Game Theory in Management

Bouncing off of last week’s blog (“Communicating With The Future”) and keeping with ProjectManagement.com’s theme for August, communications, all while avoiding my usual complaint about the silliness of the notion oft repeated by communications experts that anyone identifying as a “stakeholder” ought to have ready, complete, and free access to all information pertaining to your project, I’m going to address a phenomenon I’ve been seeing more and more as my career advances. This phenomenon expresses in a variety of ways, but the one thing each of the manifestations has in common is a single question that pops into my mind each time I see it: Are we really going to do this again?

In a 1993 edition of the National Contract Management Journal[i], David S. Christensen and Scott R. Heis published an article entitled Cost Performance Index Stability, which showed rather convincingly that a project’s cumulative Cost Performance Index (CPI = Earned Value cumulative / Actual Costs cumulative) doesn’t vary more than ten points once the project has cleared the 20% complete point. Proponents of a calculated Estimate at Completion (EAC) quickly recognized the implications of what would otherwise appear to be a fairly anodyne observation, that EACs calculated using the traditional formula of dividing the CPI into the Budget at Completion would be reliably accurate to within ten points of the project’s final costs, assuming the calculation was performed after the project had cleared its 20% complete point. Probably the most common way of calculating the project’s EAC at the time of this research was to re-estimate the costs of the remaining activities, and add this figure to the cumulative actual costs. This so-called “bottoms-up” technique had an ill-deserved reputation for better accuracy, despite the dearth of supporting evidence. Supporters of the “bottoms-up” method liked to point out that, by re-estimating the project’s remaining work, events or conditions that had been unforeseen at the time of the original baseline development could be accounted for, and folded into the EAC.

But there were problems with this approach as well, including:

• According to an estimator-certifying professional organization at the time, the most accurate of the estimate types, a Detailed Estimate, required a professional estimator using off-the-shelf software to generate. It was so detailed, in fact, that, upon completion, the estimator could simply hand a copy to the procurement specialist, and that person would know precisely which pieces of equipment or material to order, and what level of personnel to hire, for each and every activity in the baseline. Even with all this rigor, the Detailed Estimate was only reliably accurate to within 15 points of the final costs – and the bottoms-up version of the EAC was rarely done to this level of precision.
• True, re-doing the estimate for the remaining work could take into account events and circumstances not foreseen when the original baseline was assembled. But it also would accommodate wishful thinking on the part of the Control Account Managers (CAMs), if not the PM himself. Early indications of a potential overrun event tended to attract unwanted upper-level management attention. Far easier to mix in some optimism into the “bottoms-up” EAC, and count on better future performance to come in on-time, on-budget.
• What happens if there’s a difference between the Budgeted Cost of Work Remaining (BCWR) and the recently-redone cost estimate for the remaining work? Should the project proceed as if the new estimate represents the best projection? If not, why not? I mean, aren’t the “bottoms-up” advocates maintaining the superiority of the latter? And, if the re-done estimate becomes the basis for future managerial decisions, doesn’t that turn the original baseline to rubber?

When the Cost Performance Index Stability study came out, its implications for using a calculated EAC over a “bottoms-up” version included:

• The calculated version was faster,
• Easier,
• Cheaper,
• And, most important of all, more accurate.

With all of this being the case, one could be forgiven for assuming that it was the calculated version of the projects’ EACs that had become prevalent, with the “bottoms-up” version attaining the same sort of status enjoyed by proponents of the Sunken Cost[ii] fallacy. Frustratingly enough, this is not the case, as “bottoms-up” EACs are not only common, they are often required on many contracts and in multiple guidance documents. And each time I see such a requirement from one of the guidance-generating organizations in the PM field, I ask myself one question.

“Are we really going to do this again?”

[i] Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.592.2040&rep=rep1&type=pdf on August 9, 2020, 15:50 MDT.

