Game Theory in Management

I recall seeing one definition or aspect of human intelligence described as the ability to identify analogous situations to those presently encountered, and being able to appropriately adjust known strategies from those analogous situations to derive an effective response or strategy to the new, novel one. Assuming this assertion is at least partially accurate (and I believe it is), it leads to quite the conundrum when it comes to artificial intelligence, or even the impacts of digital transformations (ProjectManagement.com’s theme for February). Recall that the root of all digital transformation is the bit. Computers exclusively use the bit to perform all calculations and evaluations, with no exceptions. A bit is either a zero or a one, an on or an off. Bits are collected into sets of eight known as bytes. In Random Access Memory alone, the computer I’m using to write this blog has 32 gigabytes, or 257,698,037,760 bits, and those data points do not address calculations per second, disk capacity, or any of the other parameters used in evaluating digital computing performance. It can perform virtual reality, web surfing, media playing, word processing (obviously), and hundreds of other pretty amazing things. Still, it all comes down to the bit – on or off, one or zero, is or is not.

Which brings us back to our conundrum. Project Managers may seem to have a rather simple set of tasks to execute, and the proper way of executing them has generated more guidance than could probably fit on my hard drive (2.72 TB, or 2,989,847,736,320 bytes). I myself have written about some of the more robotic aspects of filling in the Corrective Actions section of a typical Variance Analysis Report, to wit:

But if the events and circumstances surrounding the decisions that we PMs make on a day-to-day basic could be reduced to an all-inclusive set of objectively measurable parameters, then computers with the ability to evaluate Earned Value and Critical Path data and connect that information stream to a (much larger) response codex similar to the table above would have replaced us long ago. That aint gonna happen, at least not anytime soon, and the reason should be obvious: there’s far too much nuance attached to the PM decision-making process than could ever be reduced to a formulaic when-you-see-this-do-that response system, and any attempt to create such a system (cough, risk management, cough) can only proceed from a rather dubious reductionist starting point.

This aspect of PM serves as part of the answer to the question I posed in last week’s blog, on why digital transformation, while having a profound impact on so many other areas of human endeavor, haven’t had a similar impact on PM. Projects are, by definition, unique. Sure, some aspects of PM can be executed via template, like the list of rules for creating a Work Breakdown Structure[i]; but those aspects, ignored or abused as they often are, are in the minority of the matters and issues requiring insightful decision-making from the PM. As cringe-worthy as I find the assertion that PM is as much art as science, I cannot flatly refute it, as much as I may wish to.

All of which points to our epistemological dichotomy, between those parts of PM that can be addressed as Boolean choices – digital, if you will – as compared to that set of decisions within the purview of PM that are so nuanced that not only can they not be adequately addressed via some codex of hard-and-fast rules, they probably can’t even be solidly justified by their associated audit trails. Red-light cameras at intersections may be able to take one particular enforcement of a traffic ordinance off of a police officer’s responsibilities, but would you want such a device calling an automatic infraction for an improper lane change, much less a far more complex violation?

So, yeah, a digital transformation doesn’t necessarily mean that the thing being transformed is getting smarter. It might not even be intelligent.

[i] Basic rules for setting up a WBS: (1) each WBS element must have a set piece of scope, (2) discernible beginning and ending dates, (3) a specific set of resources assigned to it, (4) one person (or organizational entity) is responsible for it, and (5) no “child” can have more than one “parent.” Without these conditions fulfilled, odds are you’ve placed an Organizational or Functional Breakdown Structure element into your WBS.

Project Management can be pretty ironic. Not the data collection and processing into usable information part, but the rest of it, particularly in the arena of digital transformation (ProjectManagement.com’s theme for February). “Wait, Michael” I can hear GTIM Nation say, “isn’t the data collection and processing piece of PM one and the same with its digital transformation aspect?” To which I will reply “Yes, they are largely one and the same, which is why it’s so ironic,” as well as “You guys pose prescient compound questions!”

