Game Theory in Management

Last week I “ran out of space” just as I was getting ready to reveal how to get people to stop hating your PMO. As I stated, the answer comes from Game Theory. I go through the complete analysis in my must-have books Things Your PMO Is Doing Wrong and Game Theory in Management, but I’ll offer up the simplistic version(s) here.

As I pointed out last week, one of the major reasons people tend to dislike Project Management Offices is because they tend to be headed by managers who do not understand that it’s impossible to leverage organizational power to compel an advancement in a capability. Put another way, even if you are these people’s organizational superiors, you really can’t make them “do” project management. Yes, yes, I know you’ve been told you can by your superiors, and you have had individual successes previously doing just that, especially if you have been in the military. But it’s undeniably true, even though the attempts take a variety of forms.

One of the silliest such attempts involves the writing of a procedure that requires people to participate in creating baselines and providing status, and then getting the organization’s executives to sign/endorse such procedures, followed by plopping copies of the new procedures on the desks of those from whom you need participation to make your new systems work. Here’s an intellectual exercise: four weeks after the procedures hit everyone’s desks, drop by the offices unannounced, and look where the procedure is located. Ninety-nine times out of one hundred, it’s on a bookshelf, or buried beneath other documents (maybe even the quality and risk procedures, heh heh, heh). I provide more extensive analysis of tactics that don’t work in my first book, but, for now, suffice to say that you can’t compel the advancement of a capability.

Interestingly enough, the quality that’s needed for a successful implementation from the PMO team, and especially its leaders, is absolute gold, but perhaps even rarer. It’s humility.

Let’s momentarily examine the opposite quality, arrogance. Besides being highly off-putting in inter-personal relationships, arrogance also carries an opiate that prevents its carriers from being able to recognize when they have committed an error.  I have seen this time and again, where a newly-minted PMP® or CCE®, having studied hard and exerted great effort to get their certifications, automatically think they can not be wrong in asserting anything that ought to occur in project management space. I don’t mean to pick on the certification-granting organizations here – advanced degrees, being involved in large, high-profile successful projects, or even an absurdly inflated opinion of the self, all can lead to the same crippling frame of mind. And once that sets in, the PMO’s chances of success have all but evaporated. The project teams your PMO is supposedly providing a service to now perceive that you seek to be their masters, or, at the very least, highly irksome, know-it-all kibitzers, best left out of the decision-making process.

However, the humble PMO knows it exists to generate an information stream for the benefit of the decision-makers in the organization. This information stream doesn’t have to be expensive or difficult, but it does have to be accurate and timely. If the information stream thus provided is either of the former, and neither of the latter, that’s on YOU, Mr. or Mrs. PMO director, NOT on the macro organization around you.

Most writers will often begin their careers with a set of ideas they feel they need to get off of their chests. Successful writers will soon encounter a transition where, instead of expressing themselves for the cathartic value of doing so, they will seek to provide what their writers want to read. Similarly, virtually all PMOs begin life with an idea that they will be the mechanism by which the macro organization advances in its project management capability. The successful ones will quickly undergo a transformation, where they realize their contribution is maximized when they provide accurate, timely, and (most of all) relevant information streams to the organizations’ decision-makers, and do so as unobtrusively as possible. Once the organization’s decision-makers realize the benefit of having ready access to the information they need to make the best choices on a regular basis, they will also realize that they won’t be able to function at their new, higher level without the PMO’s input.

At that moment, your PMO will be loved.

In 1415, King Henry V of England was leading an army through France, attempting to reclaim the territory he believed was rightfully his, being the descendant of William of Normandy, later William the Conqueror. Henry was confronted by a much larger French army near the village of Agincourt and, on the 25^th of October, the two armies came to battle.

When an army, in this case the French, confronts a significantly smaller force, the usual path to victory is to simply envelope the smaller force, forcing them to fight in every direction with no path to retreat. However, this tactic was denied the French, since the battlefield was in a long narrow field bounded on either side by thick forest. But even this did not seem problematic to them – they could simply throw more cavalry and infantry against the English front lines and overwhelm them that way. Unfortunately, the evening before saw torrential rains on the recently-plowed field. It was a sodden, muddy mess.