[ii] The Sunken Cost fallacy is the argument that a certain business strategy ought not to be abandoned due to the amount of resources that have already been used in pursuing it, regardless of newer information indicating that the strategy in question was a mistake.

Typically when I write about communication (ProjectManagement.com’s theme for August) I tend to get on my soap box about the dopey idea that it should be considered beneficial for the Project Team to communicate anything and everything under the sun that might be considered useful to the so-called “stakeholders.” I rather enjoy pointing out the obvious fact that among these stakeholders can be found those who not only have zero interest in your Project Team achieving the target scope, but can be counted on to actively oppose your project coming in successfully. But for this blog I’ll give that theme a rest, and instead focus on an area where Communications Management experts can actually increase the odds of bringing in your project on-time, on-budget, and that’s dealing with the ever-increasing issue of communicating with members of the Millennial generation.

The generation born between 1981 and 1996 has been nicknamed “Millennials,” and, fairly or not, are assumed to share a certain set of characteristics inherent in coming of age around the turn of the century/millennia. Some of these characteristics are considered noticeably different from previous generations (Gen X, Baby Boomers), and include:

• A reluctance to highlight manual labor-intensive jobs in their work history,
• Multiple awards or other types of recognition for scholastic achievement,
• An enhanced sense of self-importance leading to the belief that they, even as relative newcomers, have the answers to some of the most intransigent issues facing the organization,
• An aversion to working a standard eight-hour day, five days per week, in a separate office building,

…but perhaps most importantly, the introduction of a particular vernacular when it comes to communicating with each other, and, increasingly, with the rest of the culture. Now, I’m well aware that ProjectManagement.com has an international readership, and that many who see this blog will be blissfully unafflicted by the communication phenomena that I’m evaluating. But for those who are seeing the entirely natural uptick in the number of people ages 24 – 39 being added to their Project Teams, this blog could prove highly useful indeed.

Rather than supply some sort of glossary, I think I’ll use a more PM-world-specific example. Variance Analysis Reports are a regular part of performing project work, particularly if the client happens to be a United States Government agency or branch of the Armed Services. What follows is an example of a transmittal e-mail containing a VAR synopsis, with its Millennial-generated equivalent following.

May 4, 2020

Good morning, Colonel Smith.

Attached is the Cost Performance Report (Format 1) and Variance Analysis Report for the (Project Name), covering the reporting period of April 2020. This report contains a correction of the cumulative figures from the previous CPR, as recommended by Major Jones during last month’s Project Status Review (PSR) meeting.

The project has two (2) active Control Accounts. The first (CA 2.1.3) is showing an out-of-threshold negative Cost Variance in the current period; however, the cumulative Cost Variance remains positive. Such cross-zero variances are to be expected as the overall positive performance more closely aligns with the original baseline.

The second active CA (2.1.6) has the opposite effect. Its current period Cost Variance is out-of-threshold positive, indicating the progress the project has been making in resolving the issues driving the cumulative negative CV. The overall project is within the variance threshold for both cost and schedule.

Please feel free to contact me with any questions or concerns, and we look forward to seeing you at the next PSR.

Regards,

And now, if my sources[i] are reliable, the Millennial version:

June 15, 2020

Sup, dawg.

Yeah, we’re a month and a half late with the cost/schedule stuff, but spare us any adulting. Besides, we totes slayed the report you asked for on our project’s 411. We fixed the issue brought up by Major Ratchet, so now we’re completely on fleek.

The two happenings have some sus going down. The one – humble brag – has been like totally yaaas, while the other is like the struggle is real, but it’ll be lit before you know it. The current period and cumulative variances like totes cancel, because duh, but we can discuss at the next blowout.

Tootles,

As for whether or not such trends in communication take hold in the PM world on a more widespread (or even global) basis, I don’t care to speculate. Nor do I wish to offer an opinion on whether or not such communication represents the greatest threat to the English language since the introduction of lower-case acronyms of common text messaging terms (e.g., “lol” or “rotfl”). But I will say…

Ooops! Look at that. I’m out of pixel ink for this week, so I totally need to bounce.

