Game Theory in Management

This may be one of my most controversial blogs ever, so strap in. I want to examine, under the rubric of PMO-on-a-budget (ProjectManagement.com’s theme for June), what would happen if the entire PMO staff were to be hired for a fixed rate, for a series of one-year contracts. Providing our jump-off point is my favorite NFL Team, the Dallas Cowboys.

Consider how different the payroll scheme is for the players as compared to the cheerleaders. The players have agents, who attempt to negotiate the highest possible salary, and for the longest period of time, for each of their players. The football clubs themselves have to observe a salary cap, determined by the League office. For the 2024 season, it’s $255.4M (USD)[i]. Dallas’ star quarterback, Dack Prescott, is in the last year of his contract. For this upcoming season, he’s scheduled to earn over 21% of the total allowed for the entire team[ii]. There are 53 people on an NFL team’s roster, which works out to 1.89% of the cap, if it were to be distributed evenly. Dak is not the only star earning significantly more than 1.89% of the cap, of course. Many other exemplary players, whom the Club wishes to retain on the roster for years to come, also easily top that figure. But it has to be said, that, within this business model, every percentage point those stars make over 1.89% simply has to come out the available cap. It’s why, when a particularly talented quarterback makes more than Dak’s 21% haul, it’s a real possibility that other parts of the team will experience a reduction in available talent.

Now, compare and contrast this talent attraction/retention model with that of the Dallas Cowboys’ Cheerleaders, or DCC. Each of them has a one-year contract. If they wish to be a DCC next year, they must compete against all of the other young women who also wish to belong to this elite group each and every time tryouts are held. Veterans can earn more, and are usually (but not always) given deference during the tryouts, but even they can (and do) fail to make the cut. Since both the players and the cheerleaders belong to the same organization, I can’t help but to wonder what would happen if the players’ talent attraction/retention model was identical to the cheerleaders? What would be the implications?

First, the Club would need to publish the payroll structure by position. Since quarterback talent tends to be rarer than, say, linebacker talent, adjustments would need to be made, but always based on percentage points of the total available salary cap. There are 24 “starters” (11 for offense, 11 for defense, with one punter and one kicker), who would receive a higher percentage for each game that they actually started (more incentive to practice well!). Backups would receive a lower percentage, for example:

• The starting QB would be paid 15% of the per-game cap ($2,253,529 USD), but his backup(s) would be back at the 1.89% ($283,945) figure.
• Defensive linemen (typically, 4 starters) would receive 4%, but backups would be 1%.

…and so forth, until 95% of the salary cap had been distributed, leaving 5% for in-season roster adjustments, or even end-of-season bonuses. One-year contracts only. If the veterans want to play next season, they will need to try out, along with all of the other vets, vets from other teams, rookies, undrafted free agents, and walk-ons.

Outrageous? Yeah, probably. But consider some of the implications:

• No more having a cap-busting QB’s salary draining the talent from the rest of the roster,
• Or having 25% (or more) of your payroll sitting on the bench due to injury.
• Agents – don’t bother. The payroll structure is what it is, and Jerry McGuire doesn’t need to shout “show me the money!”
• Think about how incentivized the players would be to achieve the coveted starter position. The energy the coaching staff is expending trying to motivate a bunch of 20-something-year-olds can be better spent in other victory-attaining strategies.
• I would speculate that this business model’s impact on the overall talent level of the team would be to lose super-star players; but, wouldn’t it also eliminate the overpaid ones, as well? And what would be a better predictor of team success, a talent profile that looked like a bell curve, or a roster of all B+ players, across each squad?

Meanwhile, Back In The Project Management World…

Sooooo, what would this kind of model look like at a mid- to large-scale organization’s PMO? To throw out a few numbers, the Director would receive 15% of the indirect budget for the PMO, with three mid-level managers getting 10% each. The Project Controls specialists typically charge their time directly to their projects, but, for the PMO’s “core” team, they would split the remaining indirect budget. Again, one-year contracts only. I believe that this model would bring with it the following advantages:

• No more (Maccoby archetype) Jungle Fighters! PM-types who don’t get ahead based on actual output won’t last long in this business model, and getting rid of the scheming and political maneuvering this type brings may be worth the price of conversion all by itself!
• Elimination of the training budget. Candidates are selected on their current capabilities, not on subjective perceptions of their potential. Note that this would also eliminate the harmful trend of an employee getting trained-up at your expense, only to leave and take this new capability to a competitor.
• No more pushing of superfluous or trendy, untried PM techniques. A given approach to advancing the PM capability has exactly one year to prove itself. If it doesn’t work, its advocates get replaced (risk managers [no initial caps] hardest hit).

