Game Theory in Management

Yeah, yeah, I know: “Change Control” doesn’t really mean we’re controlling change. In PM parlance, it means we’re taking a formal approach to altering our Scope, Cost, and Schedule baselines to accommodate differences in the project execution environment that were not foreseen when those baselines were originally established. But I have to ask: is that what we’re really doing when we set up our Baseline Change Control Boards? Are these changes truly confined to circumstances or events that could not have been reasonably foreseen, and necessitate added monies, or time?

Just as a quick aside, what exactly is “schedule contingency?” When we discuss budget contingency, I can understand what’s going on. The risk managers (no initial caps) do their whole Decision-Tree or Monte Carlo analysis thing on the existing cost baseline, and take a wild guess estimate an amount of money that the customer may or may not set aside for events that have a certain pulled out of thin air calculated value, in case those predicted events actually happen. If the customer does decide to set aside this amount, it can be placed in a bank, I suppose, or represented by some sort of promissory note attached to specific conditions that would allow the contractor to tap such funds. 

But how does that work with “schedule contingency?” Is there some time-bank that exists, where the customer can make a deposit of hours, days, or weeks corresponding to the amount that the risk managers (no initial caps) propose as the appropriate amount? I think it’s pretty obvious what’s going on here: the risk managers (no initial caps) derive this “schedule contingency” amount and document it as part of their risk analysis so that, should any of the events listed in said analysis actually occur, the PM can feel a little better about asserting to the customer “I thought this might happen, and look where I added X amount of days to the schedule contingency.” Perhaps I’m being harsh on our friends – for all I know there may actually be a gaggle of customers out there who can be placated by the ability to predict that something might go wrong on a project, which prevents them from becoming mad about late finishes.

The whole “schedule contingency” business kind of points back to the contingency budget version, in those instances where the contingency budget isn’t funded. Consider this version of the Game Theorists’ favorite tool, the payoff grid:

Let’s dispense with Scenario 2 (A) right off the bat. Plenty of projects are sufficiently routine that no risk analysis is performed, no contingency budget established, and nothing so out-of-the-ordinary occurs that would lead the PM to request additional funds. Similarly, if a contingency budget is established, but no reason exists to tap into it, then it’s a big nothingburger, though I do wonder what happens to those funds. Were they invested? Should they have been? If the customer gets those funds back, do they go on vacation?

Where change control (ProjectManagement.com’s theme for November) becomes a critical function has to do with Scenarios 1 (A) and 1 (B). For Firm Fixed Price contracts, of course, contingency events are simply part of the game. The amount needed to overcome or accommodate them comes out of the total project cost, no justifications needed. But for Cost-Plus contracts, where the customer is sharing the projects’ risks, how such contingency events are handled becomes a bit trickier. If a contingency event occurs, but there are no additional funds (set aside or not) to cover its costs, then available responses can become severely restricted. In fact, I can think of only four: (1) reduce the scope elsewhere within the Work Breakdown Structure, (2) find additional monies somehow, somewhere (hopefully not the way Fred Smith [founder of FedEx®] did it, by going to Las Vegas and winning the shortfall playing blackjack[i]),  (3) get other Control Accounts or Work Packages to perform so well that they make up for the expense in underruns, and find an acceptable way to transfer the balance over to the afflicted CA, or (4) brace yourself to endure the consequences of a late, overrun project.

Finally, we have Scenario 1 (B), the nominally intended purpose of Baseline Change Control Boards, to evaluate baseline changes that have come about due to factors outside of the contractor’s control to see if they should be included in the scope baseline, funded and scheduled. Even here, though, BCCBs have to be vigilant, since adding budget or time to the respective baselines isn’t just the solution to contingency events – it’s also a pretty effective cover for a variety of PM pathologies, such as poor performance, or scope creep, or increased unit costs, or…

The list goes on and on, but one of the things they all have in common is that none of them can really be controlled, at least not in the precise use of the term. Influenced, resisted, avoided, dissuaded, sure. Controlled, not so much.

