Game Theory in Management

Aristotle’s “ingredients for persuasion,” or “appeals,” the basis for creating an argument, were as follows:

• Pathos, from where we get the modern term “pathetic,” is an appeal to feeling, or emotion. The tip-off: use of the term “I feel,” particularly “I feel very strongly about this…” Pathos is not considered a valid argument.
• Ethos is an appeal to a person’s level of expertise or authority, either the speaker or some other individual. It’s not necessarily a poor type of argument; but, as we will see, it does have its pratfalls. And it is most certainly not…
• Logos, where we get the current term “logic,” is an appeal to verifiable facts and structured arguments, and is the foundation for the scientific method. The verifiable facts are observable and repeatable in an experimental setting (or, at the very least, agreed to by all participants in the debate), and become premises. Conclusions follow from the premises based on structures that can be verified as valid, such as:
  • All As are Bs.
  • No Bs are Cs.
  • Therefore, no As can be Cs.

Valid conclusions can then become premises in more advanced or complex logical arguments.

Where have we heard this before?

My regular readers are well aware by now that one of my recurring themes is the hazards being introduced into the project management community by what I perceive is a move away from management science based upon, well, actual science, and towards hypotheses predicated more on traditional business theories, on the opinions of those either in academia or PM practitioners. Such ideas are based on ethos, and not pathos. These practitioners may or may not have a valid understanding of basic causality, much less the precise reasons behind their projects’ successes or failures. Look at the presentation schedule of a typical Earned Value Management System seminar, and you will see a cavalcade of talks and paper presentations that are little more than kabuki theater versions of ethos-derived stories of how such-and-such a project was successful due to the team’s observance of traditional PM business theory, or else presentations with a content that could have been written 30 years ago. There’s rarely anything new in the way of datum or research proffered.

I was once involved in an effort to create a guidance document on a certain aspect of cost performance measurement, and one of the other contributors tried to insist that his ideas should be considered preeminent because he had done some PM-related work outside of North America, and should, therefore, be considered an “internationally recognized expert.” I swear I am not making this up. No new research he had conducted, no possible technical challenge to existing theory, none of that. He had his passport stamped, so the rest of us were supposed to shut up and put him in charge, I suppose. It represented the most blatant example of self-importance-driven PM hypotheses advancement that I had ever observed; sadly, it wouldn’t be the last.

About that superfluous complexity…

Two weeks ago I blogged about invalid theories being advanced from traditional, academic sources, predicated on the asset managers’ take on the world of business. Last week I complained about invalid theories being advocated by people calling themselves project management experts. What do these drivers of needless complexity have in common? Their appeal, not to facts and logic, but to their authors’ own level of expertise, however artificially derived that level may be.

When David Christensen and Scott R. Heise published their findings about Cost Performance Index stability,[i] they drew their conclusions from data gleaned from hundreds of projects. Now, that’s real management science. Quick – when was the last time you heard a communications expert, while insisting on the “engagement of stakeholders,” appeal to any real data? Or even a citation of the number of successful projects that did so, as compared to unsuccessful ones that did not, while even making a token attempt at controlling for the dependent variables? (Can a level or degree of “stakeholder engagement” even be objectively measured?) I never have. Not once. Nor have I ever heard or read any similar attempt by risk management experts as they insist that all PMs include a robust risk management program, or those who demand “bottoms-up” Estimates at Completion, or of a dozen other PM-flavored hypotheses being pushed by these so-called experts. They never seem to base these ideas on facts or logic; rather, they assert these appeal-to-authority ideas, and then pretend that anyone who opposes them or their ideas is some kind of rube. Since these hypotheses are not logically derived, the opportunities for them to be inconsistent (or even contradictory) lead directly to added levels of superfluous complexity within the commonly-held body of PM knowledge.

And, just to be clear, this is not how any science (particularly management science) is advanced.

It’s how snake oil is sold.

[i] Christensen, David, and Heise, Scott R., Cost Performance Index Stability,  National Contract Management Journal, 1992.

In last week’s blog I discussed the phenomenon of the codex of commonly-accepted management theories being, well, wrong in several of their assertions, and of the outright impossibility of getting those theories’ adherents to see their error. Frustrating, isn’t it? I mean, these so-called experts in business and management theory can be shown instance after instance of real-world contradictions to their theories, and they just won’t budge. If you happen to be in one of these “expert’s” classes, and you, as a PM-type, provide such evidence, they won’t listen to you – they’ll just flunk you. If this “expert” is a colleague, and you happen to be sitting across from him in the board room when a particular point of managerial technical approach comes up that absolutely should not be performed their way, and you say so, they will attack your intelligence, credibility – heck, even your character.

