Game Theory in Management

Scene 1: A conference room, circa 2015, with a project team seated around a long table.
Tim (the PM): Okay, folks, things have been going largely as expected so far, but I think we need to change our approach, based on some recent observations.
Mark: If it’s working, why should we change it?
Tim (rolling his eyes): You’re new at this project management stuff, Mark, but when you’ve been around as long as I have, you learn to tap into the insights of stakeholders.
Alice: Which stakeholders?
Tim: A combination of our vendors, plus some people who were holding signs about our project, and were protesting just outside the building.
Mark: Wait, what? We’re using advice from people who don’t want our project to succeed?
Alice (shouting): They’re STAKEHOLDERS, Mark! They have a right to be heard!
Mark: I’m not saying we should shut them up, I’m just questioning the reasoning behind using their advice for project decision-making.
Tim (sighs): Everyone knows that all stakeholders must be listened to, Mark, or else we wouldn’t be doing project management correctly!
Peter: You’re not forgetting my input, are you, Tim?
Tim: Of course not, Peter. Any project that is managed correctly has lots of input from the Risk Manager.
Peter: Based on my analysis, we need to set aside 20% of the project’s budget for contingency events.
Mark: 20%? We don’t have more than 5% in reserves – and the only way to come up with the other 15% would be to cut scope!
Peter: Then we’ll have to cut scope.
Mark: By 15%? What, specifically, do you intend to cut? 
Peter: Perhaps we can take a few points from each Work Package.
Mark: Tim just got done saying we’re performing at even! The Work Package managers don’t have any margin to give back! Besides, percentages aren’t cumulative – in order to get to 15% across the board, then each WP will have to give back that much.
Tim: Nevertheless, we’ll send out a memo, directing the WP Managers to send more to the reserves.
Mark: Dare I ask about what kind of analysis was performed that has led to such drastic actions?
Peter: A Monte Carlo analysis has indicated, with an 85% confidence interval, that we will need 20% reserves to cover predicted difficulties.
Mark: Did this analysis take into account a scenario where the Work Package Managers are suddenly and capriciously deprived of 15% of their budgets?
Peter: No, but we can re-calculate, based on that scenario.
Mark: Is any of this based on documented research, or testable hypotheses?
Tim (sighing): No, Mark, but you will eventually learn that involving stakeholders and integrating risk management is key to all project success.

Scene 2: A town hall, circa 1515, with some local farmers seated around a long table.
Tim (the town’s agricultural director): Okay, folks, we’ve largely done okay over the past dozen or so growing seasons, but for the one coming up we’ll have to change some things.
Mark: If it’s working, why should we change it?
Tim (rolling his eyes): You’re new at this managed agriculture stuff, Mark, but when you’ve been around as long as I have, you learn to tap into the insights of stakeholders.
Alice: Which stakeholders?
Tim: A combination of our landowners, plus some people who were objecting to our crop selections, and were protesting just outside the building.
Mark: Wait, what? We’re using advice from people who don’t want our farms to succeed?
Alice (shouting): They’re STAKEHOLDERS, Mark! They have a right to be heard!
Mark: I’m not saying we should shut them up, I’m just questioning the reasoning behind using their advice for crop selection-making.
Tim (sighs): Everyone knows that all stakeholders must be listened to, Mark, or else we wouldn’t be doing agricultural management correctly!
Peter: You’re not forgetting my input, are you, Tim?
Tim: Of course not, Peter. Any farm that is managed correctly has lots of input from the animal observers.
Peter: Based on my observations of the groundhogs, we need to plant about 20 days earlier this year.
Mark: 20 days? We can’t afford to be more than 5 days too early, or else we’re risking the seedlings getting frozen, and ruined!
Peter: Then we’ll have to plant freeze-resistant crops.
Mark: What if “freeze resistant” crops don’t yield enough foodstuffs?  What crops, specifically, do you intend to supplant? 
Peter: Perhaps we can plant a wide variety.
Mark: Tim just got done saying we’re producing the right amount! The various farmers don’t have any margin to diversify! Besides, diverse crops aren’t necessarily freeze resistant – in order to match last year’s production, we’ll have to plant at least as much of the proven crops as we did then.
Tim: Nevertheless, we’ll send out a town crier, directing the farmers to diversify.
Mark: Dare I ask about what kind of analysis was performed that has led to such drastic actions?
Peter: My observations of groundhogs indicate that, if it sees its shadow on February 2, then harsh conditions will continue for another six weeks of freezes – otherwise, it’s safe to plant early.
Mark: Did this analysis take into account a scenario where the groundhog casts a shadow, but doesn’t happen to look down?
Peter: No, but we can re-calculate, based on that scenario.
Mark: Is any of this based on documented research, or testable hypotheses?
Tim (sighing): No, Mark, but you will eventually learn that diversifying crops and integrating groundhog behavior is key to all agricultural success.

