Game Theory in Management

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Modelling Business Decisions and their Consequences

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Beware The Butterfly’s Wings

The Morality of Project Management

Do Project Managers Price-Gouge?

“Holy Pareto Principle Project Management Litmus Test, Batman!”

“Are You A Good Witch, Or A Bad Witch?”

Beware The Butterfly’s Wings

Edward Lorenz (1918-2008) was preparing to give a talk at the 139th meeting of the American Association for the Advancement of Science on the theory that very small variations in certain nodes of a network or parameters in complex equations can have rather large consequences in the outcomes or effects in those environs, but he couldn’t come up with a title. Phillip Merilees suggested the now-famous “Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?[i],” and the summarizing title stuck. As counter-intuitive as it may sound, the short answer to the question is “quite possibly.”

Metcalfe’s Law also deals with the potential behavior of large networks. Originally intended to address telecommunications design, it demonstrates that, while two telephones have one connection, five telephones have 66 connections. The actual formula is:

C = (n*(n-1))/2

Where C is the number of connections, and n is the number of nodes in the network. While not a geometric progression, the number of connections per added node grows at a significant pace above an arithmetic rate, implying that the larger the network, the more powerful and unpredictable it becomes.

Meanwhile, Back in the Project Management World…

Most Project Managers rightly dread the prospect of cataclysmic effects overwhelming their ability to bring a project in on-time and on-budget, which is probably the main driver behind the pseudo-science of modern risk management. While overuse of statistical analysis techniques will not reduce the odds of such project-killing events occurring, there are some things a typical PM can do to help avoid such failures, and they are things as common to us as flapping butterflies’ wings. But first, a quick distinction: forces that are purely external to your project that have the power to either wreck the project or have a significant deleterious effect on its performance are not predictable, period. Yes, you can worry about them, and even put down your worries in a Monte Carlo simulator and call it “risk management,” but you haven’t done a thing to reduce the likelihood of their occurrence. But many of the internal aspects of disaster avoidance can be addressed. A short list follows.

  • Cronyism and nepotism. Whenever anybody is hired or promoted on a basis other than merit, this butterfly wing-flap doesn’t happen just once. It happens each and every time the improperly hired/promoted person makes a decision related to the organization’s performance, which is to say virtually every hour of every day. You see, when such a hire/promotion takes place, not only does a poorer performer get placed into a decision-making role, the individual who merited that role has been pushed aside, to either assume a position of subservience in the existing organization, or else to be made available to the competition. It’s only a matter of time before the improperly hired/promoted individual makes a less-than-optimal decision of such consequences that a cascading event occurs, overwhelming either the specific project being worked, or even the entire organization.
  • Poor Management Information System (MIS) strategy. My oft-cited version of the Pareto Principal as it relates to PM, that the 80th percentile best managers who have access to 20% of the information needed to obviate a given decision will be out-performed by the 20th percentile worst managers with access to 80% of the information so needed, carries with it several implications. Perhaps the most profound is that, if the Program Management Office (PMO) insists on pursuing information streams that are ultimately irrelevant (e.g., comparing budgets to actuals at the line-item level; time-phasing the Estimate to Complete; performing a [or even multiple] “bottoms-up” Estimates at Completion), then the unfortunate project teams who have to comply with these diversions will be wasting their MIS investment in time and money, making absolutely no progress towards the percentage of information they need to make better decisions. As in the previous example, it’s only a matter of time before the bow-wave of poor decisions swamps the project team, virtually guaranteeing cataclysmic project failure.
  • There are many other examples (a “Peter Principle” promoting of the inept; the avoidance or even punishment of any negative feedback from the project team; allowing Asset Managers to determine Project Management actions, to name but three), but with the space I have left I would like the reader to consider what kind of cascading error effect would be had by combining the previous two bullets. With improperly-placed and inept project management “experts” chasing utterly irrelevant but difficult-to-assemble information systems, not only are valuable resources being wasted, and not only are the better people, information systems, and options being displaced, but the 20% worst managers are not even being fed 20% of the information they need to make optimal – or even functional – decisions. It’s inevitable – many bad, often very bad, choices will be made within this project team.