Wouldn’t it be so much better if those calcified hacks had just a modicum of the flexibility that we PM-types exhibit on a regular basis?

Hey! Who’s That In The Mirror?

Well, brace yourselves dear readers – the other reason (from last week’s blog) that PM is so difficult is because of what we do to ourselves in accepting uncritically (or even perpetuating) our own version of flawed management science hypotheses.

Probably the most pernicious recent addition to the cavalcade of these PM hypotheses is the push to align the basis of estimate’s (BoE’s) line items with their equivalent entries in the general ledger. It’s a commonly-known axiom among real Earned Value specialists that comparing budgets to actual costs is meaningless, and doing so at a greater level of detail is not only just as meaningless, it takes a lot more time and effort to accomplish.

Can I prove it’s meaningless? Absotutely.

Consider a project that was originally estimated at $100,000 (USD), with the split of $75K in labor, $25K in equipment. When the project is completed, it actually spent $25K in labor, and $70K in equipment. A properly-functioning Earned Value system would have indicated the project’s mild positive performance throughout, but the “management information system” that tracked the original estimate against the actual costs on a line-item by line-item basis would have been throwing up red flags all over the place, despite the fact that the project came in under budget!

Comparing budgets to actuals doesn’t generate a Cost Variance – that’s done only by comparing Earned Value to Actual Costs. It creates a spend variance, which is truly irrelevant information. But the guidance-issuing entities that insist on this kind of “analysis,” which results in no usable information whatsoever, have also pushed the notion that too many start-to-start relationships in a Critical Path schedule network will allegedly hide true performance issues. I swear I am not making this up. These guidance-issuing entities will insist on the generation of provably invalid data streams, and then turn right around and impugn the integrity of a valid one if it shows a singularly irrelevant characteristic. Does this seem right?

Irrelevancies! Irrelevancies Everywhere!
And don’t even get me started on the time-phased estimate to complete (ETC).

Or the bottoms-up estimate at completion (EAC).

Or the so-called 80% confidence interval on cost or schedule baselines.

But it must be noted that we PM practitioners are doing these things to ourselves. These guidance-generating organizations are churning out this stuff under the auspices of advancing project management, and they are doing so through means that would never pass muster with true peer-reviewed PM evaluation venues, such as The Project Management Journal.

However, in order to assure that I don’t turn in to one of these calcified hacks, I would like to invite my readers to send me any instance of where comparing budgets to actuals was (a) relevant, and (b) more so due to being done on a line-item basis. Fair warning – please include specific assertions, and assemble them into a valid, logical argument.

Otherwise, my frustrations with the abandonment of valid management science scholarly research will soon turn me into a calcified hack.

In last week’s blog, I made the point that project management concepts aren’t that complex, and offered up some examples. I was halfway expecting some push-back from readers/commenters, but that didn’t happen. The comments (as you can see) were very positive, despite that fact that I just got done asserting that we PM-types’ jobs aren’t that advanced. Doesn’t that imply that almost anyone could do our jobs?

Life Is Tough. It’s Tougher If You’re…

Well, no, actually. The project management field is often referred to as “the accidental profession,” and lots of bad things (including death) can come from being on the receiving end of an accident. Done right, it’s tough – hence the obscene percentages of projects (particularly IT ones) that fail to come in on-time, on-budget. So, if it’s not complex, but still tough while not being (necessarily) dangerous, what makes it that way?

Well, a couple of things pop to mind right away. The first one is that we PM-types are attempting to overcome centuries (literally) of management science theoretical barriers. In this blog I have often mocked the closely-held concept of the accountants, and other business-college grads, that the point of all management is to “maximize shareholder wealth.” This single phrase is preached so often and prevalently in business schools that it’s considered axiomatic.

For those who have only recently started reading Game Theory in Management, the problem with that idea is, it’s false. And I can prove it.