“The more things change, the more they stay the same.” (Les Guepes, 1849)
 

An unfortunate tendency I have encountered in many project controls analyst is that of insisting on a high level of rigor in the setup of their cost and schedule performance systems, as if such information streams must be difficult in the extreme to generate and operate, lest they be found wanting. This approach goes well beyond my previous distinctions drawn, between Processors and Effectives (quick recap: Processors are happy if every policy statement concerning project management is followed to the letter, and care less about actual project success or failure; Effectives seek project success, and don’t care much for formal policy guidance). To highlight the problems with the if-it’s-not-hard-it’s-wrong approach, I want to take a look at the animated situation comedy The Jetsons.

The Jetsons aired in the 1960s, and featured a futuristic family headed by George Jetson. George worked (will work?) at Spacely Space Sprockets where, if each episode’s opening is to be believed, his job is to press a single button, and then recline in his office chair. The red button turns on and off the Referential Universal Digital Indexer (R.U.D.I.)[1] , a job that, for unexplained reasons, George is able to do in a far superior manner than any other person. For this “work,” George apparently receives sufficient income for he and his wife and two children to live extremely well (by 21st Century standards, anyway).

Meanwhile, back here in the last weeks of 2015, earning a good income from extreme minimal effort is quite a trick (please, no comments on politicians), particularly in the PM world. Although it would certainly be nice to be so smart, educated, experienced and wise as to have droves of project team members lining up to hear pearls of wisdom about Work Breakdowns Structures, Critical Path Methodology, and Configuration Management tumble from our lips, the reality is something quite different. Many (if not most) projects are awarded after a bid process, and proposing the lowest bid is often the determining factor. Lowest bids rarely have the padding or reserves available for consulting with self-identified experts who like to pretend that they are the only ones who can casually push the critical buttons. 

Before my readers jump to the conclusion that this does not happen within their project teams, consider: each and every time two PM “experts” get into a discussion, or argument, about what they believe to be the proper way of doing PM, it is not free. This discussion is taking place among two or more professionals who are billing the project for their time. Litmus Test: the next time such a discussion takes place, inform the arguers that they can’t bill for the amount of time it takes to resolve the difficulty. My bet is that the issue evaporates.

Indeed, if an Effective is in charge, the very notion that one’s expertise or education should carry the argument whenever a disagreement arises is probably going to be depressed; instead, whomever can generate the deliverable on-time and on-budget will tend to get the work, billable time and all. If, on the other hand, a Processor happens to be in charge, the Insipid Debate Society can – and will – dominate the project’s landscape, wasting time, effort, and budget.

Which brings us back to philanthropy. If philanthropy can be defined as the act of making life a little easier for those whom we perceive to be going through a tough stretch, then wouldn’t the PM version be to make our crucial information streams as easy as possible to effectively implement? And, if that’s the case, wouldn’t that make those who insist on an absurdly high level of rigor in the installation of such systems – the chronic debaters among us – the very opposite of charitable?

In short, if George Jetson and his coworkers are convinced that he is uniquely qualified to turn on and off the RUDI, just as the PM experts are convinced that all of their standards must be met prior to performance measurement system startup, they might all want to avoid putting those assumptions to the test.

  (1)The Jetsons. (2015, December 12). In Wikipedia, The Free Encyclopedia. Retrieved 02:47, December 13, 2015, from https://en.wikipedia.org/w/index.php?title=The_Jetsons&oldid=694864376

I must confess that, when I saw December’s them of PM Philanthropy, the term itself struck me as a contradiction, much like “Now, then…,” or “Instant classic.”  Of course, the goal of project management is to complete the work on-time, on-budget, to the customers’ complete satisfaction in terms of quality, reliability, etc. But certainly there’s an undercurrent to PM, one of doing those things better than competing organizations. I think that’s a major draw to projectmanagement.com, reader attention being paid to glean the insight and information that allows our organizations to do PM better than our less-intellectually-curious counterparts. How does philanthropy fit in to this mix?