And that, friends, is a recipe for disaster.

 


[i] Butterfly effect. (2017, September 10). In Wikipedia, The Free Encyclopedia. Retrieved 18:41, September 17, 2017, from https://en.wikipedia.org/w/index.php?title=Butterfly_effect&oldid=799973299

Posted on: September 18, 2017 10:05 PM | Permalink | Comments (3)

The Morality of Project Management

In Tom G. Palmer’s book The Morality of Capitalism[i], among the many, strong arguments supporting the title’s assertion is the idea that capitalism is morally superior to other economic systems in that it rewards those who are of service to others. We’re not talking about how, since capitalist societies tend to be more successful than controlled economies, they leave participants with more resources that can be devoted to charity. Rather, in order to attain those resources in the first place, the participant in a free-market economy must provide a service or good that others desire, and for which they are willing to pay money. Indeed, those who refuse to be of service in some way will either suffer economically, or else have been made materially well-off by others who were previously (in the case of inherited wealth), or are currently, being of service to others.

In last week’s blog I made the case against the idea that price gouging was immoral. Now I want to go a step further, and argue that Project Management, like capitalism in general, is an inherently more moral pursuit than its cousins, Asset Management and Strategic Management. I’m not doing this to blow sunshine at my readers (much as they deserve it), but to try and inject a novel sense of proportion regarding Project Management’s role in the universe of management science.

Corner Cube theory[ii] explores the purposes of the three types of management. For example, the Asset Managers are extremely direct and simple in stating their purpose: it’s to maximize shareholder wealth. Indeed, they go so far as to assert that those three words represent the purpose of all management, which this blog has debunked on several occasions. For today, though, I would like to direct the reader’s attention to a comparison between the idea that people and organizations flourish in a free-market economy by being of service to others, and the notion that the purpose of (asset) management is to maximize shareholder wealth. Even if there’s not a direct denotative contradiction between the two ideas, it’s readily apparent that, at the very least, a connotative inconsistency exists. Add to this the fact that common things are typically less valuable than rare things, then ask yourself: is there really any kind of shortage of people or organizations who are looking to enrich themselves (i.e., “shareholders”)?

Next up are the Strategic Managers, whose purpose is to maximize their organizations’ market share. Incidentally, by employing the other two types of management in advancing this goal, we have yet another example of why Project Management tends towards the inherently moral. What organization has ever gained market share by pushing resources to their shareholders? Conversely, relatively few organizations fail to gain market share by delivering their projects (goods, services) to their customers better, faster, cheaper. But I digress…

Although the popular television series Mad Men, set in New York City’s Madison Avenue advertising agency district in the 1960s, often alluded to the seedy goings-on in the high-end marketing industry, the act of acquiring market share itself is essentially morality-neutral, since it is focused on the competition among organizations, as opposed to internally-focused (shareholders) or the customer-centric. And, while the tactic of engaging in a hostile takeover of a competitor’s business has received a lot of bad press, this tactic is also morally neutral. Indeed, if we go by the “maximize shareholder wealth” mantra, it’s good, since pre-takeover the target organization’s stock prices tend to increase significantly, meaning that the target’s shareholders see their wealth increase in exchange for surrendering market share.

Which brings us to Project Management. The codex of PM practices, strategies, and techniques are directed towards delivering any given project’s scope within the constraints of cost and schedule. Who sets these constraints? The customer, of course. In essence, Project Management theory is dedicated towards introducing and socializing methods that enable managers to be better servants to their customers. Put another way, Project Management is an avenue for developing management science to advance superior servitude, which represents more moral business behavior in addition to providing a better economic payoff.

Of course, I’m not advocating that all project managers should be automatically considered the moral superior of other types of managers (better dressed, of course, but not necessarily morally superior). We just have better attitudes.


[i] Retrieved from https://www.atlasnetwork.org/assets/uploads/misc/The-Morality-of-Capitalism-PDF.pdf on September 9, 2017, 1400 MDT.