Consider the hostile takeover. This occurs when one company attempts to buy up a controlling share of a competitor’s organization, with the end-goal in mind of selling off its assets and driving the target out of business. Several things to keep in mind include:

• Whenever this happens, the targeted company’s stock usually spikes in price. By definition, this represents the maximizing of shareholder wealth.
• Conversely, the acquiring company will usually take a hit on their books, either via a drop in equity or through a reduction in the assets needed to perform the takeover. By definition, this is contrary to maximizing shareholder wealth.
• Also, once the hostile takeover is successful, the sell-off of the assets of the targeted company virtually never compensates for the expenditures needed to perform the acquisition in the first place. Again, the acquiring organization is doing the precise opposite of maximizing shareholder wealth.
• Companies that become aware that they are the target of a hostile takeover will often use the tactic of taking out high-percentage loans in order to increase their liabilities (taking a “poison pill”). They do this in order to deliberately damage the assets-to-liabilities/equity ratio, which makes them a less attractive target.

The inevitable conclusion here is that, if the “maximize shareholder wealth” thing is legit, then no organization would ever attempt a hostile takeover, and no targeted organization would ever resist it. Instead, what we see over and over again is managerial behavior that is utterly inconsistent with this oh-so-sacrosanct theory.

And, in the world of management science, if your theory is being disproved by corporate behavior on a consistent basis, you might want to at least re-examine said theory, if not abandon it altogether.

Also, you business school professors absolutely need to stop teaching that drivel.

The Business School Professors Will Not Take Kindly To Being Accused Of Being So Wrong

There are many other examples (return on investment [ROI] being the ultimate arbiter of project worthiness; comparing budgets to actuals to ascertain “cost performance”; using spend rates to project estimates at completion [EAC], to name but a few), but you see my point. The asset managers have ruled the management science roost for so long, and many of their clearly backward concepts have become so entrenched, that when those upstart PM-types come along, claiming some level of business insight in the pursuit of customer-stipulated parameters of cost and schedule performance, the asset managers’ reflex reaction is to ridicule or downplay the project management aficionados’ positions.  We PM-types can’t advance our agenda because we are, in a true management science sense, rebels, positing theories contrary to the status quo, and receiving the punishments for daring to question the asset managers’ so-called intellectual authority. I simply cringe when I see some study proposing to establish the value of the project management office (PMO) based on a calculation of its return on investment! We may as well offer a scholarly research project on the value of surrendering prior to the start of the battle, to see what kind of terms we can extract from the quacks who believe they occupy the high ground.

As for the second issue that makes PM so difficult, it’s …

Look at that! Out of space again. Tune in next week, for I Said It Wasn’t Complicated, I Didn’t Say It Was Easy, Part II.

My take on ProjectManagement.com’s May theme of complexity is this: project management isn’t that complex. It’s kind of the dirty little secret amongst practitioners, but it is undeniably so.

Now, that’s not to say that the projects themselves can’t be complex. They are often obscenely so. They can involve advanced technology, never-before-seen architecture, ruthlessly dynamic environs and conditions, both natural and political, and even (especially?) labyrinthine personalities and organizational structures.

But Project Management, itself, as a discipline? Not so much.

“Are You Insane? What About…”

Take a look at the basics. Developing a Work Breakdown Structure is pretty simple. Everyone knows it’s a basic hierarchical decomposition of the project’s scope. Without fail, every single time I have seen a WBS become overly complex, it’s due to somebody shoe-horning in an element that’s not a piece of scope, usually an organizational breakdown structure (OBS) element, or a functional breakdown structure element. There’s actually a simple (get it?) test to determine if a WBS element is valid: at some point after that particular element has started work, is the question “What percent complete are you?” a legitimate one, or a dopey one? If it’s a legitimate question, you’re probably looking at a piece of work. If it’s dopey, the element probably isn’t scope. Just to reiterate – in those circumstances where a WBS is needlessly complex, it’s because somebody is doing it wrong.

“Look you here, Michael” I can hear my UK readers objecting, “the WBS is one thing – what about Earned Value Management Systems?” My response is the same: if it’s coming across as complex, it’s being done wrong.

I’ve long maintained that every PM “does” Earned Value, whether they realize it or not, and here’s the proof. If you are a PM, and your accountant comes to you and says “you’ve spent half of your budget,” what’s the first thing that pops into your mind? Isn’t it “am I half-done?” And, guess what, you’ve just performed a rudimentary EV analysis. It really is that simple. Sure, you can have a much more finely parsed project, but you’re doing the same analysis every time your accountant tells you what percentage of the budget you’ve spent/have left. If you have accomplished more than you’ve spent, you’re in great shape, and not so much if you haven’t. Oh, the actual EV reports are usually way more detailed, but that’s not the same as being more complex. The principal is rather simple, even while the resulting information can be very powerful.

“Aha! What About Critical Path?!”