If we were to be completely and brutally honest about the actual mechanics of processing data into usable PM information streams, we would have to admit that they’re pretty simple. Earned Value computations rarely leave the realm of arithmetic, and Critical Path Methodologies are the same way. You can conduct a manual forward and backward pass on a hundred-activity schedule network, accurately identify the critical path as well as the amount of float in the non-critical paths, and perform as many what-if scenarios where you fine-tune the bases of estimate as you wish, and never – never – swerve near algebra, trigonometry, or calculus. There is one exception that, in my opinion, proves the rule: when reducing the traditional formula for calculating an Estimate at Completion, a bit of algebra is needed, to wit:

EAC = BAC/CPI

…where EAC is the Estimate at Completion, BAC is the Budget at Completion, and CPI is the Cost Performance Index. Anyone who survived High School algebra, and who also knows that the Cost Performance Index is the BAC multiplied by the project’s/activities’ percent complete, divided by its actual costs, will recognize that this formula can be simplified to

EAC = ACWP / % Complete

…where ACWP is the Actual Cost of Work Performed. (Favorite Project Controls hack: this same formula also works for duration. Simply divide an activity’s actual duration by its percent complete, and the result is a fairly accurate estimate of that activity’s total duration.) However, except for simplifying (note: not altering, but simplifying) existing analysis formulae for utilitarian purposes, virtually all of PM analysis is performed using simple arithmetic.

And here’s where things become ironic. Even as the digital transformation has represented profound advancements in entertainment, defense, retail – almost everywhere in the free market, what similar advancements in PM can be attributed to digital transformation? Consider the difference in the special effects dinosaurs/monsters between Jurassic Park (1993) and Baby: Secret of the Lost Legend (1985), separated by just eight years, which turned out to be a very significant span in digital transformation time. Aside from the full-scale animatronics, the comparative differences in realism renders Baby unfit for any but the most undiscerning of audiences, and on a comical scale.

Meanwhile, Back In The Project Management World…

…we’re still looking at Gantt Charts, PERT Charts, and the Cost Performance Report in Format 1. Modern Baseline Change Proposals and Variance Analysis Reports would be readily recognized and usable by 1960s-era program sponsors. Why is that?

It could plausibly be because the 40-year-old formats are so groovy (40 years ago, that was actually a usable adjective for a couple of months), but I think it’s because the major barriers to advancing the PM capability within macro-organizations have little to do with improvements in information processing, and much to do with aspects that are generally categorized in the Organizational Behavior and Performance realm. I wish I could reclaim the money I’ve spent attending conference sessions that were essentially basic EVM and CPM, slathered with multiple variants of eat-your-peas-style hectoring on why and how PMOs should make everybody else in their organizations execute these techniques. No, the next advancements in advancing PM maturity will only come after a demonstrably repeatable strategy for implementation across the macro-organization is articulated, one that consistently overcomes the anti-PM tactics of Slow Roll and Silent Veto. Fortunately, PMI® has published such a book (I won’t mention the author).

Which brings us back to the digital transformation angle. You see, in advancing PM capability maturity, the actual software platform(s) used don’t have as much of an impact as the major element, cooperation. Cooperation is the coin of the PM implementation realm, and even the unequivocally optimal technical approach will fail utterly without it. Here’s another little bit of irony: it’s not the cooperation of the executives and managers that we’re looking for here. For some reason, PMO Directors often have this really bad habit of assuming that high-level buy-in to their PM implementation plans is all the organizational leverage they’ll need to achieve their goals, and it’s simply not true. The cooperation needed comes from…

Ooops! Look at that. Out of pixel ink. I’ll cover from whom this golden cooperation comes, as well as the best way of securing, in next week’s blog.

While on vacation in northern New Mexico, my wife, younger son, and I walked into an art gallery in Arroyo Seco, and almost immediately I saw a piece that I found fascinating. It was a landscape of what could be a southwest United States town at dusk, done with deep blues and brilliant oranges, and I was determined to have it. I don’t know, I suppose there’s just something about well-done artwork that has a calming, psyche-healing effect on people, and this piece certainly had that effect on me. I knew just where I wanted to hang it, too, on one of the longer walls in my house. When I asked the gallery owner about the piece, I mentioned that I could wish the painting was a little bit larger.