The typical man-at-arms of the period wore around 80 pounds of armor, either plate or chain-mail, and mounted knights wore far more. As the French advanced the approximately 300 yards, they became exhausted from trying to move forward in the muck. As soon as they came within range of the English longbowmen, they had to endure hundreds of iron-tipped arrows which could easily punch through most of their armor. By the time the remnants arrived at the front of the English lines they were easy marks for Henry’s men-at-arms who, wielding axes and maces, easily dispatched the exhausted French. One account maintains that a 5-foot-high wall of wounded, dead, and struggling Frenchmen lay just in front of the English position. By the end of the day Henry had won an astonishing victory.

Okay, Michael, you say, what does all of this have to do with the reason I clicked on this article, after having seen the title? What does this have to do with the Chief Financial Officer having a corner office, while the PMO personnel are lucky to not have to share cubicles? Well, I’ll tell you.

Back when the precepts of modern project management theory and practice were being codified, the United States Department of Defense was getting a little tired of major programs’ overruns and delays. They created the Cost/Schedule Control System Criterion, or C/SCSC. These guidelines for setting up baselines and generating cost and schedule performance reports were somewhat stringent; but, most of all, they were required of all contractors who wanted to do significant business with the DoD. You don’t want to “do” C/SCSC? Okay, fine, we’ll just take our mega contracts to your competitors, case closed. Generally speaking, this is no longer the case, what with the advances of the so-called graded approach and all. But at this time, “doing” PM was a rock-hard, inescapable requirement for doing business, much like observing Generally Accepted Accounting Practices is now.

The august managers who head up many of the PMOs currently cut their teeth on project management information systems and techniques during this period. It never occurred to them that parts of the macro organization would either silent veto attempts to advance a project management capability, or even resist them outright, until they found themselves in charge of the PMO and saw that exact reality unfold. For many, the fallback position was to engage in eat-your-peas style hectoring, which worked about as well as you would think. Some would resort to near-begging, with little better results. Project managers who did not want to have to engage proper PM techniques no longer had to, and those who wanted things to be different became very unpopular. Like the French at Agincourt, a major condition of the conflict had changed, and changed utterly. The ensuing reverses in applied PM tools and techniques has led directly to the type of management science caste system we see now, where accountants are somehow held to be far more valuable than Earned Value or Critical Path analysts, even though (as I have complained extensively in this blog) the general ledger can’t provide near the amount or quality of management information needed for an organization’s decision-makers that they claim. No, the answer to all of this, interestingly enough, comes from game theory, and is…

Oops! Out of space again. I will address the most appropriate technical approach to advancing the PMO’s mission in my next blog, assuming no accountants equipped with longbows get to me first.

Identifying and articulating the most appropriate role of the Project Management Office has proven to be difficult in the extreme, and the pursuit of this goal has become epistemologically messy, also in the extreme. The practitioners and teachers of project management feel strongly, passionately about their profession, and, in my experience, experience much frustration from the fact that the loudest voices in the management sciences often give short shrift to PM’s advantages and, by extension, the practitioners’ professional worth. This has led to many project management theories being marketed far beyond their capacity for returning relevant information or economic behaviors which, in turn, provide fuel for those opposed to doing project management right, when they correctly point out the overreach. The risk management types represent a classic example of this taking of an invalid theory and advancing it to its absurd lengths, and thereby making the rest of us look like doofuses.

Of course, should the most appropriate role of the PMO actually be captured and articulated, it follows that it could be quantified, and that would represent the brass ring of PM. No more eat-your-peas-style hectoring to get your PMO funded, no siree! The erstwhile PMO directors could present irrefutable analysis that demonstrated to even the most suspender-clad asset manager (read: accountant) that a stubborn refusal to pursue excellence in project management has directly traceable and cataclysmic consequences, to the tune of X dollars per year. As long as the PMO’s budget is less than X, the massive conflict that has afflicted project management types from the beginning of the PM struggle would simply evaporate, having been settled in our favor. Within management science, and by extension the macro-organization, peace would reign at last, and we could get up off of our knees and cease our begging for monthly status. Project management nirvana!

Unfortunately, the Project Management Institute® attempted such a quantification with a slew of books that tried to provide the framework for an organization to compute its PMO’s – wait for it! – Return on Investment. I kid you not. In trying to justify what is, in essence, their raison de etre’, they actually reached back to the accountants’ bag of tricks in order to produce a hard number that would validate the PMO’s creation and support.  Sadly, even when used on an asset (rather than a capability), the formula for computing an ROI is so fraught with either poorly quantified or even unknowable parameters that its returned value is next to meaningless. And yet, the accountants love it, and even PMI® was led to resorting to its use. Amazing.