[i] From https://www.businessinsider.com/fedex-saved-from-bankruptcy-with-blackjack-winnings-2014-7 on November 17, 2020, 17:23 MST.

“It's a very sobering feeling to be up in space and realize that one's safety factor was determined by the lowest bidder on a government contract.”[i]

--Alan Shepard (American astronaut)

We business writers usually don’t like discussing it, but it’s an ubiquitous factor in what Project Managers do: our contracts are, generally speaking, awarded on the basis of who had the lowest plausible bid at the end of the Request for Proposal cycle, even if the project being contracted out involves safety-critical work. Recall my oft-repeated business model axiom—Affordability, Availability, Quality: pick any two. With the lowest-bidder model in place, one of these factors – Affordability – has already been established. Since virtually all projects have a contractually mandated start date, Availability has also been spoken for, leaving Quality as the de facto element receiving the proverbial short straw. This being the case, the PM game has been largely set up to encourage those putting together the best and final offer (BAFO) package to interpret the project’s scope in a minimalist fashion, and create the cost and schedule estimates around that. What happens if the PM finds herself in the middle of the awarded project, and the customer isn’t okay with such a minimalist interpretation? This dichotomy is the source of no small amount of conflict in the most common PM business model, and I intend to take a peek behind its curtain.

Way back when I was taking Psych 101 and 102, my particular University’s Psychology Department was dominated by Behaviorists, a school of thought attributed to the early works of B.F. Skinner. All of the classes I took from this department were taught by Behaviorists, and they absolutely loved to tell the following story on the first day of class.

Some unnamed early-adopter of Behaviorism would find himself in a class taught by a different school of thought (usually Freudians), but with a sizable percentage of the students who were also Behaviorists. Prior to the second class, these got together in the Student Union Building, and agreed to an experiment: each time the Freudian instructor walked towards the door/hallway side of the classroom, the students would pretend to lose interest, break eye contact, feign daydreaming, doodle, etc. However, whenever the instructor was on the windows side of the classroom, they would pay rapt attention to him, writing down whatever he said, smiling and maintaining eye contact. The result, it was said, was that this instructor planted himself on the windows side of the room within fifteen minutes of the beginning of the session, and did not leave. Reconvening at the SUB afterwards, they schemed to see how far they could take their little experiment. To hear their telling, by the end of the term this unfortunate instructor was exclusively teaching from the windows side of the classroom, assuming a specific posture, tone of voice, and affecting a style of speech that was otherwise entirely foreign to him.

Meanwhile, Back In The Project Management World…

I would argue that, in a sense, the population of clients that employs the lowest-bidder strategy in selecting their contractors have established a business model that’s at least somewhat analogous to the students in the story above. Contractors engaged in a bidding contest against others will avoid proposing the high-quality solution to fulfilling the proffered scope, since that approach is almost guaranteed to be a more expensive option. In this model, contractors are rewarded with wins for offering Affordability and Availability, while making a minimal number of quantifiable claims in the Quality arena. Equally as important, the same population of contractors putting in bids are punished with losses for taking any other approach. Even first-year graduate school students at a State University given to telling tall tales on the efficacy of a favored psychology school of thought can predict the outcome of long-term engagement in this particular business model, and it’s not good for the Quality crowd.

Such a structure puts pressure on the PMs to complete the existing scope as economically as possible as they target the minimally-acceptable standard. It’s the twin of another highly damaging Project Management pathology, Scope Creep, except, rather than having the project absorb informally-changed scope with no change to the budget, the Project Team is rewarded for producing the most basic-while-acceptable output, which drives the Quality aficionados crazy. The depiction of this condition is shown in the Game Theorists’ favorite tool, the payoff grid, so:

Just as experienced PMs will be on the lookout for the conditions common to Scenario A, seasoned project sponsors will be wary for hints that Scenario D is unfolding. To be fair, the people I’m talking about here didn’t come to behave in this manner out of a deceitful nature, a desire to engage in subterfuge, or because they thought it would be really cool to join the Dark Side of the PM Force.