“How much larger?”

“Why?”

“We can print it out for you in almost any size you want.”

The image had been captured digitally, and, with some fairly advanced (and large) plotter/printers, the quality of the output made it indistinguishable from the original. I was surprised, but shouldn’t have been. I listen to my share of music, for example, but can think of only one time that music was produced from a non-digital source, and that was only after having run into an old friend of mine whose dad had run an audio store in the 1970s, who really wanted me to hear a recently-purchased vinyl album.

Of course, the movie industry has been profoundly changed by digital transformation (ProjectManagement.com’s theme for February). The movie Titanic, featuring a digital version of the titular ship, cost more to make than the costs associated with the original’s loss (excluding the lives lost, of course). Also consider that, according to Wikipedia, George Lucas makes an appearance as the director of one of the fifty most successful movies of all time (Star Wars: Episode 1, The Phantom Menace, at #42[i]). Lucas is probably most famous for his seminal work in introducing large amounts of Computer-Generated Imagery, or CGI, into his work. However, Alfred Hitchcock has two entries in the top fifty “best” movies, according to the IMDB (Vertigo at #11, and Psycho at #12[ii]), neither of which (obviously) had any CGI whatsoever, while Lucas does not appear on the IMDB list at all. I believe a reasonable inference is that, while CGI has undoubtably contributed an amazing number of backgrounds, settings, devices and even characters to cinema, the actual gauge for excellence still lies with the quality of the script, the performance of the actors, and their directors’ guidance, both during shooting and in the film editing room.

Meanwhile, Back In The Project Management World…

I’ve lost count of the number of software packages that started out as PM programs that have made the attempt to become program, or even portfolio management systems. Some have pursued this capability by increasing the scale and breadth of its Work Breakdown Structure capacity, or by pulling in certain aspects of resource management (as an aside, using PM software to, say, level-load resources across activities is a legitimate PM function; trying to poach capabilities that truly belong to the General Ledger [e.g., timesheets] is not). While in many cases this expansion has advanced the abilities of Project Management Information Systems (PMISs) to both reliably predict at-completion times and costs as well as create a more reliable audit trail of PM decisions, there is scant evidence to suggest that these advances are actually helping bring more projects in on-time, on-budget. Ironically, the very projects that are most notorious for coming in late and over budget – Information Technology – are the same ones that exist square in the middle of the digital transformation phenomena. It must be stated and re-stated: a numeral is not a number, a CGI Titanic can’t actually float, and gee-whiz, sparkly “portfolio management” information systems can’t change project performance by themselves. That can only be accomplished by real-life PMs.

Before any members of GTIM Nation remind me, yes, I still hold to the Hatfield’s Incontrovertible Rule of Management (HIROM) that states that the 80^th percentile best managers with 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. This  HIROM, however, pertains to relevant information, not the Gaussian speculations listed in the risk register, or the Estimates at Completion derived from re-estimating the remaining work, and tacking on the actuals.

So, I’ll re-ask the question: these advances in PM coming from digital transformation – are we becoming better performers, or are we just looking better?

[i] Wikipedia contributors. (2021, January 29). List of highest-grossing films. In Wikipedia, The Free Encyclopedia. Retrieved 01:53, February 1, 2021, from https://en.wikipedia.org/w/index.php?title=List_of_highest-grossing_films&oldid=1003635060.

[ii] IMDB, “Top 100 Greatest Movies of All Time,” https://www.imdb.com/list/ls055592025/.