For those members of GTIM Nation who would argue that this approach would all but destroy organizational unity and cohesion, I would counter with (a) natural turnover rates may not be that different using the traditional approach, and (b) with the removal of the Jungle Fighters, team comity has a much better chance of developing.

Outrageous? Probably. But that’s not the real question here, is it? The real question is, would this approach work?

[i] Retrieved from https://www.spotrac.com/nfl/cap/_/year/2024/sort/cap_maximum_space on June 25, 2024, 21:04 MDT.

[ii] Retrieved from https://overthecap.com/player/dak-prescott/4848 on June 25, 2024, 21:06 MDT.

Why are we here? I mean, not existentially, but what do we PM-types believe is our ultimate function in the business world? I’ve heard many opinions on this question, generally bin-able into the following categories:

• To change the corporate culture to one that’s more amenable to PM,
• To change the behavior of those in charge of Projects in order for them to be more successful,
• To advance the capability maturity of PM within the macro-organization,
• To force upper management to see the value of various PM techniques, so as to broadly implement them.

To which I say,

• No,
• No,
• No,
• …and (blank) No.

One of Hatfield’s Incontrovertible Rules of Management (Number 28) says that the ultimate point of the PMO is to put into the hands of decision-makers the information they need to make the best decisions.

Period.

That’s it.

Of course, the believers of the first set of bullets above will not be persuaded just because I said so, so let’s dive in to each, to uncover why they are misguided at best, and PMO-breakers at worst. I’ve known many very (otherwise) intelligent managers and executives who will adamantly maintain that the purpose of PM practitioners is to “change the culture.” To be fair, it’s not just PM-types. I’ve heard this often from those seeking a more robust safety record, among others. But here’s the thing: corporate culture cannot be directly altered. Culture is downstream from success. If there’s a particularly successful manager in an organization whose business model hasn’t become hopelessly ossified, and that manager either scrupulously follows or bends a policy or procedural rule or two, that person will affect the behavioral manifestations of that organization’s culture more than the less successful managers who have obeyed every single stricture to the tee. One of the clearest displays of this effect can be seen in sports teams, where head coaches will scale back (or avoid altogether) the discipline due to their star players, no matter how egregiously they have violated team rules.

As for this changing-the-behavior business, yeah, that’s not gonna happen. Those in charge of Projects got there by using a certain set of strategies, strategies that aren’t going to be abandoned because some know-it-all has published a guidance document that says that the PM has to do things differently. Oh, they very well may give verbal assurances that the new way of doing things will be observed, but it will be all for show. They’ll churn out (or have others churn out) the exhibits and documents of the intruder philosophy, but that’s a very different thing than actually altering behavior, which Human Resource specialists will tell you only happens after a “life-changing event” (think George Baily in It’s A Wonderful Life). Besides, what techniques are to be used in this behavior modification program? Does this PMO Director have the authority to fire those who don’t exhibit the desired change? In most cases, no, so the PMO Director is reduced to attempting to claim the managerial expertise high ground, and from there hectoring the others into compliance.

I have never seen this work.

And attempting to use the two previous strategies within the framework of a Capability Maturity Model doesn’t magically impart to them effectiveness. You would only be seeing your failure(s) charted against a series of not-attained organizational behavior and performance milestones.

As for the fourth bullet-of-futility, the obvious question is can one ever really force someone to understand something? Two axioms pop to mind, one a supposedly ancient Chinese saying, that you can’t awaken a man who’s pretending to be asleep. The other is a snark, I forget the source, that’s essentially “I can explain it to you, but I can’t understand it for you.” The conceit that a PM practitioner is uniquely equipped to persuade senior management to alter significant portions of the macro-organization’s business model, based solely on this practitioner’s claim to have mastered an advanced management science codex – well, it’s common, but far from justified from observable outcomes.

It's been my experience that pursuing these objectives wastes time, energy, talent, and, perhaps most important of all, budget. So, let’s take a closer look at my idea of the purpose of the PM practitioner and, by extension, the PMO, that of putting into the hands of the decision-makers what they need to make informed decisions for their Projects, Programs, and Portfolios. Another one of Hatfield’s Incontrovertible Rules of Management (Number 3) is my take on the Pareto Principal, that the 80^th 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 20^th percentile worst managers who have 80% of the information so needed. If we assume this is true, then it follows that the dependent variable in managerial success is the availability of accurate, timely, and relevant information – not culture change, and not behavior modification. And even if GTIM Nation would like to have the debate about whether or not the PMO can influence capability maturity or corporate culture, there really can be no debate that the PMO is in an outstanding position to generate crucial information streams on Project cost and schedule performance.

