Game Theory in Management

At a presentation I attended as a newly-minted staff member of a now-defunct major beltway bandit, the Vice President on the stage put up a chart I will never forget. It was a line graph, with the line starting high on the Y axis with a slight downward slope, until it got to about midway on the X axis, where it fell to below dramatically. This line, he explained, was the time-phased budget across all active projects, with the fall-off point at around the six month point on the X axis. What it was showing was a rather unsettling truth: if the corporation were to stop bringing in new projects tomorrow, most of us would be getting laid off in around six months.

With a brand-new wife and first mortgage, I was highly disinclined to be laid off for want of new work, so this VP had my full attention. In order to avoid this fate, he continued, it was incumbent on every single member of the staff to put considerable effort into proposing and winning new projects. Oh, and since I was now salaried, this extra effort was expected to be offered freely, nights and weekends. This last part wasn’t articulated aloud – it didn’t have to be. The corporate culture was so focused on winning new project work that technical or administrative excellence became almost an afterthought. In my view, there were essentially two classes of personnel in this organization: Group A were adept at writing winning proposals, and were golden; Group B were second-class citizens, whose employment could come to an end at any time, depending on how they were perceived by members of Group A.

Predictably enough, the corporation thrived, but its employees (especially those in Group B) were rather anxious, generally speaking. But this dichotomy did present an interesting take on the optimal business model in a heavily Project-driven organization. Consider the following payoff grid:

Let’s deal with Scenarios A2 and B1 right away. If the Project comes in on-time, on-budget (or even early and under-budget), AND attracts more work, either from the existing customer in terms of add-on tasks to the existing contract, or even a new contract, then there’s no question such a PM would be considered a success. Similarly, if the PM crashes and burns in actual contract performance, and the customer doesn’t want anything more to do with them, then that PM would be largely considered a failure. Where this payoff grid gets interesting is in the other two Scenarios.

I have often maintained that the whole point of developing a more robust PM capability is to increase the chances that the Project comes in on-time, on-budget, but the above payoff grid challenges that notion. For if, as in Scenario A1, the Project is actually completed successfully, but there’s no follow-on work, either from that specific customer or another within the same industry, what happens then? Well, the members of the Project Team would have to move to other work within the organization, charge their time to an overhead account for a (presumably) limited amount of time, or … get laid off.

Now consider Scenario B2, where the Project comes in late, overrun (maybe both), but, somehow, the PM secures more work in the same or an adjacent field. If the new work has a similar Budget at Completion (BAC) to the just-failed Project, then nobody has to be let go, the Project Team has a shot at getting it right this time, and the corporate higher-ups are happy. My previous definition of a “successful” PM notwithstanding, how could the PM in Scenario B2 be considered a failure? I had a friend and associate who was an exceptional PM, but rarely brought his Projects in on-time, on-budget. How could such a one be considered exceptional, GTIM Nation may ask? It’s because he would be brought in to Projects that were already in deep trouble in cost/schedule space, and would find a way to complete them with only mild negative variances. Essentially, he had a real talent for turning portfolio-cratering disasters into annoyances, and, for this, I consider him one of the best PMs I’ve ever known.

While performing well in cost/schedule space certainly makes it easier to bring in more work over the long term (particularly from the same customer), the key takeaway from the above payoff grid appears to be that the ultimate metric of PM success is keeping the Project work coming in the company’s front door, essentially handing the Strategic Managers (who chase market share) the tools they need for success. Ah, but if that’s the case, I’m happy to let the Strategic Managers have at it, and the answer to the question in the title would be “no.” We PMs did our part by coming in on-time, on-budget. And, if I’m needed to help the Strategic Managers win more work, well, I don’t work for free, evenings and weekends.

Any more.

In last week’s blog, I started with a quote from Eric Hoffer, specifically “Every great cause begins as a movement, becomes a business, and eventually degenerates into a racket.” I went on to discuss how this quote could be paraphrased into something more management-science-y, as in all great businesses start with a grand idea, or discovery, or insight into making a superior business model, etc., then moves into a phase where our friends, the Asset Managers, monetize everything, and then on to a phase where much of the original fire has left the macro organization, and instead it performs like it’s just there to keep existing. Working from that foundation, I want to bring in some Project Management theory, specifically in regards to the question: what’s happening to our subject organization’s business model this whole time? Does its evolution have anything to do with that long-time nemesis of the PMO, the organization’s reluctance to change in general, or accept basic PM precepts in particular?

First, consider how informed decisions are made in medium-to-large organizations. Sometimes you’ll see utter geniuses (or those who think of themselves that way) making virtually all of their choices based on their reflexes, gut feelings, prior experiences, or some combination thereof. Mostly, though, upper-level management will depend on information, whether from direct observation, members of the staff preparing and presenting it, or computer-based information streams. Of that last category, it’s likely that the main component of the diverse Management Information stream is the General Ledger – after all, the point of “all” management is to “maximize shareholder wealth,” right? So, even if the organization’s founder(s) is still passionately pursuing the original vision, by the time the movement turns into a business, and everything’s getting monetized, then the General Ledger, almost definitionally, must be the main source of management information. This being the case, the Chief Financial Officer (CFO) is likely to attain near Oracle-at-Delphi status, being the source and residence of most of the relevant data needed to make informed decisions.

Now, imagine the poor person who’s been assigned the PMO Director position. Reduced to its very core, what is this person’s message? Isn’t it that, if given just a bit of budget and organizational leverage, she can deliver an information stream, outside of the General Ledger, that nevertheless informs decisions on the optimal use of resources in pursuit of accomplishing scope? Just to be clear, this is in stark contrast to the Asset Managers’ message, which can be reduced to “this is how we can make money in the performance of scope realization.” In other words, the central question driving the development of the business model is either “How do we optimize resource allocation to make our customers happy?” or else “How do we squeeze maximum profits from customers, happy or otherwise?”

