Game Theory in Management

I started last week’s blog by quoting Elliot D. Cohen, Ph.D., in Psychology Today, from a piece entitled How Contradiction Can Generate Mental Disorder, specifically:

The human brain is hardwired to seek consistency; when persistent, unresolved internal contradictions arise between people's everyday decisional premises, it can generate mental stress that manifests in mental dysfunction.[i]

I went on to discuss the “persistent, unresolved internal contradictions” between Asset Managers’ vision, and that of Project Managers’, and how that difference of visions manifests itself in business models that reflect those very contradictions. But there is another set of these paradoxes that have nothing at all to do with the other types of management. They are, in fact, entirely internal to PM, and will tend to become apparent whenever an organization experiences a new Project Management Office (PMO) director, or even management team.

In most new-PMO-Director circumstances I’ve been a part of, and in all new-PMO-Team ones, the newcomers will carry with them a particular narrative, that goes something like this: I’m the best person for this position, otherwise I would not have been offered the job. The change took place because the owning organization perceived that it needed to take place, meaning that the previous technical approach to advancing PM in the macro-organization was found wanting. Since I’ve set up and/or led a successful PMO, anything that I come across that’s inconsistent with my previous successes will need to be rooted out, and then things will improve similarly to my already-experienced victories. By no means should this narrative be considered confined to new management – consultants are also highly vulnerable to adopting it, and poorly-trained auditors as well.[ii]

This entirely understandable narrative, unfortunately, will invariably run head-long into Chesterton’s Fence, which is

In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.[iii]

When a new PMO Team is brought in from outside the organization, it’s been my (highly frustrating) experience that the extant staff is almost never evaluated with respect to their capabilities or talent. New executive teams tend to value one characteristic in the already-existing staff above all others: loyalty. The meek mediocrity who enthusiastically and unquestioningly embraces all of the newcomers’ changes will fare wildly better than the truly talented Team members who dare to suggest a pause before the new execs tear down the fence erected across the road.

PM as a discipline is more vulnerable to this effect than our friends, the Asset Managers, because of Generally Accepted Accounting Principles, or GAAP. GAAP is a rather precise codex, since, among other things, it serves as the basis for how governments collect taxes from corporations. Project Management, on the other hand, does not have generally-accepted anything (and for those purists who would point to the PMBOK Guide® as refutation, I would counter by pointing out how many revisions it has gone through). I’ve often asserted that you could put fifty PMs in a room, and they won’t agree on the color of an orange. With such a wide variance in what constitutes valid (let alone optimal) practices within the realm of PM, it’s small wonder that new PMO managers or teams not only have wide latitude to set up the strategies for advancing the capability within the macro-organization, it’s next to impossible to even-handedly evaluate their progress (or lack thereof) short of complete system failure. Accountants become aware that something’s amiss whenever they perform a trial balancing of the books. PMO Directors and/or their superiors won’t know if things are getting ready to fail catastrophically until a majority of the projects in the portfolio are coming in late and over budget, by which time it’s probably too late to correct.

But that’s kind of the nature of the PM beast. There are many more ways of successfully bringing in the highly varied types of projects than there are of setting up a chart of accounts in a general ledger. PM is somewhat resistant to formulaic approaches, and that’s okay. Kind of attractive, even.

[i] Retrieved from https://www.psychologytoday.com/us/blog/what-would-aristotle-do/202105/how-contradiction-can-generate-mental-disorder on October 14, 2023, 20:55 MDT.

[ii] Well-trained auditors know to never simply walk into a PMO and criticize anything and everything that doesn’t match their conception(s) of a ”properly” functioning organization.

[iii] Chesterton, G.K., The Thing (1929), retrieved from https://www.chesterton.org/taking-a-fence-down/ on October 24, 2023, 20:47 MDT.

Writing in Psychology Today, Elliot D. Cohen, Ph.D., began a piece entitled How Contradiction Can Generate Mental Disorder, with this paragraph:

The human brain is hardwired to seek consistency; when persistent, unresolved internal contradictions arise between people's everyday decisional premises, it can generate mental stress that manifests in mental dysfunction.[i]

GTIM Nation knows of my respect for Thomas Kuhn, particularly in his book The Structure of Scientific Revolutions (University of Chicago Press, 1962), in which he describes a recognizable pattern that manifests when a new scientific theory is introduced, and ends up displacing a commonly-held one. Kuhn asserts five phases, where a new “paradigm” (yes, The Structure of Scientific Revolutions was the book that introduced this term) either leads to a commonly-held structure where there was none before, or else replaces an existing paradigm.