So that’s what we should be doing.

I have to laugh whenever I hear some manager state that he doesn’t use nor need Earned Value. All managers, even ones who don’t think of themselves as PMs, use Earned Value, and here’s the proof: if your accountant comes to you and says “You’re half spent,” what’s the first thing that enters your mind? It’s automatic – “Am I half done?” And, at that moment, an Earned Value calculation has taken place.

The brutal fact of the matter is that a perfunctory level of project cost and schedule performance measurement and reporting (the very core of Project Management, in my opinion) can be attained with limited resources. Exhibit A in this argument is the production of probably the most valuable bit of information that a cost/schedule performance system can deliver, the estimate of total costs at completion (EAC) and total project duration. A simple comparison of these two parameters with the originally planned budget and scheduled end date reveals the coveted Variance at Completion numbers. Conventional wisdom holds that the EAC should be attained by performing a detailed re-estimate of the project’s remaining scope, add that to its cumulative actual costs, and you have your EAC. As for estimates of the project’s duration, a complete Critical Path Methodology (CPM) baseline is indicated, with the rules pertaining to a maximum number of activities with start-to-start relationships set (typically, very low), the method(s) for collection percent complete data stipulated, the maximum activity length specified, among many other parameters itemized, before a reliable finish-by date can be asserted. To all of the above, I say: nonsense. Those two extremely valuable information bits can be had far more simply and affordably. Here’s how.

GTIM Nation knows of my respect for the work of Dave Christensen, particularly his analysis on Cost Performance Index (CPI) stability[i]. The reason that the CPI’s stability is a big deal is because it’s the denominator in one of the most common EAC calculations:

EAC = Budget at Completion / CPI

Because of Dr. Christensen’s work, seasoned (or at least well-read) Project Controls Analyst know that this formula will return an estimate that’s reliably within ten points of the actual cost at completion, once the project has cleared the 20% complete point.

Here’s where things get interesting. Recall that the CPI is the cumulative Earned Value amount divided by the cumulative Actual Costs. And what is the Earned Value parameter? That’s percent complete multiplied by the total budget (the aforementioned BAC). Members of GTIM Nation who are good at algebra (I am certainly not among them) already see where this is going. The above formula for calculating a reliable EAC can be reduced to simply dividing the cumulative Actual Costs by the cumulative percent complete.

Two parameters.

Two.

All of the insistence on an up-to-date master resource dictionary feeding an off-the-shelf estimating software package, which then transfers its data to a Critical Path Methodology software for time-phasing in order to create the Cost Baseline – yeah, not really necessary, at least not for these two key performance indicators.

But wait, as the telemarketers say, there’s more. The same trick works for duration. For a cheap but reliable estimate of a project’s (or singular activity’s) duration, divide its cumulative duration by the estimate of its percent complete from the same time, and you have it. Compare that figure to the project’s originally planned duration, and you have the variance.

I can almost hear the more seasoned members of GTIM Nation saying “Michael, haven’t you gone too far down the road on this whole reductionism business? I mean, even if these are reliable ways of deriving at-completion cost and schedule performance data, they offer absolutely no insight as to which parts of the Work Breakdown Structure are responsible!” To which I would say, that’s absolutely correct, and, if you are working a complex, high-budget project, with an involved customer, you will absolutely need all the other formal stuff. However, I would also like to point out that most off-the-shelf Critical Path Methodology (CPM) packages compute likely task duration the way I just laid out, by dividing cumulative duration by percent complete. Of course, the CPM packages take into account dozens (if not hundreds) of other parameters; but, if you’re on a tight budget (and in a hurry), this may be your ticket.

Ultimately, quality PM information streams can be made available on a budget, but only if the organization is enlightened enough to eschew superfluous elements of the traditional PMO. Like overly detailed baselines. And risk management (no initial caps).

[i] Christensen, David S., and Rees, David A., Is The CPI=Based EAC A Lower Bound To The Final Cost Of Post A-12 Contracts?, Journal of Cost Analysis and Management, Winter 2002.

In 1988, Watts Humphrey began working for Carnegie Melon University’s Software Engineering Institute (SEI) after retiring from IBM[i]. At the request of the U.S. Air Force, he began assembling and formalizing a structure that could be used to evaluate the stages (or “levels”) of the capability maturity of organizations involved in developing software, resulting in the book Managing the Software Process in 1989.[ii] It didn’t take long for other industries – including PM – to realize that many of the aspects in the Capability Maturity Model were highly applicable to their own industries, and many derivative models sprung up.