It's not a trivial distinction. It is, in fact, the determiner of how the business model changes as the organization matures, either consciously or accidentally. For if the pursuit of scope becomes the priority, then those who had been previously approaching Oracle-at-Delphi status when it comes to delivering actionable management information will experience a reduction in their utility and, therefore, prestige and organizational standing. From the Asset Managers’ point of view, those PM-types delivering the occasional insight that helps make a better decision now and again is okay, but the primary basis of the really key choices involving actual currency should be predicated on Generally Accepted Accounting Principles (GAAP). To believe otherwise is to directly challenge their most basic precept, that the point of all management is to “maximize shareholder wealth.” It’s in the very nature of the changing business model to resist significant incursions from newly-established PMOs, particularly in portfolio-level cost and schedule performance analysis – probably the most valuable contribution that a PMO has to offer.

Keep in mind all of this pertains to the organization that’s moving from the “movement” phase into the “business” phase. In the management world, organizations only stay alive as long as they make a profit. By the time the organization is moving from “business” to “racket,” the monetize-everything approach has so dominated the business model that it’s becoming more and more unlikely that any attempt at returning to a customer-focused approach – the very essence of PM – will succeed. The business model has become so ossified as to approach near-granite density. The frustrated PMO Director may come away believing that his efforts have been thwarted by a widespread reluctance to change, but it may easily have been due to a hardened business model, made so by a predictable process, entirely consistent with theories being taught in business schools across the land to this day.

So, to the newly-hired PMO Director, I would say this: Does it feel like bringing changes to your organization is like drilling through granite? There’s a reason for that.

“Every great cause begins as a movement, becomes a business, and eventually degenerates into a racket.”

― Eric Hoffer, The Temper of Our Time

I am going to be so bold as to attempt to convert the above quote from Eric Hoffer to something more applicable to the Management Sciences in general, and PM in particular. I think Hoffer brilliantly laid out the typical life cycle of how ideas gain wide acceptance, are then monetized as they are advanced, and ultimately end up within the domain of an organization that has lost sight of its original underlying vision, and instead directs its energies only to keeping itself in existence. This nominal life cycle structure is rather similar to those laid out by some of the giants of Management Science literature, who have theorized that, absent some form of re-invention of itself, corporations will also tend to follow the template of (1) the invention or discovery of a new technology, business model, manufacturing technique, et.al., (2) the monetization of #1, (3) attempts to overcome competition within a given market, (4) a steady decline in said market share,  until a competitor or newcomer enters Step 1, and either acquires the organization, or drives it out of business.

Next, I want to shine a light on Hatfield’s Incontrovertible Rule of Management #7, that Project, Asset, and Strategic Management are different by type, with different goals, different techniques to achieve those goals, and different Management Information Systems used to execute those techniques. I’m struck by how neatly Rule #7 aligns with Hoffer’s three brackets, so:

• Project Management is all about pursuing Scope, right? Well, what is Scope? Is it not the articulation of a goal, an objective, an idea, or, dare I say, a movement?
• Asset Management’s prime axiom, oft criticized in this blog, is that the point of all management is to maximize shareholder wealth. In my opinion, this is simply an exaggeratedly blinkered way of saying that everything must be monetized, to its maximize capacity, and that this monetization is the primal essence and end-goal of all of the management sciences.
• By the time we’re approaching “racket” status, the organization would have had to have attained significant market share—otherwise, customers wouldn’t stand for a deterioration of the quality, affordability, or availability of its goods and services, and the organization would quickly cease to exist.

Put graphically, this alignment would look like this:

I believe that there’s an organizational behavior and performance component to this, and to illustrate it I want to invoke the Maccoby Archetypes (Craftsman, Company Man, Jungle Fighter, and Gamesman). I think that, if one were to want to measure a given organization’s pace of moving from great cause/movement to business to racket, an excellent way would be to note the number of employees that fall within the Maccoby Archetypes. In the Great Cause/Movement phase, it’s clear that the risk-taking Gamesmen, teamed with the Craftsmen, would be the prime archetypes to advance these ideas. As these ideas become monetized, the organization will likely become less attractive to the Gamesmen, but more attractive to Company Men, who derive their personas from the corporate culture around them. Finally, as the business degenerates into a racket, the Craftsmen will find it more and more unpalatable, but it will become like a magnet to the Jungle Fighters. Put graphically, this alignment would look like this:

Now, not to come across as a total fanboy for PM, but remember the previous reference to organizations following this cycle, absent some form of re-invention of itself? When organizations form and maintain a Project Management Office (PMO), I think this represents an effort to slow or even reverse movement along this structure, as the organization’s energies are re-directed towards its original Great Cause/Movement/ pursuit of Scope. When this happens, I believe that the organization becomes more attractive to Gamesmen and Craftsmen, fueling a sort of symbiotic return of the organization to its original purpose, or cause. I’m reminded of perhaps the ultimate Gamesman, Steve Jobs, whose return to Apple in 1997 was largely seen as the reason Apple returned to prominence after being on the brink of bankruptcy.

So, yeah, the Asset Managers want to monetize everything (I intend to hang that whole “maximize shareholder wealth” stuff on them like a Coleridgean albatross), and the Strategic Managers are looking to maximize market share, and they certainly have their places in the boardroom. You want to return the organization to its original vision?

You’re talking Project 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.