Again, if it’s coming across as complex, it’s being done wrong. All Critical Path Methodology (CPM) scheduling is about is putting your subtasks in order of what has to finish before other subtasks can start. But there’s something about stating something as obvious as “you can’t start the roof before the foundation is done” as representing schedule logic (ooooh!) that makes it sound sophisticated. Again, the ordering of tasks can be more refined and detailed, and the resulting analysis results is a very powerful information stream, but to say that the concept of CPM is, itself, complex is to say more than I know. If it is overly complex, it’s invariably because the ordering of the tasks is suspect, or somebody is doing it wrong (like putting an OBS element into the WBS, maybe?).

Unconvinced? Consider the following scenario: a construction PM is meeting with her team leads, plus an additional guest: a CPM auditor.

PM: Okay, John, you and Pat can start at the same time. You too, Chris and Jake.

Auditor: You are exceeding the recommended number of start-to-start relationships in your schedule, and you can’t do that.

PM: Why not?

Auditor: Because it might distort schedule performance reporting.

PM: There won’t be anything to report if these people don’t start performing.

Auditor: Why do they have to start at the same time? Why can’t one follow the other?

PM: If they can start at the same time, why should they wait?

Auditor: Because someone speculated that too many start-to-start relationships might distort schedule performance reporting, and made a rule out of that speculation.

(Absolute silence, as everyone in the room stares at the auditor. After a couple of seconds, somebody’s pocketed smart phone emits a ring tone that, coincidentally, is modeled after the theme from the 1960s television show F Troop.)

Of course I am aware that many (if not most) of the people reading this blog are in the professions associated with Project Management, and may be misinterpreting my point here. I will clarify these points in my next post, I Said It Wasn’t Complex, I Didn’t Say It Was Easy.

Most fictional stories, plays, and movies use conflict to advance their plots. However, movies are particularly dependent on conflict expressed as physical violence to attract audiences, and these incidents of silver screen violence are usually performed by characters who are supposed to be experts in their particular martial specialty. Bruce Lee, Jean-Claude Van Damme, and Chuck Norris are just a few of the martial arts specialists whose fighting exploits have represented significant parts of popular movies. I think, though, that it’s fairly easy to forget that what we are witnessing when we see martial arts experts engaged in violent conflict on-screen is not actually a violent conflict. It is, in fact, an acted-out representation of a violent conflict. When Darth Vader extends his hand towards an unfortunate Imperial Officer with his thumb and forefinger about one inch apart , that “officer” can, in reality, still breathe, his gasping and croaking notwithstanding.  When Bruce Lee took on multiple opponents in his movies, he didn’t win because of his superior training, because he was in better physical condition, or because of his characters’ inherent virtue or the goodness of his cause. He won because the script said he was going to win.

Meanwhile, back in the world of Project Management, we’re always grounded in reality, right? I mean, if a project out-performs its scope, cost, and schedule baselines, that’s ipso facto evidence of a superior project team, yes? Conversely, when a project fails to meet its objectives within the constraints of cost and schedule targets, that project team performed, shall we say, sub-optimally, and everyone knows it, amirite?

Well, not so fast.

Projects’ cost and schedule performance measurement systems perform two functions:

• Put into the hands of the project’s (or organization’s) decision-makers the information they need to make the best choices, and
• Provide supporting evidence for the creation of an audit trail, a narrative about how the project came about, was executed, and encountered the results that it did.

It’s this second function that tends to create mucho problemas, and where the work of consultants gets pulled back into the conversation. Few “analysis” techniques are easier than going through the records of a failed project, and pointing an accusatory finger at those whose decisions led to the project’s difficulties – unless, of course, the narrative has been manipulated to deflect blame from the real perps and towards either vague, inchoate sources, or (worse) against the innocent members of the project team.

So, how does this narrative get manipulated? Sadly, there are many opportunities to do so, as indicated in Table 1.

Table 1. Some Of The Ways Charlatans Change The Narrative

It’s as if you have a room full of script writers, all with their own hidden agenda, pretending to want to legitimately contribute, while they provide inconsistent (or even conttradictory) dialogue for the same film. And – wouldn’t you just know it? – the narrative never seems to reach a conclusion on precisely who provides such dopey project management as to be avoided in future major contract awards.

In my last blog, I showed how the utilization of fear as a motivation tactic has only limited effectiveness. But I will say this for the Galactic Empire: they do have a way of keeping profoundly inept players from returning to the game.