Game Theory in Management

I once worked with a large program office that had several, far-flung subordinate project offices. To keep up with the satellite office’s schedule performance, the home office had a software package that enabled the sites to send in updates pertaining to their attainment of key milestones. This program wasn’t based on Critical Path Methodology – instead, this “status” was in the form of assigning a category to the milestone: (1) completed, (2) expected on-time or early, (3) anticipated delay, or (4) anticipated major delay or out-and-out miss. Of course, this setup wasn’t a schedule performance measurement system at all, despite the way it was advertised. As my regular readers will readily recognize, this system’s design was essentially that of a poll: the performing organizations weren’t sending in performance data. They were, rather, transmitting their opinions on how they would perform, which is a very different animal. 

An entirely predictable pattern emerged: at the fiscal year switchover, a new set of milestones (with their due dates) would be negotiated, and all of the milestones in the report would show an anticipated on-time delivery (2). Then, as these milestones’ due dates drew within a few months, their status would tend to change to anticipated delay (3), and, only within one or two months of the due date, the activities that were genuinely in trouble would reveal an anticipated major delay, or a complete miss (4). A legitimate schedule performance measurement system could have alerted the home office of the problems in time for them to help deal with them; instead, the satellite offices were in a position to obscure any issue that might make them look bad in comparison to the other sites, and the home office remained in the dark until their intervention couldn’t help anything. But, hey, the software package itself performed as expected!

It was pretty obvious to me what the problem with this system was, and so I, along with two associates from my organization, visited the site that had developed the software in the first place. There’s actually an old scheduler’s trick for assessing performance in environs where routinely collecting the data needed to keep a critical path method package going isn’t an option. All you need to do is to divide an activity’s cumulative duration by its estimated percent complete, and you have a fairly accurate estimate of its total duration. Compare this figure to the activity’s original duration, and you know within about ten points if the activity will finish early, on-time, or (gasp!) late, and by how much. Since this system already had the activities’ start dates, all it needed was the percent complete estimate (instead of the milestone categorization used), and it instantly became an effective (if basic) schedule performance analysis tool. The programmers we met with thanked us for the insight, but turned down cold our entreaties to update their software. The reason? “Because before this package was introduced, there was nothing, and, even if it is flawed, this is better than nothing.”

So, what we had was an instance of a piece of software that had been adequately tested and installed, but was still failing at its purported function, that of monitoring schedule performance across multiple project sites within a program. Why was it failing, despite passing its tests? Because it was predicated on a flawed business model. Polls are not performance measurement systems, period, even though they often masquerade as them. However, once in-place, it would prove to be very difficult (if not impossible) to replace it with any system that would represent a superior solution based on, essentially, the flawed sunk-cost argument. 

So, before you test the software – indeed, before you code the software – do yourself and your customers a favor, and test the validity of the underlying business model. How can you do this? Well, first you…

Oops! Look at that, I’m out of space. If you can’t wait, check out the book that this blog is named after, available at http://www.ashgate.com/isbn/9781409442424.
 

Pretty simple question, right? What color is an orange? Since it’s such a simple question, and since I’m the one asking, my regular readers are perfectly justified in suspecting a trap. Can I, in 700 words, convince you of an answer different from the obvious one? We’ll see.

Due to minute variations in the way humans are made up chemically, biologists have discovered that virtually everybody experiences sensory inputs slightly differently. Salt probably tastes pretty much the same for all of us, but it’s a rare palate that can discern a 1926 Dom Perignon from a 1959 vintage. And even some experts in music can have a difficult time telling the difference between a Primavera (the violin maker) and a Stradivarius in the hands of a sufficiently talented player.

This phenomena extends to our perception of color, as well. Technically, what we perceive as “color” is actually the different wavelengths of radiation in what humans know as the visual spectrum (as opposed to whose perception? Stay with me.), situated in between near-infrared (on the low side) and near-ultraviolet. Humans have three types of color-receptive cones: green, blue, and red, the last of which enables us to see all the colors that are derived from red, such as violet, and, yes, orange. By contrast, butterflies have five types of receptor cones, which means that they see at least two more colors than we humans even have names for. Mantis shrimp have 16 different types of cones(1) .