[ii] “Managing to the Corner Cube,” Project Management Journal, 1995, available at https://www.pmi.org/learning/library/three-dimensional-management-world-5329.

Posted on: September 11, 2017 10:08 PM | Permalink | Comments (3)

Do Project Managers Price-Gouge?

I used to live in Texas, and regularly vacation there (especially in the Corpus Christi – Padre Island area), so I watched the news coverage of hurricane Harvey rather closely. Of course, our thoughts, prayers, and donations go out to the victims. I have additional concerns that reach into the management sciences arena as well. I wouldn’t want any common misperceptions about how projects – specifically, rebuilding projects – can be optimally executed to get in the way of a speedy and efficient recovery for the area.

So, I experienced some level of trepidation when I heard media analysts complain about “price gouging,” which, I take it, is the practice of selling an item or commodity at significantly higher prices than consumers are used to seeing. The common narrative accompanying the charge of price gouging is that the owner of the item or commodity is “taking advantage” of the devastation in the wake of the hurricane in order to make an “unfair” level of profit. This charge, and its accompanying narrative, is invalid, and I can prove it.

First, let’s make a couple of definitions clear. A commodity is a resource that’s virtually indistinguishable from others like it. One gallon of unleaded gasoline is pretty much like any other, which is why a single gas station is highly unlikely to charge a price more than a few pennies more than its competitors. The same is true of purified drinking water, or canned peaches, or any other commodity. Those who deal in the selling of commodities are said to be “price takers,” since they have little control over the price at which they can expect their products to sell. The laws of supply and demand determine that selling point, which is why commodities trading can be so volatile and is a prime example of high-risk investing.

A certain television news website ran a story about a convenience store in Houston charging $99 (USD) for a case of bottled water, with the implication that it represented a prime example of price gouging.[i] Let’s take a look at that, shall we? Since many of the roads to Houston were flooded, the chances of prompt resupply of bottled water in the hurricane’s aftermath were remote, meaning that supply of that commodity was low. At the same time, there are a lot of people who live in Houston who chose not to evacuate, meaning that anticipated demand was high. The presence or lack of avarice on the part of the sellers of bottled water in the Houston area is irrelevant. With limited supplies and high demand, the price will escalate automatically. When it does, it signals potential suppliers that, if they can bring more bottled water into the area, they will be rewarded for doing so. This will lead to those who have access to (a) bottled water, and (b) a boat or high-suspended truck to risk bringing water to the area. What happens when additional supplies are brought in while demand stays level? If you said “the prices come down,” go to the head of the class.

And The Benefits Don’t End There

An additional benefit of the price going up is that, for those people who chose to (a) not evacuate and (b) not buy bottled water when it was only mildly overpriced, they will now only buy what they absolutely need to get by. If the price were to be artificially kept down, say, by well-meaning but micro-economically naïve cable news business analysts, then the first few customers who came in to that store and realized that a rare commodity was underpriced would tend to buy much more than they needed, meaning that later customers wouldn’t be able to purchase bottled water at any price. In addition to signaling the nearby communities that drinking water was more valuable in the Houston area, the higher prices also helped guarantee that the maximum number of people would receive the minimum amount needed, rather than a few having more than they needed, and most having nothing at all.

Meanwhile, back in the PM world…

But enough about commodities. What about Project Management? The same rules of supply, demand, and price are true here, as well. When the waters recede, and the city, county, State and Federal Governments start taking bids on the re-building projects, does anybody really believe that the bids will be at the exact same levels as similar jobs performed before the hurricane hit? The area’s utilities (yes, including drinkable tap water) are off-line, and most major construction projects require a reliable source of energy, water, and sewage/waste disposal. Sure, there are work-arounds, but the work-arounds tend to cost more money, as when the job site requires its own electrical generator, which itself needs potentially scarce gasoline. Many skilled workers won’t think of an area recovering from a major disaster to be a preferred work destination, and will probably need a little extra incentive to be attracted to such an area – at the very least, a dry and cool place to sleep and eat – so labor costs are likely to climb. And we’ve already seen what is likely to happen to the availability of the commodities used in construction.