Whether they know it nor not, the prevalent business model trained them to act this way.

[i] Retrieved from https://www.brainyquote.com/authors/alan-shepard-quotes on November 8, 2020, 19”42 MST.

Yes, I know it’s November, but I wanted to get in one more point about ProjectManagement.com’s October theme, leadership. Almost all of the pixel ink I’ve seen on the topic addresses things like the characteristics of leaders, how they’re different from others, and/or how those who are typically not leaders, but would like to be, can become one. This is all fine, but what I’d like to focus on for this week’s blog is a situation virtually everyone who’s ever been part of a team has endured: that of having the person who has been named to a managerial leadership position having little or no true qualities of a leader, or even exhibiting characteristics of one who should never, ever be in such a position. What do you do if you’re stuck with a bad leader?

Consider the following scenario. A fellow comes to work for a contractor straight from a stint as a very high-ranking executive in another very large organization. He actually flunks all three of Hatfield’s Rules of Managerial Leadership:

• He has nothing of value to add to the technical agenda of the project,
• He not only doesn't care about the people on the Project Team, he actually treats them in a highly condescending and adversarial manner, and
• There is absolutely no way he would pursue his own vision, alone if necessary, since he really doesn’t have one.

Nevertheless, this person is brought in as a Vice President, and every whim that emanates from his large corner office is carried out by the craven Company Men and Jungle Fighters[i] within the organization, no doubt in the vain hope that his counterproductive techniques will hurt them least. Nobody on the Project Team is willing to identify the precise reason this person came in to the organization at such a high level, but it would be consistent with this particular company to bring in such people in the hope that they could help win more contracts from the organization they had just left. It does not occur to anybody that the organization this guy just left would resent him as much as the Team learns to, and in short order.

So, what ends up happening? Morale plummets, key deliverables are over budget and late, and any Gamesman or Craftsman[ii] who can leave the project. However, keen observers become aware of one more tell, another clue that this guy is a terrible manager: he really hates Earned Value Management Systems (EVMSs).

Sure, I’m fully aware that a long-standing frustration of us PM-types is the indifference or even recalcitrance of higher-ups in our organizations to recognize and use EVMSs in their project and program work. But I’m not speaking of a garden-variety neutral or mildly irked attitude towards it – I’m talking about full-blown resentment that such things even existed. In our scenario, a certain level of Earned Value rigor is stipulated by the contract, and no level of temper tantrums from this VP can change that. As the cost/schedule performance reports show an ever-deteriorating level of performance, this fellow’s behavior actually worsens. Fortunately for the rest of the Project Team, his Project Controls Analyst is a woman with a spine of stainless steel. She simply can not be bullied into altering her analysis towards supporting a more optimistic narrative and, since something had to be done by the execs about the amount of talent fleeing the project, she can not be dismissed or transferred. Members of the Project Team (well, the braver ones, anyway) could complain to the higher-ups about this veep’s lack of technical qualification, or his treatment of the Team, or lack of vision the live-long day, and such assertions – no matter how true – would fall on skeptical (or even deaf) ears, being, as they were, somewhat subjective. But a Cost Performance Index over twenty points down at the cumulative level? Now that’s something that can’t be ignored. As the Project’s objectively-measured cost and schedule performance worsened, less and less authority would be imparted to this veep, as he draws higher and higher levels of scrutiny for even the mid-level decisions he would make. Eventually he has the title, and the salary, and little else. The whole company folds a few years later, hastened, in part, by their tendency to place bad managers into leadership positions.

The moral of the story provides something of a road map for others caught in analogous scenarios. In the confines of my little story, those who managed the situation best did the following:

• The recognized the bad manager in the leadership position early, and got out.
• Those who couldn’t escape directly became champions of the one information stream that faithfully and relentlessly exposed this person’s penchant for failure, the Earned Value Management System. Indeed, any excessively negative reaction to an EVMS is almost always a sure sign of a poor manager.
• While waiting for the execs to see the poor performance numbers and respond accordingly, the successful ones would simultaneously perform their duties so well as to make themselves indispensable to the Project Team, while doing everything in their power to minimize contact with the veep.