Meanwhile, back in the Project Management world, roving bands of PM-themed writers, consultants, and bloggers prowl about the land, seeking to uncover project management practices that don’t meet their ideas of sufficiency. Where do these ideas of sufficiency come from? I would argue that, with few exceptions, they come predominantly from one source: experience. For those readers who would object by saying that education also comes in to play, I would argue that “education” is rarely more than others’ experience, communicated to and adapted by the writer/consultant/blogger. In the management sciences, theories that would otherwise overturn commonly shared experiences are almost never provable in an experimental setting. When we talk about project management best practices, it’s virtually always based on experience – our own, or others’ (whom we know about). 

Okay, so if it’s a common experience that, just as the orange fruit is orange in color, any major project would be doing Project Management wrong if there were, say, no recurring “bottoms-up” estimate being performed, why is it problematic to point that out? Because it’s subjective, that’s why. 

If the question as to whether or not an object is orange is mission-critical, then the appropriate response would be something like “Its wavelength is between 635 and 590 nanometers, which most people perceive as the color orange.” Similarly, if a writer, consultant, or auditor wants to level severe criticism against a project team for not executing the occasional “bottoms-up” estimate, the natural response should be “Why? Why is re-re-estimating the remaining work considered a valid analysis technique? Which projects have had success in doing that way, as opposed to the normal, calculated version?” But, since there is no valid research establishing that performing a “bottoms-up” estimate yields vital performance information that often changes the project team’s technical approach for the better, the one making the criticism remains mired in subjectivity. At that point, the argument turns on the differences in the participants’ experience. But, as we established earlier, our experiences are almost certainly subjective and unique – even those from virtually identical backgrounds can and do have significantly different takes on their shared experiences, up to and including causality.

So, what color is an orange? Well, I’ll concede it’s orange – if and only if disagreement doesn’t land me or my project team in the non-compliance penalty box. Otherwise, I’m going to have to insist on a spectrometer analysis…

  (1)The Oatmeal, “Why the Mantis Shrimp is my New Favorite Animal,” retrieved from http://theoatmeal.com/comics/mantis_shrimp on November 5, 2015, 18:06 MST.

With the upcoming release of the movie Spectre, I thought I would, once again, employ my own Bond, James Bond-like skills, and infiltrate PMI®’s top-secret archive vault to review some of their most closely-guarded documents. The safe is behind the velvet Elvis painting in the President’s office, and the combination is still the factory setting. What I found inside was both amazing, and highly appropriate for dissemination among my readers.

In a red folder marked “Top Secret: The Evolution of Change Control,” I found some time-yellowed papers that appeared to be antique Baseline Change Proposals, or BCPs. Holding my little flashlight in my mouth, I snapped photos of them before putting them back. Here are some of the jaw-dropping highlights.

Contractor: Hamlet
BCP #2
Date: 5 March 1512
Cause of Baseline Change: The baseline needst to be changed because the scope has dramatically (get it?) changethed. The original scope statement, “Something is rotten in the State of Denmark,” was clearly very general. As I undertookst the investigation, two things became readily apparent:
1.    The King did not die of natural causes, and
2.    My Uncle is not only the most likely suspect, but he’s the current king, having married my mother.
BCP #1, submitted two weeks ago, was rejected outright, the only explanation given being “visitations from ghosts do not, generally speaking, meet the evidentiary threshold for altering a baseline.” Contractor’s response: yeah, verily, I didn’t see any of your happy posteriors up on the battlements when that went down, so you wouldn’t really know now, wouldst thou? Rather than revisit that issue, this BCP (#2) seeks to establish that, even if (1) above is rejected, there can really be no doubt that “King” Claudius is a very poor choice for ruler, having claimed the throne through the highly suspect tactic of marrying in to it. 
Impact of Change: the customer has dithered so long on the proposed action of overturning Claudius without the consent of (1) the Queen, (2) Polonius, (3) Laertes, and (4) any of an additional dozen self-identified “stakeholders,” one of whom is certifiably insane, that it looks like the contractor is riddled with hesitations and doubt, which will, no doubt, become the narrative of choice. 

