Game Theory in Management

As I wrap up GTIM’s take on COVID-19 Impact, one year later (ProjectManagement.com’s theme for March), I want to put a bow on the whole what-happened-and-how-do-we-move-on business, from a Project Management perspective (of course). A lot of how we get made whole on the project side of things is going to depend on what kind of contract your Team is working, and which kind of customer. As they (should) teach in risk management (no initial caps) school, the primary vehicle for managing your project’s risk is the contract vehicle itself. If you’re working a firm fixed price (FFP) contract, then your organization has signed on to accept all of the risk for the project, global pandemics (virtually always) included. If, on the other hand, your customer has signed on to a cost-plus contract (e.g., cost plus fixed fee [CPFF], cost plus award fee [CPAF]), then they have committed to sharing some of the risks involved in the project, and your job is now to articulate the best possible case for them to accept as much of that risk as possible. Add to this the PM’s ability to read their customers, and this is where things get tricky.

Just to be clear, nothing in this column should be taken as legal advice when making a force majeure claim. Those questions are best left to the contract administrators and lawyers, and I am neither. This blog is entirely from a Project Management point of view, and my own personal perspective at that. But it seems to me that PMs who have seen a sizable impact from COVID-19, and are working some form of cost-plus contract, could help themselves – and their Teams – by reading their customers’ mood or disposition as they advance their Baseline Change Requests (BCRs).

First off, was your Project’s performance harmed by the pandemic? A simple drop in Cost Performance or Schedule Performance Index (CPI/SPI) can’t be interpreted as ipso facto evidence of COVID-related damages. As I mentioned in an earlier blog, we’re looking at a series of potential scenarios, both with respect to changes in the performance indicators and the condition of the Project both prior to and after the lockdowns became prevalent.

The preliminary analysis has to do with the CPI and SPI behavior. Generally speaking,

• If both CPI and SPI are over 1.00, you are in great shape.
• If CPI is below 1.00, but SPI is over, that simply means you’re accomplishing the Project’s scope faster than originally baselined. If this is perceived as undesirable, simply tap the brakes.
• If SPI is below 1.00, but CPI is over, get on the gas. What you’re doing, you’re doing efficiently – you’re just not doing enough of it.
• Finally, if both CPI and SPI are below 1.00, you are in trouble.

Pretty basic, right? So now let’s overlay this onto the performance figures your Project has seen since February 2020 (the last “normal” month for most of us) and the present. This behavior can be binned, so:

If you do decide to generate a BCR under these scenarios, here’s what you can expect:

Of course, if your customer routinely engages in the actions listed in the Response column for Scenario 6, you won’t be able to glean any additional information on the status of your request for baseline adjustment. But, if that is the case, you probably have a lot of other problems anyway.

GTIM Nation regulars know my respect and admiration for Michael Maccoby, particularly his book The Gamesman; The New Corporate Leaders (Simon & Schuster, 1977). In this book Dr. Maccoby lays out four basic archetypes we can generally expect to encounter in the business world:

• The Company Man tends to assume the persona of the corporate culture around him,
• The Craftsman doesn’t really care about for whom he works, but is keenly interested in the quality of his output,
• The Jungle Fighter engages in cloak-and-dagger techniques to advance his career, and very well may present as being technically advanced, but really isn’t, and…
• The Gamesman sees his business environment as something of a game. For this reason he is simultaneously more technically advanced than most, but is also more willing to take risks.

In previous blogs I’ve analyzed not just the implications of encountering these archetypes in the daily interactions of Project Team members, but what the results can be if the entire Project Team – or even macro-organization – were to become dominated by each type. I have personally encountered groups with organizational cultures that mirrored the Maccoby archetypes, and I can state confidently that it’s far better to be led by Gamesmen and Craftsmen than Company Men, or (shudder) Jungle Fighters. In my experience,

• Craftsmen want the job done right, and, if you can demonstrate an ability and willingness to help them achieve that goal, you will fit right in this Project Team. Not only that, but once you arrive and start looking around, you will soon come to the realization that the people around you are pretty talented.
• Dr. Maccoby asserts that Gamesmen are destined to be the most successful archetype, since they’re all about winning, and I agree.