GTIM Nation knows I’ve written at length about the characteristics of managerial leaders, and one of these days I may pen a blog about the characteristics of really bad managerial leaders. When I do, I will definitely include one of the quirkier tells of such ones, that they almost always despise any form of a working Earned Value Management System.

And I will leave it to GTIM Nation to determine how much of my scenario is fiction, and how much was lived reality.

[i] See Maccoby, Michael, The Gamesman, The New Corporate Leaders, Bantam Books, 1976.

[ii] Ibid.

I may be setting a record for the highest number of characters in a GTIM blog title, but I needed every single one of them to synopsize this week’s take on this month’s ProjectManagement.com topic, Leadership. An oft-overlooked aspect of managerial leadership is a subset of my three key aspects of it, to wit:

• Sufficiently advanced expertise to identify the optimal technical solution to the problem in front of the Project Team,
• A genuine concern for the members of the Project Team, and
• A willingness to pursue the optimal technical solution, alone if necessary.

The oft-overlooked aspect I alluded to is a subset of the first bullet, identifying the optimal solution to the problem being pursued by the Project Team. Even a moment’s consideration of the situation must yield the obvious fact that, if one of the canned strategies that’s been around seemingly forever was clearly the ideal approach to take, why on earth would it need a PM to execute it? Doesn’t work that needs no innovative or creative approaches or solutions become rote?

And this is where I become frustrated with symposium paper-presenters. Not all of them, of course, but the ones who are not so much presenting new or innovative ideas as much as acting as well-mannered and polite scolds to those they perceive aren’t implementing Earned Value or Critical Path Methodologies to their satisfaction. These are not thought leaders, nor leaders at all. They’re more precisely defined as passionate followers, throwing their energies behind notions that have been around for decades. We all know the need to set up a Work Breakdown Structure; we’ve been told ad infinitum of the need to clearly and completely define the scope, and to honor the “triple constraint,” and to acknowledge that one of the baselines can’t change without impacting the other two, and to guard against informally changing the scope, and, and, and…

Enough already! This isn’t news to anyone who’s ever even studied for the PMP®. To help illustrate my point, let’s turn, once again, to the Game Theorists’ favorite tool, the payoff grid.

Practically speaking, the Type of Leader/Assigned Role profiles for scenarios 1B and 2A will be significantly easier to identify than scenarios 1A and 2B. Interestingly, scenario 1A represents a threat to being able to optimize Asset Management, while scenario 2B is a danger to Project Management. If a genuine leader has not been recognized for their abilities in such a role, the worst that can happen is that the organization isn’t using its assets to their potential. However, if a PM happens to belong to scenario 2B, and the project can’t perform adequately with only conventional techniques, then such a project is virtually doomed to overrun, come in late, or both.

“But wait, Michael!” I can hear GTIM Nation say, “What about your oft-cited derivative of the Pareto Principle, that the 80^th percentile best PMs 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? Wouldn’t the existence of an adequate Earned Value Management System, combined with a decent Critical Path schedule and a functioning Change Control System, keep the scenario 2B manager from wrecking the project?”

Well, yes and no. The people I’ve observed who are entrenched in scenario 2B will tend to reject the idea that poor cost and schedule performance indicators could possibly be indictments of their technical approach to their projects’ scope, preferring instead to blame various members of the Project Team for not implementing the canned management schemes thoroughly enough to attain success. This kind of blame-shifting from the fake leaders in the PM role easily turns into a project performance tail spin, particularly if unrecognized true leaders happen to be in the ranks of the Project Team, and can see the actual source of the project’s difficulties, but are not in a position to properly address them.

“BUT WAIT MICHAEL!” I can hear the more readily agitatable members of GTIM Nation exclaim. “What if the performance measurement information actually influences the PM to re-evaluate their technical approach?” Well, if this is the case, then such a manager would have begun the transition from fake to genuine, leaving my analysis (mostly) intact.