Okay, so, stand by everybody – I’m about to combine the content of the previous two paragraphs into a potentially explosive management science assertion. It might look, well, crazy.

I believe that Project Management, as a distinct course of intellectual study, represented and currently represents a paradigm shift in the way business models are constructed. This is due to the fact that PM’s emphasis on techniques and Management Information Systems (MISs) that are dedicated towards delivering a specific customer-directed scope, within customer-directed cost and schedule parameters, is decidedly different from the more commonly-held theory that the purpose of all management is to “maximize shareholder wealth.” PM has different goals, techniques, methods, approaches, and supporting MISs from the other types of management, specifically Asset and Strategic management. To engage in a bit of hyperbole, the Asset Managers don’t concern themselves with how happy the customers are. They’ve been taught to maximize shareholder wealth and, to the extent that they have been educated to take customer satisfaction into account at all, it’s virtually always within the context of determining a Return on Investment (ROI) which, of course, gets back to maximizing shareholder wealth. Strategic Managers are focused on increasing market share. If they become convinced that spending money on an advertising campaign would yield greater increases in market share than the same amount invested in improving project performance, they will, in all probability, opt for the former.

This environment of competing visions for what constitutes a valid basis for constructing and maintaining a specific business model will quite often lead to “persistent, unresolved internal contradictions,” which, in turn, can and will “generate mental stress that manifests in mental dysfunction.”[ii] I’ll take Dr. Cohen’s assertion further, and argue that the same effect applies to the macro-organization. The organization that is pursuing a strategy that contains inherent contradictions is going to experience some level of dysfunction sooner or later, leaving itself vulnerable to its more dysfunction-free competitors.

A simple example of this can be based off of the axiom Quality, Affordability, Availability: pick any two. The executive who doesn’t understand her organization’s place in the particular market where they do business with respect to this axiom is unlikely to make decisions that maintain a high level of internal consistency, which is going to make the Team members crazy extremely frustrated. The manager who believes that his Burger King® restaurant (availability, affordability) will take away market share from a Ruth’s Chris® steakhouse (availability, quality) in the high-end restaurant market is delusional. Making the attempt would be ipso facto evidence of a business strategy rife with internal contradictions, meaning that the organization pursuing it will likely become dysfunctional. Note that I am not saying that Burger King® restaurants do not serve quality food, nor am I saying that Ruth’s Chris® steakhouses are not affordable. But I do not believe that the former can prepare a steak the way the latter does (even if it was on the menu), nor do I expect their menu prices to be even remotely similar.

Eateries make for clear examples, but the same effect is everywhere business is conducted. Without a clear understanding of the organization’s place within a given market, self-contradicting guidance in business model construction is virtually automatic. Which brings us back to our friends, the accountants. Because their point of view is the most common predicate for building these business models, and their approach is distinctly different from PM’s, the talent that makes up the Project Management Office is highly likely to have to perform their advances in a sea of internal contradictions in the overarching business strategy most of the macro-organizations have adopted. In other words, I believe that yes, we PM-types are being driven crazy frustrated by our organizations, and it’s largely the Asset Managers’ business/worldview at fault.

Next, I’ll begin experiments to ascertain if aluminum foil hats thwart the Asset Managers’ intrusive brainwaves. I’ll keep GTIM Nation posted.

[i] Retrieved from https://www.psychologytoday.com/us/blog/what-would-aristotle-do/202105/how-contradiction-can-generate-mental-disorder on October 14, 2023, 20:55 MDT.

[ii] Ibid.

I have to admit up front that I don’t care for the music of American pop music group REO Speedwagon. I either change the radio channel or turn it off altogether whenever their songs are aired.  Their lead vocalist sounds like he’s singing through his nose, the guitarist’s solos are uninspired, but perhaps their most off-putting characteristic is that their lyrics lack internal consistency in the message. Exhibit A in the inconsistent-lyrics charge has to be the song Take It On The Run, from the album Hi Fidelity (1980). The song’s narrator keeps bouncing back and forth between providing evidence for his girlfriend’s infidelity, and claiming that he doesn’t believe that she’s being unfaithful. Check out the back-and-forth as shown in Table 1.

I could go on (and often do), but you see my point. The remaining lyrics show another three reversals, bringing the grand total by my count to ten internal contradictions in a little over four-minute song.