No, the only way – and I do mean only way – to capture the PMO’s role in the macro organization, as well as in management science in general, is to realize that project and asset management are not variations within the same management science meme. They are different utterly: they pursue different goals, with different tools. As I have often taken them to task in this space previously, the asset managers seek to maximize shareholder wealth. So taken are they with this little axiom that they have convinced themselves that any disagreement with it represents profound backwardness in the management sciences. Nevermind that the Tom Peters of this world mock them to their faces over the over-acceptance of their goal – they will never abandon it. Then along comes the project managers, who dare to say that the pursuit of the customers’ goals with respect to scope, cost, and schedule ought to at least have a place at the decision-makers table, and the asset managers have a collective conniption fit. But it is undeniably true that PM should have a role in providing the decision-makers’ information stream, even as the asset managers see their influence wane.

As I discuss in my must-have second book, Game Theory in Management, there is a third element that must come into play: strategic management. Asset, project, and strategic management represent the triad of management science groupings that provide the only known structure for assessing the benefit of establishing the information streams that can even allow an evaluation of the PMO’s value and role. The organization that is informed of its position relative to its assets, customers, and competition performance is in a place to provide its decision-makers with the information they need to make the correct choices. And the organization that makes the better choices will overcome its competitors every time.

Without a feed from each of the three management science types, the decision-makers are just shooting in the dark. And probably missing.

Two weeks ago I blogged about the PMO’s natural enemies, and last week I wrote about its natural allies. Now I would like to discuss that odd duck, the PMO double-agents. Of course, in the world of espionage (or, at least, in the theatrical world of espionage) a double-agent is a spy who is ostensibly working for one side, but is actually working for the other. The true nature of the movie double-agents’ loyalties can make such movies’ plots very complex (Where Eagles Dare, I Spy, etc.).  Just imagine what they can do to the technical agenda of the Project Management Office.

“Now hold on, Michael!” you say. “How can a member of my PMO staff be surreptitiously working against my organization? For whom would they be doing this?” Well, I’ll tell you, and it has to do with the dual nature of critical path and earned value management information streams.

CPM and EVM information streams serve two purposes: they indicate how the projects are performing in cost and schedule space, and they provide the data points that support the narrative of how and why the things that happened to the projects happened the way they did.  The first purpose is rather easily attained, using the basic calculations I showed in my blog two weeks ago. The second is a bit trickier. For example, recall from my previous blog how you can get within 10% of an estimate at completion by simply dividing the cumulative actual costs by the estimated percent complete, and this simple trick also works for duration.  Clearly, this takes very little set-up, or even very much expertise, save the estimate of the percent complete. Compare this piece of first-purpose information with the amount of data needed to do a complete forensic analysis of a schedule should a subcontractor fail to perform to the contract specifications.  Their natural defense is to claim that your PMO allowed (or even initiated) scope creep, or gave informal directions for additional work to be performed. At an instant, if you had a poorly set-up work breakdown structure (WBS), or the verbiage in your work packages was anything but complete and detailed, your second-purpose PM information stream has just failed utterly.

To prevent this type of failure there has arisen within the ranks of PMO experts this narrative that, unless your scope baseline is exhaustively thorough, your cost estimate detailed in the extreme, your schedule virtually free of level-of-effort tasks or high levels of float, that the entire system is not just sub-par, it is worthless. The people within your PMO who hold to this narrative – they are the double-agents, and, wittingly or not, they can do great damage to the odds that your technical agenda will be met.

Here’s how it works: the unenlightened members of your organization (outside of your PMO) view what you do with a substantial amount of skepticism.  They think that all of the time, energy, and money spent on detailed baselines and their attendant artifacts are a waste, because they fail to generate the first-purpose information they crave. The baseline documents tend to simply occupy shelf space (like the PMBOK Guide®) unless and until some sort of forensic need arises. In order to sell these people that what your PMO brings to the table is (a) extremely valuable, and (b) well worth the price, you are going to have to stress the relevance, inexpensiveness, and accuracy of the cost-and-performance information stream. Those in your own organization who want to dig in their heels and insist that, without the expensive and (largely) irrelevant extremely detailed baseline documents, the whole thing is a waste are actually helping your opponents, who are only too happy to advance the narrative that your PMO does not deliver an information stream that’s worth the (now considerable) investment.