In the original CMM, the five “Levels” were:

1. Initial,
2. Repeatable,
3. Defined.
4. Capable, and
5. Efficient.[iii]

In 1998, Captain Tom Schorsch (USAF) published a paper that, in my opinion, has to be one of the most brilliant derivative Management Science pieces ever written, The Capability ImMaturity Model[iv]. In it, Capt. Schorsch discusses a structure where an organization’s capability actually regresses, in “levels” going backwards from the original CMM’s “1,” in this order:

 0.  Negligent

-1.  Obstructive

-2.  Contemptuous

-3.  Undermining[v].

If members of GTIM Nation haven’t read this article yet, it’s absolutely worth your time. It’s both hilarious and insightful, perhaps hilarious because it’s insightful. I would like to adapt Capt. Schorsch’s structure to a more nuanced version that can be expected to be encountered in the PM realm, specifically, because much of the organizational opposition I have seen to PM capability advancement tends to fall into highly predictable categories, by the same organizational elements.

For example, I fully believe that it is Negligent for the Director of a newly-formed Project Management Office (PMO) to spend any time or energy in developing a risk management (no initial caps) capability. Early-stage PMO efforts simply must be directed towards properly capturing scope, and reliably expressing that scope in cost and schedule baselines (formerly known as the “triple constraint”). Once these three baselines have been established, it’s possible to begin the process of quantifying project performance, and inform management decisions going forward. These two steps – capturing the data needed to establish the baselines, and creating the information streams that report on project performance – may sound simple, but that doesn’t mean they’re easy. Any deviation from accomplishing these two early-stage goals bleeds time, energy, and budget away from advancing capability, and will often set the stage for the exact type of regression described in the Capability ImMaturity Model. Nevertheless, many of the risk managers (no initial caps) whom I’ve known will be driven into table-pounding fury if a robust risk management (nic) function isn’t pursued from PMO inception, even though (a) such a capability requires significant time and resources to accomplish, and (b) it offers virtually no usable project portfolio performance information.

Even if the risk managers (nic) don’t succeed in drawing down your organizational impetus for broadly improving PM, you can almost count on the anti-PM presence to try and Obstruct your efforts. I forget where I first heard the saying “project teams detest performance measurement because it vividly shows their lack of performance,” but it’s apt in more instances than one might expect. Organizations that are new to PM are almost guaranteed to retain elements that simply don’t want the scrutiny that comes with PM-centric management information systems, and it should come as no surprise that they will Obstruct its advancement.

When it comes to enduring macro-organizational Contempt, few will equal our friends, the accountants. It’s not because they are naturally given to belligerence, quite the contrary. It’s because almost all business schools (in the United States, anyway) still teach that the point of all management is to “maximize shareholder wealth.” It’s perfectly natural for them to perceive a bunch of PMBOK Guide® enthusiasts who maintain the importance of attaining customer- determined scope, cost, and schedule goals as misinformed and, frankly, straying out of their proper business model – influencing lanes.

Few medium-to-large organizations can have their PM capability regress all the way to the Undermining level without the enemies of the PMO engaging in deceit, or (Maccoby archetype) Jungle Fighter tactics. The good news here, though, is that, by the time the macro-organization has devolved to this level of PM capability immaturity, only two paths forward remain. Either the Undermining elements within the organization will be found out and expelled, or the organization itself will fail.

Either way, the PM talent will have been proven right, if only in the post-mortem analysis.

[i] Wikipedia contributors. (2024, May 25). Capability Maturity Model. In Wikipedia, The Free Encyclopedia. Retrieved 00:26, May 28, 2024, from https://en.wikipedia.org/w/index.php?title=Capability_Maturity_Model&oldid=1225556439

[ii] Humphrey, W. S. (1989). Managing the Software Process. SEI series in software engineering. Reading, Mass.: Addison-Wesley. ISBN 0-201-18095-2.

[iii] Wikipedia contributors. (2024, May 25). Capability Maturity Model. In Wikipedia, The Free Encyclopedia. Retrieved 00:45, May 28, 2024, from https://en.wikipedia.org/w/index.php?title=Capability_Maturity_Model&oldid=1225556439

[iv] T. Schorsch, "The Capability Im-Maturity Model (CIMM)", U.S. Air Force (CrossTalk Magazine), 1996.

[v] Ibid.

Scene: A well-furnished meeting room, prepared for Project Reviews.