Conversely,

• In those instances where Company Men assume a leadership position, they will invariably employ any and all familiar organizational business model templates to address any problem, no matter how novel. Risk-taking or employing innovative solutions is simply not how these people operate, and the consequences are always organizationally unhealthy, even if they take a long time to unfold.
• Jungle Fighters are the worst. They’ll spend more time trying to build and maintain a façade of expertise than actually exercising actual skill. If these people assume a leadership role, they will create a highly toxic culture, where any challenge to their selected technical approach to the projects’ scope will be portrayed as some kind of personal attack, in dire need of retaliation.

Okay, So What Does All This Have To Do With COVID?

I’m glad you asked. In last week’s blog I discussed how the pandemic has had such a negative, often tragic, and broad-based impact on the macro economy. Going on one year after the first widespread shutdowns began, the cost and schedule performance of the projects making up virtually everybody’s portfolios are available, and some critical organizational behavior and performance information can be gleaned from them.

Let me state plainly that a whole lot of projects were negatively impacted by the pandemic, and even the very best PMs would have been hard-pressed to reduce the severity of such impacts, even by a little. That having been established, there are also portfolios made up of projects with roughly similar scope, but widely divergent outcomes. I’ll approach this using the Game Theorists’ favorite tool, the payoff grid:

The short statements in the payoff grid for Scenarios 1 (A) and 1 (B) are self-explanatory, so let’s look at Scenario 2(A). In the face of failure, Jungle Fighters and Company Men will look to blame something or somebody, but never their own inability to either set the optimal technical agenda, or to properly lead a team of professionals, even in a dramatically changed project environment. If COVID impact offers the most plausible causal element of their troubles, they will reflexively blame it, perhaps not reading my blog from two weeks ago showing how Earned Value Management Systems can be used to pinpoint which projects were genuinely affected by the pandemic, and by how much. By contrast, if the poorly-performing projects were headed by a Craftsman or Gamesman, these PMs will usually try to precisely quantify the effect instead of seeing it as some kind of poor performance license.

I believe that, in the final analysis, Project Teams led by Craftsmen or Gamesmen will show themselves to be more robust in the event of a broadly-negative macro-economic event, while Project Teams “led” by the other Maccoby archetypes will see their vulnerabilities exposed. Now that you know what to look for, seek the former, avoid the latter.

Good luck.

Here in March 2021, the one-year anniversary of the imposition of pandemic-avoiding regulations, it’s somewhat natural to reflect back on what we’ve experienced and what we’ve learned during this time. In any discussion of the management sciences, though, the question of what we’ve learned from any given history must come with the acknowledgement that we’re never dealing with a purely experimental setting. There are simply too many parameters involved whenever we attempt to draw a usable inference of the causal elements that went into any particular management strategy.

The Covid-19 pandemic, however, represented a large-scale, broad-based condition on the macro economy. In other words, as negative as it was and is, it had some level of impact on virtually everybody, and on the way everybody conducted business. Along the way the past year has shown some rather obvious problems with several previously-widely accepted theories, such as the ones I addressed in last week’s blog, but it has also shown a light on some management strategies that were perhaps given short-shrift prior to 2020. For example, once the restrictions on business began to loosen, what were those business’ main concern? Were they associated with “maximizing shareholder wealth,” or were they oriented towards getting their customers back? And, before anybody tries to assert that the former encompasses the latter, let me be more specific: in the various stages of businesses being allowed to re-open, did anybody really care about the return-on-investment figures for purchasing or leasing the new copier?

While the Asset Managers’ (read: accountants’) main concern is, well, the performance of the organizations’ assets, the ability to deliver for customers belongs to the PM world. None of the information streams that inform management of the organization’s progress towards accomplishing the customers’ expectations for achieving scope, cost, or schedule performance can be relayed via the general ledger (and don’t get me started on the output from risk management [no initial caps] “analysis”). That’s simply a fact. The only reason that the belief that a project can be successfully managed without those pesky PM artifacts like the Work Breakdown Structure or Earned Value Management System advances is that projects that never had anything go wrong with them on occasion relied exclusively on the general ledger to inform their decisions, so it follows (erroneously) that all successful projects don’t need those things.