[i] Bestlifeonline (retrieved from https://bestlifeonline.com/things-millennials-say/ on August 2, 2020, 17:00 MDT).

The construction of the Antonine Wall, begun in 142 A.D., marked the farthest northward extent of the Roman Empire into Britannia. From around 165[i] on, the Roman military’s ability to secure those territories was uneven, at best, and by the mid-6^th century Rome had no controlling interest in England at all.  In the aftermath, Jutes, Saxons, and Vikings would raid, or invade, or settle, or …

It all boils down to arriving, and either leaving with all the stuff they could carry, or not leaving at all. But even this overly-simplified version of the span between the Romans leaving and the Normans arriving is fuzzy, since the aforementioned Jutes, Saxons, and Vikings were all peoples from Northern Europe and Scandinavia, each of whom had spent considerable time raiding, invading, and settling in each other’s “territory,” as much as such areas could be defined by the present-day concept of borders. Indeed, immediately prior to the Battle of Hastings in 1066, English king Harold Godwinson had just defeated a Viking army at the Battle of Stamford Bridge, leading an army of Anglo-Saxons against their distant cousins.

Meanwhile, Back In The Project Management World…

As GTIM Nation well knows, I have oft complained of the prevalence of the Asset Managers’ business model, especially when it conflicts with Project Management's version. But there’s simply no denying that that approach to business was in place from the dawn of the Industrial Revolution up to the present day, albeit in an ever-lessening capacity. The reliance on this model is never going away, since it is almost universally the basis for governments levying taxes. Sure, there are other ways for governments to raise revenue, but the major portion has been and almost assuredly always will be the information gleaned from companies’ general ledgers. So, as more and more organizations replace their business models with the demonstrably successful and aggressively effective PM versions, leading the industrialized world to move towards a Project Economy (ProjectManagement.com’s theme for July), those organizations with a overarching management schema more closely aligned with the Asset Managers can be expected to continue to lose business opportunity territory to their more PM-centric competitors. As this effect becomes more widespread, what other vestiges of the traditional, Asset Management-predicated business models can we expect to see slip by the wayside?

When discussing a shift from a focus on Asset Management towards Project Management may sound anodyne in the abstract, one concrete example is the movement away from defined-benefit pensions and to defined contribution plans. According to Investopedia,

Up until the 1980s, defined-benefit pensions were the most popular retirement plan offered by employers. Today, only 17% of private-sector workers have access to one, according to the Bureau of Labor Statistics’ 2018 National Compensation Survey.[ii]

Actually, this trend makes sense in an increasingly projectized macro economy. As labor and expertise become more aligned, however subtly, with a commodity-like supply and demand curve, it makes less sense for organizations pursuing project work (which is, by definition, a series of unique undertakings) to sign up for long-term asset care, which is what defined benefit pension plans are at their core. Another sign that the projectized economy warriors are knocking at the fortified gates of the business college faculty redoubts can be found in none other than the Harvard Business Review. This is from an HBR article from five years ago:

A better way to frame the debate? We should be talking about “good work” not about “good jobs.” Replacing the idea of “good jobs” with the idea of “good work” doesn’t diminish the value and importance of regular full-time employment, but it places it in a context that acknowledges emerging work options — and it holds those new options to a higher standard, rather than simply dismissing them in favor of regular full-time employment.[iii]

Since “work” is synonymous with “scope,” and “job” is equal to “function,” I’m interpreting this passage by Mr. Boudreau as a full-throated endorsement of the need to more completely recognize a change that has already taken place, a move towards a Project Economy. Any large-scale shift in the prevailing business model is going to be difficult, and more so to those still enmired in the non-PM approaches to management.