To find the answer we need only look back in time to observe the eventual outcomes of other management science innovations that led to an enrichment of a broad swath of organizations beyond the original innovators. For example, there’s some debate about whether or not Henry Ford truly introduced the assembly line concept on a large scale (Ransom Olds actually patented the process [1] ), but there’s little doubt that Ford’s success in using it popularized it on such a large scale that its primary alternative – creating manufactured goods by hand – has become the exception in 2015. And, while Ford reaped the initial benefits, the widespread adoption of the assembly line technique revolutionized not only the automobile industry, but manufacturing in general, so that most manufactured goods became cheaper, more widely available, and of higher and more consistent quality. Eventually, everyone benefited from this management science innovation.

Prior to the 1870s, only the rich could afford the whale oil or candles to keep their homes lit at night – most people would simply retire once the sun set. After John D. Rockefeller advanced better oil drilling, extracting, and refinement techniques, kerosene became so cheap that keeping homes or business lit after dark became viable for almost everybody [2]. Of course Standard Oil benefited handsomely in the near-term; but, eventually, everybody’s standard of living was significantly raised.

These two are dramatic and extreme examples, but the pattern repeats itself over and over: a management science innovation is developed, and aired out in the free marketplace of ideas. Sooner or later a company or economic concern adopts (or adapts) the hypothesis, and puts it to the test in the real world, where it either works outright, works after some tweaking, or flat-out fails. Unfortunately, the free market economy is a hopelessly complex (I would even argue chaotic) environment, and these hypotheses are extremely difficult to evaluate in clear-cut causality analyses. Sometimes valid ideas are used and the organization fails, and other times invalid ideas are adopted but somehow become associated with repeatable success. 

Which brings us back to project management and philanthropy. The basics of project management, like the assembly line, have been proven to give a competitive edge to the project teams that employ them, and on a consistent basis. Projectmanagement.com and the Project Management Institute® aren’t popular because they offer titillating click-bait ads on the right-hand margins of social media sites – they’re popular because the serve as a crucible for burning away marginal ideas and business practices, helping to point the way to the best techniques for bringing in the project’s scope on-time and on-budget, and, yes, to do so better than your company’s (or even your project team’s) competitors. The now-familiar pattern re-emerges, and project work on a broad scale begins to be performed better, benefitting many, many more people than had originally profited from adopting the innovative practices. 

And that benefiting of the macroeconomic society as a whole, my fellow project managers, is how PM Philanthropy is truly expressed.
 

  (1)Assembly line. (2015, November 30). In Wikipedia, The Free Encyclopedia. Retrieved 20:33, December 6, 2015, from https://en.wikipedia.org/w/index.php?title=Assembly_line&oldid=693187355.
 (2) http://fee.org/freeman/john-d-rockefeller-and-the-oil-industry/, retrieved December 6, 2015, 14:07 MST.
 

Much as holiday get-togethers with family and friends will bring people with disparate ideas into close proximity, so, too, does the creation of a new project team bring together people with different views on how that project work should be managed. Since PMI® came into existence in 1969, project management has become a rather big deal (there are over 500,000 PMP®-certified people around the world). As in any field of endeavor that attracts a lot of adherents, many enthusiastic practitioners have embraced some PM-related ideas that are, shall we say, of marginal usefulness in the field of actual management science, much like Keynsians, while useful to politicians, really have little to add to the realm of macroeconomics. 

Take Work Breakdown Structures, or WBSs. Even those with a fleeting knowledge of PM basics know that the development of a WBS is a critical early step in setting up the information systems needed to manage the project, and therein lies a problem: to admit to not knowing how a WBS works, or is properly set up, is to essentially reveal to the team that you don’t know the first thing about project management. So, in the event the genuine practitioner is assigned to a project team that has an obviously flawed WBS in place, how should that very difficult conversation take place?

Well, don’t do what I did. I told the head of the project’s Project Controls Team that his WBS was invalid, and would need to be reworked prior to any workable Critical Path or Earned Value system being put in place, much less a usable Basis of Estimate. He listened politely, thanked me for my input, and then had me taken off the project team. In my defense, I was in my 20s, and didn’t suffer fools gladly. From a management point of view, the project would end up being a fiasco – cost overruns and delays were rampant, as well as showing all the symptoms of a management style immersed in reactionary mode, flailing at every unexpected event. But I did try to have the conversation.

Then there are those discussions within organizations whose business model was set up by and is dominated by its accountants. Such organizations are readily identifiable by a reluctance to set up the project’s accounting system based on the aforementioned WBS. Accountants, being the lead soldiers of the asset managers’ army, are more likely to insist on setting up the chart of accounts to track charges by organization, or OBS. Of course, the inability to collect actual costs by the reporting level of the WBS essentially disables an Earned Value Management System, the very core of the PM’s ability to manage cost performance. I was once e-mailed by a military officer who was encountering this very problem, and asked me for advice as to how to overcome it. When I responded that there was no way he could set up a valid EVMS without the actual costs collected by WBS element, he actually became angry with me, as if I had some kind of an obligation to remedy his project team’s accountants problem.