Now imagine the same cable news business analysts who harangue water-selling convenience store owners goading politicians into performing a review of the recovery projects’ bids, and comparing them to previous budgets for similar projects, and discovering that the post-disaster bids are significantly higher. If they employ the same “logic,” will they not want to accuse the contractors of price gouging? No seasoned PM will view any of these cost-adders as representing an act of taking advantage. It’s simply the way projects are bid, accepted, and executed. If a contractor’s bid is too high, all the customer needs to do is award the work to a lower-priced competitor. And, if some politician or official were to review the project estimates with an eye towards charging those bidders on the high end with price gouging, what do you suppose would happen to the pool of potential bidders? If you said “It would dry up,” you probably also had the right answer to the previous pricing question.

In short, I believe everybody would be better served if certain cable news outlets would leave the management science “insights” to people other than journalists – preferably, to PMP®s.

 


[i] Retrieved from http://money.cnn.com/2017/08/31/news/hurricane-harvey-price-gouging/index.html on September 1, 2017, 14:28 MDT.

Posted on: September 04, 2017 09:12 PM | Permalink | Comments (6)

“Holy Pareto Principle Project Management Litmus Test, Batman!”

The 1960s television show Batman was rather campy, much of which was injected into the dialogue by the Robin character’s tendency to announce any surprise development with the announcement “Holy _______, Batman!”, with the blank being filled in by a series of extremely random nouns. A partial list (the full list is 356 expressions long[i]) includes:

·  Holy fate worse than death

·  Holy hardest metal in the world

·  Holy journey to the center of the earth

·  Holy Venuzuela

·  Holy stalactites

·  Holy trolls and goblins

·  Holy known/unknown flying objects

·  Holy unrefillable prescriptions

·  Holy Robert Louis Stevenson

·  Holy priceless collection of Etruscan snoods[ii]

And, although it doesn’t show up in any of the official lists, I could have sworn that I saw an episode where the batmobile was stopped by a bovine in the road, prompting a “Holy cow!”

And Now, To Move The Discussion A Tiny Bit Closer To Management Science…

Italian sociologist and economist Vilfredo Pareto (1848-1923) is probably best known for the common interpretation of the Pareto Principle, that 80% of the effects are attributable to 20% of the causes. In business, this is most often used in reference to things like 80% of a company’s revenue tends to come from 20% of its customers, but it has many other applications, such as 80% of the traffic wear in a typical home’s carpet occurs in 20% of its area. One of my adaptations of the Pareto Principle is that the 80th percentile best managers, who have access to 20% of the information needed to obviate a given decision, will be out-performed by the 20% worst managers who have command over 80% of the information so needed. But the more time I spend in the arena of Project Management practice and scholarship, the more I’m beginning to believe in another application, one that differentiates between true professional PMs, and their pretender counterparts.

I began formulating this application upon observing self-described PM “experts” weighing in on types of projects where they had absolutely no previous experience. Any attempt to dissuade these “experts” on the grounds that they, well, really didn’t know what they were talking about would be met with the fiercest of chest-thumping resume´ comparison challenges, where, inevitably, the attainment of the PMP® certification would be put forth as the argument-stopper.

Pulling this thread a bit more, I began to realize that the “experts” were strongly asserting their “insights” on the basis of the canned strategies they had learned, either through experience or by studying the PMBOK Guide® while preparing for their exams. Since the literature on Project Management presents itself as having a wide range of applicability (if not out-and-out universality), it’s natural for those who ingest this not insignificant codex to assume that they have at least some level of mastery in Project Management, even if the specific application is new to them. I think this, however, is folly, leading to my next application of the Pareto Principle, so:

Most PM practitioners think that mastering Project Management is 80% familiarity with learned strategies, and 20% adapting to the novel conditions of the project. However, the opposite is true: PM mastery is 20% implementing canned strategies, and 80% adapting to the new project team/environment.