But what happens when something does go wrong with the project? As I pointed out in the previous paragraph, what’s needed is a Management Information System (MIS) that can answer a whole bunch of questions, and the general ledger isn’t that system. What questions? Well, ones like:

• Is the project really performing poorly (I mean, past my vague feeling)?
• If so, is its performance lacking in cost, schedule, or both?
• How big is the problem?
• Where, specifically, is the problem? What part of the project is experiencing it?
• What are the implications long-term? In other words, what is going to happen if the problem isn’t addressed, or isn’t addressed fully or appropriately?
• What’s causing this problem?

While the general ledger can only marginally or tangentially answer any of these questions, an Earned Value Management System, based on a valid WBS, can answer all of them, with excellent precision. Throw in a Critical Path Methodology capability, and the resulting information stream becomes all the more powerful. Allow me to point out again that such information streams only become vital when something goes wrong. A perfectly healthy patient does not need an X-ray, and could probably spend his whole life not knowing which nearby medical facilities have a machine capable of performing such imaging without issue. That all changes real fast if such a person breaks an arm.

This all has the effect of placing much of the motivation for initiating and maintaining Project Management Information Systems in an organization to those analogous to purchasing insurance. If someone is supremely confident that they will never get sick or break an arm, they may tell themselves that it’s a waste of money to buy insurance. Similarly, if a (so-called) PM is confident that they “manage” so well that they don’t really need a performance measurement system to inform their decisions, they may forgo the cost of setting up such a system. All of which brings us back to the title of this blog, the famous PM saying that the reason project teams detest performance measurement systems is that they vividly show their lack of performance.

Even if the downturn in performance was caused by a global pandemic.

Have you ever been in a situation where your employer has requested/directed/demanded that you put in extra hours, but upon putting in the extra time, no positive result was observed? The notion that organizations perform best when their Return on Investment figures go up is a core concept in business models everywhere, so I suppose it falls to me to show how it’s highly suspect at best, counterproductive often, and has no place in the realm of reflexive management tactics.

The error falls into two categories, one from our friends, the Asset Managers, and the other from a popular but, in my opinion, intellectually vacuous novel based on a derivative of a well-known and established PM technique. First, the ability of Critical Path Methodology (CPM) software to correctly identify which activities are directly responsible for potential late scope completion, as well as the organizations performing those activities, has to be one of the most powerful pieces of management information that PM-centric systems can generate. Management time and energy is finite. The ability to know which parts of the project and team that are doing just fine without managerial input and those that need direct attention is huge, and can go a long way towards optimizing PM’s time. However, this information is only available from CPM-capable systems, and not from the Asset Managers’ main tool, the general ledger. It follows, then, that Asset Management-based solutions do not work on Project Management-oriented problems, like overcoming a potential late project delivery date, or milestone. The unfortunate put-upon staff from the question in the first paragraph getting called in to work may have done absolutely nothing to help the project get back on-time, but somehow the notion that these resources were “working” without incurring any additional marginal costs (assuming they were all on salary) makes this demand seem somehow legitimate. In reality it takes a wrecking ball to morale; but, since morale can’t be quantified, this error is rarely criticized or condemned.

The second error category that pertains to this blunder has to do with a work of fiction from 1997, entitled Critical Chain, by Eliyahu Goldratt. In the novel, the protagonist manages to make progress towards schedule goals by using a technique that seasoned schedulers would instantly recognize as “crashing the schedule.” Crashing the schedule involves assigning more resources to critical activities – particularly ones that are in or may become trouble – in a bid to accomplish the scope more quickly.

There are several attendant problems with crashing the schedule beyond increased costs or the possibility that the increased resource density could actually decrease productivity, but the main issue with the tactic has to do with an assumed commonality of expertise. If, say, your electricians look like they won’t finish on-time, it really doesn’t do any good to call in the cement pourers. In the example above, the people being called-in to work needless overtime didn’t necessarily improve schedule performance. These problems with the push-staff-harder approach, however, did not stand in the way of the rebranding of crashing the schedule as “critical chain” management becoming something of a sensation in PM circles. There’s even a Goldratt Institute, which probably owes no small part of its existence to the success of the 1997 book. But that’s kind of the thing with PM theories that may or may not work so well in the real world: they can always, always be made to work in the world of fiction. It’s highly reminiscent of B. F. Skinner’s 1948 novel Walden Two, where his then-nascent theories of behaviorism are used to govern a small but extraordinarily well-ordered society, where virtually the entire population is happy and performing at near-peak potential fulfillment levels. Behaviorism would go on to become a major school of psychological thought before finally receding in popularity during the “cognitive revolution.”[i] While asserting that, as a psychological trope, it was blown to smithereens may be a bit excessive, I would go so far as to say that any near-science hypothesis – like those belonging to psychology or the management sciences – that achieves widespread acceptance not through experimentation and the publishing of results, but via fiction, is fully deserving of higher scrutiny, if not reflexive abandonment.