Then there are those who believe that all the tasks on the critical path of a CPM network are innately important outside of schedule logic. Activities on a schedule network’s critical path are important because, if there is a delay in any of them, the whole project is likely impacted. However, I can’t count the number of times I’ve heard a Cost Account Manager say something along the lines of “this activity is too important to NOT be on the critical path!”, meaning that someone is going to have to have the difficult discussion about how activities on the critical path are there due to schedule logic, not priority or visibility, and asserting to the contrary is revealing a profound lack of basic PM understanding.

If everyone at a PMI® Congress is going to act politely to one another, perhaps these discussions should be avoided in casual discussions. However, if you are on a project team and one (or more) of these PM pathologies makes an appearance, it might be time for a difficult conversation.
 

In my seemingly endless attempts at stamping out poor management science scholarship, I have, on many occasions, encountered ideas that leave me with a case of epistemological heartburn. Many of these ideas have to do with commonly-accepted management axioms, both valid and not. For example, the adage “if it can’t be measured, it can’t be managed,” variously attributed to Deming or Drucker, came under fire in an article I read recently on a prominent business website. In this article by Liz Ryan, entitled ‘If You Can’t Measure It, You Can’t Manage It’: Not True (sic), dated February 10 of last year, one of the pull quotes is:

A typical ridiculous, unquestioned business adage is “If you can’t measure it, you can’t manage it.” That’s BS on the face of it, because the vast majority of important things we manage at work aren’t measurable, from the quality of our new hires to the confidence we instill in a fledgling manager.[i]

The rest of the article is similar in tone and content, meaning that it’s something of a Banjo Minnow[ii] to me. Besides the suspect management science assertions, one would think that someone in the chain of publishing command, from the author through the editorial staff, would have known that single quote marks are only used when quoting someone within an existing quotation, not to mention the inelegance of using the particular acronym she chose.

Hyperbolic writing styles and punctuation difficulties aside, let’s take a look at the central assertion, shall we? As I have oft asserted in this blog, my version of the Pareto Rule as it applies to Management Information Systems is that the 20% worst managers who have access to 80% of the information they need to obviate a given decision will consistently out-perform the 80^th percentile best managers who have access to only 20% of the necessary information. Okay, so how does one obtain this information? It has to have three characteristics:

• It has to be timely (if the necessary information arrives too late, it’s worthless),
• It has to be accurate (wrong information is worse than worthless, since it can be misleading), and
• It has to be relevant (the predicted rate of return on a project that’s headed south is the essence of irrelevance, for example).

The second bullet pertains to the measurement and management axiom. For “the vast majority” of management decisions, some kind of accurate measurement is needed to avoid a bad, or even cataclysmic, call. A short list includes:

• Procuring material (an accurate inventory of existing material)
• Hiring personnel (the precise date they can start on the project, the availability of work space, the ability of the organization to meet payroll, etc..)
• Expanding or contracting facility capacity (how much of existing facilities are currently being used, contract backlog, proposal backlog, win rate by project type, among many others),
• Which projects to bid (win rate by project type, win rate by customer, historical cost/schedule performance by project type, availability of qualified personnel, current disposition of likely competitors, again, among many other data elements).

I could go on (and often do), but you see my point. To categorically downgrade entire information streams as male bovine droppings based on whether or not they can be accurately quantified is to plunge into management science alchemy, and with complete abandon. By attempting to conflate the quantifiable with the irrelevant, the article ends up making several invalid conclusions, and attempts to buttress them with bombast (and several amateurish cartoon drawings).

And therein lies my heartburn. Management science, as a field of scholarship, is already considered suspect by adherents to the hard sciences. To further a hypothesis with little more than primitive cartoons and hyperventilated prose just feeds in to the notion that MIS theory is just so much bloviating, made all the worse by a prominent brand name having published it. If the high-profile management publications are going to allow their authors to market in shoddy business theories, we should probably expect multiple series on risk management soon.

[i] Ryan, Liz, retrieved from Forbes, http://www.forbes.com/sites/lizryan/2014/02/10/if-you-cant-measure-it-you-cant-manage-it-is-bs/, November 21, 2015, 19:29 MST.

[ii] A “banjo minnow” is a fishing lure that was advertised as being irresistible to fish. In a demonstration, a banjo minnow was dangled in front of a bass in an aquarium, with a voice-over assuring viewers that the bass was not hungry. Nevertheless, the fish snapped up the lure.