Meanwhile, Back In The Risk And Resilience World…

I happened across an interesting post on the Express Analytics website when I did an internet search on the question “can risk management predict the future?” The article, entitled “Everything You Need To Know About Risk Prediction Models,”[ii] made several interesting assertions, but I kept being reminded of Take It On The Run for some reason, when it struck me: the author keeps contradicting him/herself when it comes to risk management’s (no initial caps) ability to actually predict the future. Before I get specific, a little clarification on terms. If I predict something is going to happen, it means exactly that: I’m stating that something that has not occurred will occur. If I state a probability of something happening in the future, I’m not predicting anything. As an example, if I state that a (fair) coin flip will result in heads, I’m making a prediction. If I state that the odds of a fair coin flip being heads is 50%, I’m not predicting anything, I’m revealing the results of a calculation. With that in mind, let’s take a look at some quotes from the above-referenced article.

I don’t mean to pick on this particular article. It is, in fact, highly consistent with most of the other literature on the subject. By using the terms “predict” and “calculate risks” interchangeably, the risk management (no initial caps) aficionados can switch back and forth between kind-of asserting that risk management techniques can predict the future, and then stating that they are merely calculating the odds of a future event occurring. It’s this very back-and-forth type of thematic variance that points to the vacuousness of the risk manager’s (no initial caps) theoretical foundations.

Put another way, if your specialty is displaying all the thematic consistency of an REO Speedwagon song, it’s probably time to reevaluate your underlying codex.

 

[i] Retrieved from https://www.musixmatch.com/lyrics/REO-Speedwagon/Take-It-on-the-Run on October 10, 2023, 20:07 MDT.

[ii] Retrieved from https://www.expressanalytics.com/blog/everything-you-need-to-know-about-risk-prediction-models/ on October 9, 2023, 18:57 MDT.

[iii] Ibid, for each quote.

I can assure GTIM Nation that I am not bribing Cameron to set monthly ProjectManagement.com themes to areas where I get to get up on my favorite soap boxes, even though the current theme of risk (no initial caps) and Resilience would seem to argue to the contrary. Back when I was writing the Variance Threshold column for PMNetwork magazine, I created something of a PM firestorm in 2007 with a piece entitled “PMBOK, Shmimbok”, where I walked through the (then-) sections of the PMBOK Guide®, and commented on whether or not I thought they should be included. After arguing for the inclusion of Scope, Cost, and Schedule, I (ironically) also supported the risk management (no initial caps) section, on the grounds that the risk events were being quantified in terms of cost or schedule impact on the baseline. And that’s when the fireworks started.

Some risk management specialists took extreme umbrage with my failing to identify “opportunity” as a “type” of risk, and asserting that it could be managed similarly. One or two of them sent emails to PMI® demanding my firing. My response to them was to point out that when looking up the word “risk,” out of Webster’s Third International, the Oxford English Dictionary, and even Wikipedia, none of them included the word “opportunity” in their definitions. It was at that point that I began to realize that risk management’s theoretical underpinnings were far weaker than I had previously perceived, and I started to perform some thought experiments using commonly-used risk analysis techniques on historical events. My favorite was the sinking of the Titanic.

Consider that, had a modern-day risk manager with no knowledge of Titanic’s fate been asked to calculate the odds, prior to embarking, that she would strike an iceberg and sink, the result would have almost certainly been miniscule. The North Atlantic is very big. The iceberg that sank the Titanic was not. And, even if such a risk manager were to calculate the odds of striking a 200-to-400-foot wide obstacle[i] in the middle of the 16,000,000 square-mile North Atlantic, the ship’s ability to navigate around mid-ocean obstacles would have reduced even that number to almost nothing, and doubtless too small to raise concerns.

So here is where we get into some really interesting risk management word play. The calculated odds of Titanic hitting an iceberg and sinking prior to her leaving Queenstown would have been extremely remote. Once she had hit, and four of her watertight sections began flooding, the “odds” would have moved all the way to 1.00, or certainty. Of course, the odds all along were 1.00, since that is what actually happened, but there would have been no reasonable way for our intrepid risk manager to have known that prior to the great ship leaving Ireland. Now let’s suppose our risk manager had near complete knowledge of all of the relevant parameters, including the existence of the iceberg, its course and speed (uneven as it must have been), Titanic’s precise location at every point along the trip, the lack of binoculars for the lookouts, the data on her poor turning behavior and inability to withstand damage to more than four watertight compartments before being doomed, the precise reactions and behaviors of the crew, etc., etc., all prior to her leaving Queenstown. With such knowledge, it may have been possible to calculate the odds of the disaster unfolding as it did to the point of over 50%, informing a life-saving decision to change course and/or slow down prior to 11:35 p.m. on April 14. Let’s theorize a data scale, with the information available in the real world (that resulted in the decisions that led to the sinking) on one end, and the information that would have had to have been available in order to push the probability meter over 50%, and point to the need for different decisions on the other. Clearly that level of accessible knowledge is impossible to attain, in 1912, today, and tomorrow. What can be known today, tomorrow, and in 1912 is that the inclusion of water-tight decks atop the watertight bulkheads would have made the Titanic more robust, and perfectly capable of surviving the iceberg strike that doomed her.