In the 1983 movie Mr. Mom, Michael Keaton’s character Jack Butler has been furloughed from his job as an automotive engineer, but after some time is invited to re-interview for it with his former boss and three other executives. Rather than an interview, however, the three execs demand that Jack answer for the fact that, after he had left, production in his former department dropped by 23% while expenses increased 19%. The very availability of these figures leads me to believe that Jack’s former organization had some elements of a Project Team, since had he headed a functional group (or even a purely Level-of-Effort-based Control Account or Work Package) there would have been no way of measuring precisely the drop in production. Since “production” is clearly being quantified and compared to some sort of baseline, we know that some version of a time-phased budget (the Budgeted Cost of Work Scheduled, or BCWS) exists, as well as the ability to capture performance (Earned Value, or BCWP). Of course, all registered corporations have a General Ledger, but it’s not clear from the dialogue if the Actual Costs (ACWP) are available in the PM sense of the term, since the GL would have to be set up to track costs based on a Work Breakdown Structure, as opposed to an Organizational or Functional Breakdown Structure. I believe Actual Cost collection by WBS can be safely inferred, based on the following.

Let’s assume a cumulative time-phased budget of $100K, since, for the sake of this exercise, the precise dollar amount of this parameter isn’t really relevant, as the stated data points are given in percentages. Let’s further assume that the previous production performance was acceptable, meaning that this previous Earned Value figure (cumulative) would have been roughly equal to the prior time-phased budget (cumulative). Based on a production schedule baseline of $100K, in order for “production” to have dropped by 23% against the current time-period figures, the Earned Value number would have to have been $78K, with the corresponding Cost Performance Index being 0.78. I’m going to do a little more reverse-engineering/inferring, and assume that when they said that “expenses” increased by “nineteen percent,” they meant for the same amount of production, as opposed to, say, a similar passage of time (or, if they did mean over a period of time, that their expected production rate was relatively steady). To arrive at that figure, the Actual Costs (cumulative) would have had to have been $96,296.30 (USD).

As an aside, and in further confirmation that some form of an Earned Value Management System is in place in this fictional scenario, had the performance figures been based solely on the General Ledger, the comparison of the $100,000 budget to $96, 296.30 would have yielded a positive cost variance of $3,703.70. The only way to quantify the drop in production and relative increase in expenses is by capturing the output, or production – the very essence of Earned Value.

Back to Mr. Mom. Jack’s answer to the executives, after reminding them that he doesn’t actually work for their company any longer, is to assert the glaringly obvious: the proximate cause of the poor performance experienced was the decision to furlough Jack and his two key associates. Yes, it’s all fiction, but I believe it points to a common condition in …

Meanwhile, Back In The Project Management World…

If the decisions facing PMs in the real world were readily reducible to formulaic responses or canned strategies, we could all be replaced by computers or robots tomorrow (though, if I am to be replaced by a machine, I would like it to have super-strength, like Lt. Commander Data from Star Trek, The Next Generation). In scenarios like those experienced by the fictional Jack Butler, if a corporation sees decreased production and increased expenses after having furloughed specific people, it signals that those people were exhibiting a high degree of resiliency (ProjectManagement.com’s theme for January) in their decision-making. It’s an unfortunate but ubiquitous aspect of Project Management that true managerial resiliency seems to only get noticed when a PM makes decisions that are inconsistent with the owning organizations’ canned strategies, and something either very good or very bad happens. Consider the following payoff grid:

My takeaway from this payoff grid is that, since the whole demonstrative management resiliency game appears to be set up to reward those who stick to familiar decision-making templates, not to those who easily adjust to adversity or change, it’s a wonder that that capacity is seen as often as it is. Also, resilient managers knows when to abandon canned strategies, and show that they can’t be easily replaced by robots.

Even Lt. Commander Data.

In the June 1952 issue of Collier’s magazine was a short story by famed Science Fiction author Ray Bradbury entitled “A Sound of Thunder.” Set in the year 2055, when time travel is available, big game hunter Eckels pays Time Safari to take him back more than 60 million years in the past in order to kill a Tyrannosaurus Rex. Travis, the guide from Time Safari, lays out some very strict rules for the hunters, including the need to stay on a levitating path that keeps the time-travelling hunters from interacting with the late Cretaceous environment. Travis points out that even the slightest change to the environment could have a cascading effect, impacting the hunting parties’ present. For those who haven’t read the story (or seen the film), SPOILER ALERT! that’s exactly what ends up happening after Eckels strays off of the path and accidentally steps on a single butterfly.