To summarize, while the Project Management incursion towards a more dominant role in executive-level business decisions won’t, of course, come close to representing the type of violent upheaval documented in the Anglo-Saxon Chronicles referring to Viking raids, it will signify a kind of slow-motion large-scale paradigm shift. And, for you Chief Financial Officers, if the head of your organization’s PMO has everybody else at the board room table talking about Work Breakdown Structures instead of the profit and loss statement, you may be witnessing the modern-day business equivalent of seeing a longship sail up the river past your village.

[i] Retrieved from https://www.antoninewall.org/ on July 27, 2020, 18:44 MDT.

[ii] Retrieved from https://www.investopedia.com/articles/retirement/06/demiseofdbplan.asp on July 26, 2020, 18:27 MDT.

[iii] Boudreau, John, ”We Need To Move Beyond The Employee vs. Contractor Debate,” Harvard Business Review, July 8, 2015, retrieved from https://hbr.org/2015/07/we-need-to-move-beyond-the-employee-vs-contractor-debate on July 26, 2020, 18:41 MDT.

GTIM Nation is familiar with my go-to delineation of the three management types, and how they use different tools, methods, and processes, because, well, they’re really different. For newcomers to this blog, these types are:

• Asset Management, whose goal is the cliched “maximize shareholder wealth,” Their main source of information in pursuing this goal is the general ledger, which has led to the rather strange business model pathology of believing that any piece of information having to do with costs must be derived from the GL.
• Project Management’s goal is to achieve the customers’ terms of scope, cost, and schedule. The PMs’ primary source of management information is derived from Critical Path or Earned Value Methodologies (CPM/EVM) in the form of Gantt Charts or Cost Performance Reports (CPRs).
• Strategic Management is often confused with a hierarchical function, such as that typically performed by personnel rather high up on the org chart. This is inaccurate. Strategic Managers seek to maximize the organization’s market share, either through such benign actions as investing in an advertising campaign, or via more belligerent tactics, such as hostile takeovers.

Rather than spend pixel-ink re-defining these categories, I thought I’d introduce a table that more clearly supports that these three are different by type, and not degree.  Consider the following delineation of the three types’ goals in various industries.

This table makes clear a few takeaways, including:

• The Asset Managers’ focus is almost exclusively inside the organization. If making a customer happy or acquiring greater market share is not capture-able in the notorious Return on Investment analysis (and, for the record, these are not), then it simply does not enter into their realm, and, therefore, will not have a place in the Asset Managers’ array of recommended strategies.
• The Project Managers’ central efforts are always customer-oriented. To engage in a bit of hyperbole, they couldn’t care less about the decision to rent or buy the copier, unless it impacts their ability to meet customer expectations.
• Strategic Managers may not realize it, but they are more heavily dependent on the PMs than they are the Asset Managers. Making customers happy on a consistent basis easily segues into more market share, based on (if nothing else) the old axiom that it’s five times more difficult to attract a new customer than it is to retain an existing one.[i]

Which brings us to the topic of talent management, ProjectManagement.com’s theme for July. Based on all this bloviating analysis, the cues for the most appropriate approach to attracting talent become:

• If you are consistently achieving your clients/customers’ goals, and enjoy a high rating from them (from whatever feedback mechanism is available), and are moving up in market share, but are still losing money, then (mark this moment, GTIM Nation, for it will never happen again), you need to attract more Asset Management talent.
• If you are making a good profit margin, and your customers are consistently seeing their needs met (or even exceeded), but there are organizations in your industry who still dominate, then your talent needs are in the Strategic Management world.

However, if your organization is hurting for lack of clients/customers, then there’s really only one type of manager who can set things aright. (Just BTW, I’ve occasionally wondered if I could write a blog where my signature transition phrase would be appropriate as the very last sentence. Today’s that day.)

Meanwhile, Back In the Project Management World…

[i] Retrieved from https://www.invespcro.com/blog/customer-acquisition-retention/ on July 18, 2020, 19:25 MDT.