So, given the choice between heeding the advice of the risk managers (no initial caps) with their odds-of-occurrence assertions, and the insights of the more-robust-design crowd, it’s not a matter of “risk and resilience,” but risk OR resilience.

I know which set I would listen to.

[i] The estimated size of the iceberg that Titanic hit, retrieved from https://www.grunge.com/825199/does-history-reveal-how-big-the-titanics-iceberg-was/ on September 22, 2023, 18:36 MDT.

In the Artificial Intelligence (AI) crowd’s attempts at portraying it as performing similarly to the ways humans manifest intelligence, the ability to discover meaning is probably going to be the last aspect acquired by AI. But there’s a parallel in current PM initiatives, having to do with which information streams are essential, which are nice to have, and which are completely useless. In this respect, let’s compare and contrast the computer’s quest to discover meaning with the PM’s efforts to get a straight answer to questions like “This risk register helps me … exactly how?”

Hatfield’s Incontrovertible Rule of Management #22 reads:

All useful management information has the following three characteristics:

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

The first two bullets can be objectively measured, but not the third. But the absence of a readily articulatable litmus test for which PM-oriented information streams are relevant and which are not has created a loophole in the PM codex large enough to drive a $28 Billion[i] (USD) clown car through. While not a complete test in and of itself, I think one excellent question which can help ascertain which is which would be: “Is this information actionable?” In other words, does the subject information stream provide the basis for making a decision about a particular strategy, its timing or implementation, or help with the selection of an optimal technical approach from among several options?

Let’s pivot to AI for a moment. Most people have seen some form of AI-generated art. Some of it is compelling, some of it is just creepy. What I believe is critical to keep in mind when it comes to AI-generated art is that no computer knows what color is, at least not the way humans do. When a computer generates a graphical image, it’s not selecting a color off of a pallet. It’s assigning the binary code sequence of what we humans perceive as color, and places it in a pixel that occupies a specific coordinate in an X-Y array. Depending on the extent that the program it’s running allows for guided (or even random) variance in color selection and placement, the results can be derivatives of already existing works, completely random, or anywhere in-between. If the outcome is attractive, it’s considered an AI success. If not, well, it’s usually relegated to the let’s-not-do-that-again bin, and a new iteration is initiated.

Meanwhile, Back In The Project Management World…

There are lots of analysts laying claim to the term “data scientist,” and many of them are swimming around in the PM world. But the litmus test for which information streams are relevant in that PM world and which are not has to be very different from the test for which AI-generated pieces of art are attractive, and which are not. Art is subjective – the relevance of PM information streams, well, (ahem) it is also subjective, but it shouldn’t be. The act of collecting data, using some methodology to convert it into usable information, and presenting that information in a way that decision-makers can make use of it isn’t usually cheap, or easy, at least not for the timely, accurate, and relevant stuff. The Director of a start-up PMO who spends her money and time developing a robust Quality Assurance capability, complete with fishbone diagrams and five-whys questionnaires, will be almost certainly out-performed by the one who uses a limited budget to create an Earned Value-based cost and schedule performance measurement system that can be actually implemented across the portfolio. Placement of the competing PM-oriented information streams within the scale between the extremes of completely superfluous and essential-for-PMO-success may be the most important strategy decision of PMOs everywhere.

Which all leads us back to the role of AI within PM. Can Artificial Intelligence aid in identifying which PM-oriented Management Information Systems (MISs) are relevant, and which are not? Well, yes, but only in the same sense that they can create works of art. Since AI can only “learn” through trial-and-error, there’s really no way for it to ascertain which information streams produce irrelevant output, much like it really has no way to “know” when its artwork is just plain creepy, unless a human sets it straight, and modifies the parameters of the simulation(s). Sure, AI could utilize Bayes’ Theorem to try and determine the strength of the connection between projects that have set up, say, a robust Communications Management protocol, and the subsequent successes of those projects, but assigning the values for the prior probability and the marginal probability would almost certainly be wild estimates.

In short, I’m fairly confident that the debate over which PM information streams are relevant and which are superfluous will not be settled any time soon. And AI can’t help here, either.

[i] According to Allied Market Research, this is the size of the risk management (no initial caps) industry forecast for 2027. Retrieved from https://www.alliedmarketresearch.com/risk-management-software-market on September 16, 2023, 20:17 MDT.