An awful lot has been written (with “awful” being the operant word here) about the PM’s role in “changing culture,” usually of the organization that the Project Team belongs to, in such a way as to expedite the use of PM tools and techniques within said organization, leading to an increase in the frequency with which projects are brought in on-time, on-budget. What seriously irks me about such assertions lies with the fact that the word “culture” is usually so poorly defined within these arguments that their assertions can basically be boiled down to “the members of the Project Team didn’t do as I said, or found some way to disappoint me, leading to the failure to …” install a Project Management Office, or advance PM capabilities within the organization, or bring the project in on-time, or any other disaster that happens to unfold. So, let’s turn to Dictionary.com for a usable definition of the term “culture.” Although several of the definitions (3 through 6) offered could apply, I’m thinking #7 is closest to fulfilling our purposes:

noun

1. the quality in a person or society that arises from a concern for what is regarded as excellent in arts, letters, manners, scholarly pursuits, etc.
2. that which is excellent in the arts, manners, etc.
3. a particular form or stage of civilization, as that of a certain nation or period: Greek culture.
4. development or improvement of the mind by education or training.
5. the behaviors and beliefs characteristic of a particular group of people, as a social, ethnic, professional, or age group (usually used in combination): the youth culture; the drug culture.
6. the shared beliefs, behaviors, or social environment connected with a particular aspect of society: the rape culture on campus; the culture of poverty; a culture of celebrity worship.
7. the values, typical practices, and goals of a business or other organization, especially a large corporation: Their corporate culture frowns on avoiding risk.[i]

Now let’s zoom in on the three subject nouns in number 7:

• “the values…” Does the organization value (a) “maximizing shareholder wealth” (the Asset Managers’ goal) over (b) meeting or exceeding customer expectations with regard to completing projects on-time, on budget, with all aspects of the negotiated scope well-fulfilled?
• “…typical practices,” When the organization seeks to generate information on cost or schedule performance, does it (a) employ actual cost monthly burn rates derived from the general ledger, and milestone lists, or does it use (b) Earned Value and Critical Path Methodologies?
• “…and goals of a business” Sort of a rehash of the first bullet. Does the organization seek to (a) make money directly, or (b) earn a profit indirectly by building up and maintaining a solid customer base?

If your eval of the bulleted questions returned even one (a) answer, you are most probably in the same confounded conundrum that has beset the vast majority of PMs since the start of Project Management as a distinct discipline. For virtually every business in its growth or maintenance of market share phase, (b) is clearly the best answer. One would not know this from the curriculum of almost every business college in the world, though. They have been dominated by the Asset Managers’ view of corporate commerce techniques since the time of Machiavelli (a coincidence?), and show few signs of losing their epistemological grip on academia, if not the industrialized world.

All of which brings us back to the notion of culture change. In those organizations lucky enough to have a strong PM culture, I’d be willing to bet that it did not come about because the execs in the Finance and Accounting Department had a sudden epiphany, and gladly handed the technical agenda for producing project-related management information streams over to the PMI®-types. Nor am I inclined to believe that it came about due to an infiltration of PMs re-writing a bunch of procedures, and getting some executive to sign off on them. No, my money is on a handful of courageous and insightful PMs actually (if not surreptitiously) embracing PM culture, and using its manifestations to bring in projects on-time, on-budget, including functional EVM and CPM systems, leading to the establishment of a solid customer base.

Unfortunately, this last approach also happens to be the longest. So, yeah, the PMO can “change culture,” just not directly. The kind of change that challenges and eventually overcomes literal centuries of Asset Management rules and techniques probably never comes about from a frontal assault-style approach. It has to be done one project at a time, then one program at a time, before it can move on to portfolios, organizations, and entire industries.

And that’s how PMs’ actions can lead to culture change.

[i] Retrieved from https://www.dictionary.com/browse/culture on October 18, 2020, 20:04 MDT.