As we note the movement towards a project-based economy (ProjectManagement.com’s theme for July), I can’t help but recognize much of the scenery coming through the windows of our 1983 DeLorean. Is it just a fit of déjà vu, or has some serious scholarship already gone into such a trend, and would therefore be available to PMs now that the trend is accelerating?

Of course, it’s the latter.

David Cleland was the first writer I was aware of that tackled the difficult subject of organizational and macroeconomic changes inherent in shifting the business model towards producing goods and services in a way that satisfied the customers’ parameters of scope, cost and schedule – the very heart of Project Management. Indeed, Cleland has been called “the father of Project Management,” being, as he was, one of PMI®’s founding members. PMI® actually has an award named after him, the David I. Cleland Project Management Literature Award. I referenced him extensively in my own Master’s Degree thesis, based on his seminal work in (what was then called) Matrix Management. Dr. Cleland pointed out something we PM-types tend to take for granted now, but was actually rather novel in the 1980s, that organizations tend to focus on either their project portfolios at the expense of their resources (including personnel), or vice-versa, with the standard being to focus on the resources. This duality was called Matrix Management, owing to the recognition that PMs would pursue their customers’ objectives, whereas resource (or “line”) managers would focus on keeping their people paid, trained, and capable, and that these two goals were not entirely compatible. The former organizations were referred to as having a “strong” Matrix, with the latter categorized as a “weak” matrix.

So, what changes did occur in organizations that qualified as Project Management’s early adapters? One of Hatfield’s Incontrovertible Rules Of Management (I’ve lost track of the actual number) is a derivative of the Pareto Principal, and it goes like this:

The 80% best managers who have access to 20% of the information needed to obviate a given decision will be consistently out-performed by the 20% worst managers who have access to 80% of the information so needed.

This being the case, early PM theory adapters, by generating valid Work Breakdown Structures (WBSs), and using them to create Earned Value and Critical Path Management Systems would become the beneficiaries of critical information streams, vastly increasing the odds of their bringing in their projects on-time, on-budget. As “strong matrix” organizations began to out-perform their more traditionally-structured competitors, they could point to an ever-lengthening list of happy customers and successful outcomes, always helpful at bid evaluation time. Once the strong matrixed organizations won more project work, they had to get their resources from somewhere – usually, the most talented members of the losing weak-matrixed organizations.

There was, however, a dark side to this cycle (cue the sound of challenging bellows from Biff Tannen in the background), and it was this: a key component to being cost-competitive was to minimize overhead rates, meaning that an almost maniacal emphasis would be placed on employees being able to charge their time directly to a project. At one extremely strong-matrixed company where I worked, those workers who were 100% direct billable would command significantly higher salaries than those belonging to indirect-funded groups, while, paradoxically, the latter category were expected to put in far more than 40 hours per week, without charging for it. This kind of widespread but never articulated hierarchy brought with it some rather bizarre business model pathologies, such as the poor engineer who nevertheless had a knack for writing winning proposals being considered far more valuable to this organization then the more technically advanced engineer who failed to attract more work.

The company’s org chart was pretty useless. Very little or no effort would be made to smoothly transition personnel away from ramping-down projects, or any other employment-confirming action. If the new PM knew of available resources needed, he would hire them away directly, saving their targets from the oh-so-casual receipt of a pink slip. The only training that occurred was either offered in-house (unpaid overtime for both instructors and students), or else paid for directly by the external customer. Their view that the project portfolio was all-important came with a very dark corollary: despite the “our employees are our greatest asset” proclamations, the project teams were golden, while the line organizations were held in virtual contempt.

Granted, this strong-matrix organization was, in all probability, a badly-managed anomaly. They were, however, one of the top ten employers in my State at the time, so they were doing the PM-stuff effectively, if ruthlessly. I’m not saying that these trends will automatically afflict the management world as we move towards a project economy, but I do think it would be a good idea to keep an eye out for them, lest we find ourselves returning to a future where whole landscapes have been altered for the worse, and our DeLorean in critical need of repair.