Because sometimes the past deserves a second chance.

The particular episode to which I implore that you listen (and then come back early next year for a discussion) is called Laundry Done Right.  And yes.  It is about washing your clothes.  What the (insert bleep here) does this have to do with project management, you ask? 

Well, for the past 10 years or so, I have been giving talks about sustainability in project management in Italy, Costa Rica, South Africa, Canada, the USA, The Netherlands, Malaysia, and China.  And I have been using the analogy of a washing machine as a way to get project managers to – well – to become project leaders, to think about delivering value rather than just producing outputs or outcomes.  The analogy (not to give away the punch line) has to do with where the ecological value could come from in improving the whole process of washing your clothes.   It's about a cycle, all right - but not a wash cycle - or at least not only a wash cycle.  More next year - in other words, in a few days.

Gladwell nails it in this episode.  Give it a listen and I promise to connect this to sustainability thinking in project management (read that as project leadership) on the other side of 11:59:59PM, 31-December, 2021.

Hope you enjoy it.  HAPPY NEW YEAR!  May all of your projects be successful, and deliver ongoing value!

Cheers!

Rich Maltzman, PMP

 

Posted by Richard Maltzman on: December 29, 2021 11:07 PM | Permalink | Comments (3)
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