If this application is valid, one of its primary implications is that attaining the PMP® certification isn’t ipso facto evidence of mastery. What does it mean, then? I think that the PMP® is like Batman’s utility belt, with its numerous compartments. The specific tactics and strategies that real PMs use are “placed” within this structure, and used as the unique project circumstances demand. And, just as Batman and Robin would be in real trouble if they were to confront the (extremely colorful) criminals without the use of the utility belt, the wearing of the utility belt does not automatically make one The Batman.

So, that’s (one of) my PM validity tests. If your new PM approaches the project with a sense of humility, and seeks to discover what makes this project different from all the other ones she has encountered before offering strategies or solutions, you probably have a winner (it doesn’t necessarily have to be precisely the 80/20 ratio, but you get my sense of proportion on this matter). On the other hand, if the new manager already has all of the answers, and bitterly denounces all opposed to his agenda, start listening for the bizarre “villain” music to begin playing in the background.

Also, the camera angle will suddenly become somewhat askew.

 


[i] Retrieved from https://www.66batmania.com/trivia/robins-holy/ on August 25, 2017, 17:57 MDT.

[ii] Ibid.

Posted on: August 28, 2017 08:40 PM | Permalink | Comments (7)

“Are You A Good Witch, Or A Bad Witch?”

When Glenda, the Good Witch of the North, makes this inquiry of the newly-arrived Dorothy in the movie The Wizard of Oz, Dorothy responds with alarm. Apparently, all witches in Kansas at the time could be readily identified by certain visual ques, most of which would be on display when we meet the Wicked Witch of the West a little later in the scene. Dorothy is completely unaware that, in Oz, there are good witches who present much more like, well, Glenda. But since Dorothy’s appearance is somewhere in-between Glenda’s and the Wicked Witch’s, Glenda is unsure, and has to pose the question.

Meanwhile, Back In the PM World (including Kansas)…

There’s a lot of churn in the PM industry these days about the features that must accompany a “good” Project Management Information System, or PMIS. The primary value of PM information systems lies in their ability to provide critical performance information to the projects’ decision-makers so that they can increase their odds of bringing in their scope on-time, on-budget. While the previous sentence is undeniably true, it does carry with it some rather prickly implications, the primary one being that any PM information stream that supported a provably successful project was just fine, and any – any – ex post facto analysis to the contrary is, well, wrong.

What About The Projects That Don’t End Successfully?

But it does not follow that any PM system that supports a failing project is automatically invalid. Consider the following payoff grid (for those of you who aren’t fans of payoff grids, I remind you of the title of this blog, and how game theory aficionados love these things):

 

Poorly Performing Project

Successful Project

Valid Cost/Schedule Performance System

The project’s problems have nothing to do with the C/S performance system.

It’s all good.

Invalid C/S Performance System

Okay, there’s a problem here.

If it worked, can it really be considered bad?

I propose a simple two-step filter to test if a given PMIS is “good,” or “bad.”

  • Was the project successful?
    • Yes: the PM system is fine.
    • No: Did the Cost/Schedule System accurately document the project’s performance issues at least three reporting cycles prior to the actual overruns or delays?
      • Yes: the PM system is fine.
      • No: in this circumstance – and ONLY in this circumstance – should we assume an actionable deficiency.

But the fact that PM experts rarely, if ever, follow this common-sense approach points to one of Hatfield’s Incontrovertible Rules of Management, that you can put fifty Project Management experts into a room and they will not agree on the color of an orange. Why so much disagreement? Because the standards being employed have veered away from objective, verifiable parameters.

Finally! A Valid Use For Risk Management!

I believe that a sure-fire tell that the people bestowing “good” or “bad” labels on Project Management Information Systems are unaware of the existence of good witches is if they threaten to identify a system as “bad” for its mis-application (or just missing) risk management program. Such a “finding” would represent ipso facto evidence that the evaluators are relying on epistemological ques that aren’t really relevant.

And, once these ques are misidentified, can simply handing the ruby slippers over to the Wicked Witch of the West be far behind?

Posted on: August 21, 2017 08:28 PM | Permalink | Comments (2)
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