Steve (PMO Director): It’s nine o’clock. Which Project is first on the agenda?

Suddenly, Ricky (Project Controls intern) rushes in.

Heads up, everybody – Doug the Consultant is headed this way!

A barely audible groan erupts from the PMs, which quickly goes away when Doug enters the room. Doug is tall, with slightly graying hair, piercing blue eyes, with hints of a military bearing. He sits at the table, near the projection screen.

Steve: Great to see you, Doug!

Doug: First up PM: proceed, sir.

Bob: As everyone can see from this status report, our planned value is ahead of our actual costs, resulting in a positive Cost Variance.

Doug: Your what is ahead?

Bob: The planned value.

Doug: Is that the same as the time-phased budget?

Bob: Yes.

Doug: The more precise term is Budgeted Cost of Work Scheduled, or BCWS.

Bob: Those terms are considered obsolete.

Doug: By whom? (Awkward silence) Here’s the problem – “Planned Value” sounds a bit like “Earned Value,” leading to some level of confusion. The “obsolete” terms should have never been abandoned, which leads to our second problem. A Cost Variance is the difference between the Earned Value and the Actual Costs, not the time-phased budget and actuals.

Ricky: You’re not going to insist that we also use the terms Budgeted Cost of Work Performed and Actual Cost of Work Performed, are you?

Doug: Nope. The new versions of those terms – “Earned Value” and “Actual Costs,” are close enough to the original versions to avoid the same type of confusion represented by “planned value” and “Earned Value.”

Bob: Well, by your definition then, the Earned Value minus the Actual Costs is actually a negative number.

Doug: Tell us about your negative cost variance, then. Also, what’s your Earned Value minus your BCWS?

Bob: That’s also a negative number.

Doug: So you’ve got both a negative Cost and negative Schedule Variance, but were about to talk to a positive spending variance?

Bob: It’s no big deal. What you’re calling the negative Cost Variance is significantly smaller than the amount we have in the Contingency fund.

Doug: Hold on. What’s the cause of your negative Cost Variance?

Bob: We’re still investigating it.

Doug: Well, you can’t just tap your Contingency fund to cover any old Cost Variance. That reserve is only for in-scope, uncosted work.

Mark (assistant PMO Director): Since when?

Doug: Since the terms were invented.

Mark: Well, that’s not how we’ve been using them. We base the usage of all of the reserve funds – Management Reserve, Undistributed Budget, as well as Contingency – on who controls them, us or the Client.

Doug: Another set of problems! Without precise definitions of those reserve budgets, irrespective of who controls them, you’re simply inviting Project Management Baseline chicanery, such as attempts to cover Cost Variances possibly caused by poor performance, with those very reserves.

Steve: Doug, there are literally multiple definitions of those terms out there. Even within our own portfolio, they change based on the customer. What definitions are you talking about?

Doug: Easy. Like I said, Contingency is for in-scope, uncosted. Whether you derive it using a risk analysis (like me, Doug refuses to use initial caps for this phrase) or tack on a flat percentage doesn’t matter. Undistributed Budget is for work that is known to be in-scope at the time of the creation of the Cost Baseline, but there’s no reliable way to estimate it for inclusion in the baseline. Management Reserve is “free BCWS.” The Control Account Managers, or Work Package Managers, “give” back a percentage of their budgets so that the PM can use it however it’s needed, and the Customer really has no say in such usage, save for clear abuse.

Mark: In most of our projects, the Customer has complete control over the Management Reserve.

Doug: Then call it something else, ‘cuz the PM doesn’t “manage” it at all. In that instance, you’re inviting scope creep. What’s stopping the customer from asking for “just this one little addition,” offering to fund it through MR, and bypassing the nominal clearly defined Scope-to-Cost Baseline process?

Steve: Actually, that exact process happens a lot.

Doug: Meaning large portions of your portfolio are likely working under rubber baselines. No wonder its Cost/Schedule performance is so poor!

Bob: I disagree. The reason our Cost/Schedule performance is, errr, marginal, is due to the fact that our clients have some hard-nosed reps in the Configuration Control Board meetings. If we push for Baseline Change approvals too hard, we’ll jeopardize the award fee.

Doug: All the more reason to return to the original names and functions of the reserve budgets. By adapting the newer, less precise definitions and functions of the reserve accounts, you’re making it easier to informally add scope into your projects, based on vague promises that it will all come in under the Contract Budget Base.

Steve: Doug, how, exactly, do you intend to implement such a transition away from the modern PM lexicon?

Doug: One client at a time, Steve. One client at a time.