I find the use of the accidentally-killed butterfly to be fascinating, in that Edward Norton Lorenz would not describe the Chaos Theory building block, The Butterfly Effect, for another seventeen years.[i] The Butterfly Effect essentially posits that even very small perturbations within an interconnected network can have non-linear, even catastrophic impacts on the other parts of the network, often illustrated by the question “If a butterfly flaps its wings in Brazil, does it cause a hurricane in Texas?” Bradbury’s use of the butterfly image is a poignant way to offer up a treatment almost never seen in the multitude of movies and books that include time travel in their plots, namely that we really have no idea what would ensue if a particular historic variable were to be altered. Virtually all of the other works of fiction that deal with the question show the protagonists’ actions in their historic venues to have the effect of correcting a mistake in the time period from whence they came, with the theory of Unintended Consequences only making a rare appearance. It’s a deeply-held human conceit, I suppose, that we can possess a complete and comprehensive knowledge of the causal links that exists among events that occur in sequential order, and can correctly identify the impact of such decision points on their eventual outcomes.

Meanwhile, Back In The Project Management World…

After the newly-minted PMP® receives their certificate in the mail and has inserted it into a frame, the thought that there’s more to success in the PM world than what was taught in the certification-prep classes invariable enters their thinking. Probably the largest sector of this undiscovered country resides in the Organizational Behavior and Performance realm, which largely resembles Bizarro World from Superman. Are you encountering unreasonable resistance from Finance and Accounting to implementing even a basic Earned Value Management System? Bizarro World. Does every single Control Account Manager (CAM) insist that their work is strictly level of effort? Bizarro World.

But certainly one of the leading citizens of management’s version of Bizarro World is the representative of those holding to the idea that a complete and comprehensive knowledge of the causal links that exist among events that occur in sequential order can be correctly identified, along with the impact of such decision points on their eventual outcomes. Don’t misunderstand – I’m not knocking experience. Seasoned PMs are far more likely to make the correct decisions in an environment of incomplete information than rookies. No, it’s not the PMs I’m taking on here. It’s the Management Information Systems that are supposed to be informing those decisions. And the most common MIS used in the Project Management World that is predicated on the idea that the causal links that exist among events that occur in sequential order can be quantified and evaluated? That’s right, it’s the risk register, relentlessly pushed as essential by our old friends, the risk managers (no initial caps).

To prove my point, compare and contrast what happens during a typical risk event evaluation session with the examples available on-line, from major Universities, for calculating dependent risk. For the latter, examples usually include coin-flipping, dice-rolling, or other, limited-possible-outcome scenarios, which also have the advantage of having clearly mutually exclusive outcomes. One can’t pull anything other than a red or black playing card from a standard deck, for example.

However, in creating risk registers, subject matter experts are invited to offer up alternative events to those expected in the baselined management approach, and guess estimate both their odds of occurrence, and cost/schedule impact. These are then (usually) binned into categories pertaining to whether or not the events being considered are mutually exclusive, dependent in some way, or purely independent. But even this binning can’t be considered absolute, or even roughly reliable. Is there a risk event citing a 15% chance of increased vendor costs causing an 8% increase in budget? How can it be quantified, or even known, if this cost increase is passed along to any or all of the Project’s other suppliers? We’re not even remotely close to the type of closed systems where such calculations can be effective. Instead, the Project risk-evaluation environment far more closely resembles the levitating path for time-travelling Tyrannosaurus hunters, where the slightest change in parameters can have a cascading effect, rendering the very basis for modelling management decisions invalid.

And if accidentally stepping on a butterfly can utterly change the world, then just imagine what far more impactful things can do to just our projects.

[i] Wikipedia contributors. "Edward Norton Lorenz." Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 5 Jan. 2021. Web. 18 Jan. 2021.