Consultants can be the worst about this, for, if the information stream that the macro organization craves isn’t really that difficult to set up and deliver, then it does not require any advanced or unique knowledge. Of course these will push the idea that properly-functioning PM information systems need advanced or unique knowledge – otherwise, there’s no reason to hire consultants! Hence the “80% confidence interval” silliness, where the risk management types try to horn in on the you-must-spend-megabucks-or-your-systems-are-worthless tripe.

And here you thought the risk management consultants and baseline integrity purists were working for your side!

Last week I wrote of the PMO’s natural enemies, the accountants (and other asset management-minded ones), and project management theory hucksters, who outrageously over-sell their particular discipline’s or techniques’ capabilities. The Project Management Office has other natural enemies, of course, but these two are prime. Fortunately, the PMO also has natural friends within the organization, and they are, paradoxically enough, enlightenment and fear.

Enlightenment is one of the best natural friends of the PMO. As I have mentioned previously in this blog, the worst 20% of managers who are in command of 80% of the information they need to obviate any given decision will out-perform the top 80^th percentile managers who have access to only 20% of the information they need to make a completely informed decision. The enlightened executive who is aware of this will make every effort to make accurate, timely, and, most of all, relevant information available to his managers and project team(s), and two indispensable information streams – how your projects and performing in cost and schedule performance space – typically come exclusively from the PMO. Oh, the accountants or others may try to make the case that this information can come from the general ledger, or from some sort of issues tracking database, or something, but that’s all hooey. Schedule performance comes from a properly set-up critical path method-capable system, almost exclusively. I say almost because a properly set-up earned value management system can also provide accurate schedule performance information, but the EVMS’ primary role is to provide project cost performance information. Without these two systems, however basic or elegantly implemented, there is simply no way of accurately knowing how your projects are performing, or where they are likely to end up.

This last is key. Where are the projects in your portfolio likely to end up? Some years ago the director of a rather large organization asked his mid-level and above managers to send him an e-mail that described their main worry. What’s keeping you up at night? The largest set of responses were derivatives of the concern that they were sitting atop a project disaster, and no one on their project team would tell them about it until it was too late to avoid massive overruns or delays. This fear of being caught flat-footed when project disaster looms, all the while knowing that if they had just been informed of the issue when it was younger it could have been dealt with, is a natural ally of the PMO. You see, the PMO can provide this highly relevant information, accurately and timely, but, most important of all, quickly and easily.

Consider the elemental estimate at completion, or EAC. The basic way of calculating this obviously extremely relevant piece of information is to divide the budget at completion (BAC) by the cumulative cost performance index (CPI). (For those of you who don’t have an EVMS that can deliver this piece of information, stand by.) Studies have shown (Christensen, et al) that a project’s CPI only rarely varies more than 10% once the project has cleared the 15% complete mark. The implication here is that the BAC / CPI formula is going to be accurate to within ten points once the project is only a bit out of the starting gate. But another fascinating piece of this puzzle is that the BAC / CPI formula can be algebraically reduced to dividing your cumulative actual costs by the estimated percent complete. Our “friends” the accountants have the first of these numbers. All the PMO team member needs to do to deliver an accurate estimate at completion is to come up with an estimate of the project’s percent complete, and this is not that difficult of a parameter to nail down. All you need is one subject matter expert, and you’re there.

And here’s the kicker – the same thing is true for duration!  Simply divide the cumulative duration by the same estimated percent complete, and you have a poor man’s calculated schedule end-date, and it’s going to be accurate to within 10%. Now, I have a couple of questions I would like to pose. To all you project managers out there, I’m going to channel my inner Montgomery Scott, from Star Trek IV, The Voyage Home. Scotty has just shown a plant manager/engineer the formula for transparent aluminum, and asks him “Would that be worth somethin’ to ya?” If I could tell you to within 10% how much your project is going to cost at completion, before you are even half-done, and how long it will take, quickly, easily, cheaply – is that worth somethin’ to ya?

And to all you PMO directors – I just showed you how to quickly, cheaply, and effectively alleviate the fear of all of those managers who want to avoid looming project disasters stemming from a lack of information. Is that worth something to you?