As for the notion that automatically pushing staff to work harder whenever a schedule setback is encountered, yeah, that’s one management trope that should be blown to smithereens.

[i] Wikipedia contributors. (2021, March 6). Cognitive revolution. In Wikipedia, The Free Encyclopedia. Retrieved 01:33, March 9, 2021, from https://en.wikipedia.org/w/index.php?title=Cognitive_revolution&oldid=1010625203

Depending on one’s particular flavor of PM, much of the data needed to make informed decisions can be gleaned through means other than donning a hard hat and walking the site, or showing up to the Weekly Scrum in-person (masked and distanced, of course). With the adjustments made to virtually all of our business models to accommodate the pandemic, several hypotheses of management science have rightfully made progress towards acceptance as theories, while some widely-accepted theories that have served as the basis for many analysis techniques have been shown to be suspect at best, and openly fraudulent at worst.

In the former category, I offer up as Exhibit A that it’s the Earned Value Management Systems that represent the optimal tool for assessing the impact of a negative macro-economic event, and not the general ledger. The reason for this is simple: an EVMS can readily document the delta between an organization’s pre-COVID performance and what happened afterwards. Of course, a little bit of binning is in order. Once a usable baseline of Project performance can be established (say, its cost/schedule behavior for the three months leading up to the shutdown), then a comparison of its execution afterwards with such a baseline will yield the desired impact information, so:

Note that in only half of the scenarios above should a documented change in cost/schedule performance be attributed to the macro-economic event.

Now, if Earned Value has been shown to be the most appropriate tool for capturing the cost and schedule impact of a macro-economic event, what did it displace? Traditionally, it’s our friends the accountants who have been the go-to team for answers on any and all questions where the solution involved a dollar sign. Unfortunately, the only way to attempt to glean pandemic-related impacts from the General Ledger would be to examine all expenditures, and try to estimate some causality-related connection as a precise number. A few honest questions will show how utterly impossible such estimations can be:

• Should any increase in costs of a budgeted line item be attributed to the shutdown?
• If yes, then by what amount – the amount of the delta, or should some factor be included that takes into account other influences, of which there are multitudes? Also, should any decrease be subtracted from the overall impact factors?
• If no, then by what other GL-owning data could impact numbers be derived?
• What happens if costs went up, but so did actual performance? Oh, wait, the GL has no way of capturing that, so never mind.

I could go on (and often do), but GTIM Nation sees my point.

As for which commonly-invoked theories have been hit with serious challenges to their efficacy, I think the most blatant is the use of Return on Investment as the ultimate arbiter of “good” and “bad” in the management decision-making universe. Inanimate assets don’t perform. People, usually collected into – what’s the term I’m looking for, oh, yeah, Project Teams – perform, usually taking advantage of the other assets at their disposal. The printer doesn’t perform, the person creating the document does. However, in supposedly first-rate business schools around the globe, the analysis method for determining which projects to pursue within a portfolio is its anticipated ROI. Even a cursory review of the formula for generating the ROI shows it to be so chocked-full of subjective (or even crazy speculative) data that it makes our friends, the risk managers (no initial caps) seem positively insightful.  So, when the shutdowns descended upon us, a large segment of the parameters used to assess ROI, such as the need for employees to use office space, were shown to be, rather abruptly, utterly irrelevant.

Savvy Program Managers will have quickly recognized the sea-change in the menu of acceptable management science theories in these times of duress, both those added, and those that should have made an exit long ago.

Others? Not so much.

[i] Cost Performance Index (CPI) is the Earned Value divided by Actual Costs, and the Schedule Performance Index (SPI) is the Earned Value divided by the cumulative time-phased budget.