Contractor: H. Potter & Associates
BCP#: 1
Date: Present Day
Cause of Baseline Change: Contractor personnel, being a rather gifted magicians, have accessed the archives hidden behind the velvet Elvis painting, and that Hamlet fellow has nothing on us. Our original scope was to simply graduate Hogwarts; it was only after enrolling that the contractor’s personnel were confronted with a few scope-changing facts, including:
1.    The ultimate bad guy, the known focus of evil in the Magical World, assumed by all to be dead, is, in fact, alive.
2.    …and pursuing a vendetta against Contractor personnel.
3.    Customer was originally scheduled to provide Contractor an education; instead, Contractor is being compelled to confront said ultimate adversary, and overcome him and his thousands of followers, on behalf of Customer. 
Impact of Change: In light of these facts (#3, especially), Contractor seeks relief in the form of a significantly extended schedule, as well as profoundly enhanced remuneration for the difficulties already sustained.

So, I am now going to play the part of Wikileaks, and release these Baseline Change Proposal documents I photographed out of PMI®’s vaults as they become relevant. But I’d rather not move to Russia…
 

My younger son is completing his undergraduate work at a State University, which means he’s getting fed a steady diet of the Leftist worldview. It’s okay – I did my undergrad work at the same University, so I’m ready to counter some of the more egregious stuff.

Take environmentalism (yes, this blog has a management component to it – just bear with me). The main arguments he invokes when suggesting that corporations must be reigned in has to do with the scenario where some company comes in to an area, town, whatever, sets up a facility to extract or manufacture, damages the environment, and then high-tails it out before any enforcement agency can interfere or hold them accountable. This is a favorite scenario of the anti-corporate types as they argue for more oversight and restrictions on the managers of such opportunistic and greedy entities. But I have to ask: where did the notion that companies only seek to extract profits from an available market at the expense of a multitude of other concerns, the natural environment in which they operate included? 

I blame a familiar target, Generally Accepted Accounting Principles, or GAAP.

As I have previously and often asserted in this blog, there are three types of management:
•    Asset
•    Project
•    Strategic
Of these, only Asset Management has at its core the notion that the point of ALL management is to “maximize shareholder wealth.” Project Management (for the umpteenth time) seeks to deliver a specific product or service (scope) on the customers’ parameters of time and cost. Strategic Management is oriented towards garnering more market share than its competitors. Neither Project Management nor Strategic Management has anything to do with, say, the decision to rent or buy a certain piece of office equipment, or whether or not the employees are putting in “free” overtime. 

Indeed, the natural extension of the notion that the point of all management is to maximize shareholder wealth is the very scenario feared by environmentalist, or any other stakeholder who stands to lose by the corporate entity behaving in just such a fashion. Your typical Project Manager would just assume have a happy project team chasing the project’s scope; Strategic Managers are actually happier when the competitions’ workforce is noticeably demoralized. Not so the Asset Managers – as long as the Profit-and-Loss statement looks really good, their view is that their decisions and influence have delivered an environment (pun intended) where the company’s assets are pulling in more revenue than they are expending, which is always a good thing based on that philosophy. Is the company’s revenue projection headed downward? Having the employees work harder and longer (without incurring additional costs) is the obvious answer. If that doesn’t work, they will look for other areas to cut costs: training, seminars, facilities, perks – nothing is off limits, up to and including layoffs (strikethrough) reductions in force. It’s simply the way they see the business world.

And it’s not just the environment. Recently a person bought up the rights to a drug used to counter certain parasites, and increased the price 5500% (1).  While this struck the rest of the universe as an outrage, it must be pointed out that (a) it was perfectly legal, and (2) it maximized shareholder wealth. In short, any intellectually honest GAAP adherent should admit that it was a pretty clever maneuver – either that, or step up and admit that the whole “maximize shareholder wealth” meme is openly fraudulent, or at the very least hopelessly inadequate.

Any takers?
 

(1)Skeptical Raptor’s Blog, Skyrocketing Prices of an Anti-Parasitic Drug: The Facts?, retrieved from http://www.skepticalraptor.com/skepticalraptorblog.php/skyrocketing-prices-of-an-anti-parasitic-drug-the-facts/, October 25, 2015, 18:23 MDT.

The American Television Christmastime special Rudolph the Red-Nosed Reindeer originally aired December 6, 1964, and quickly became something of a classic (i). Part of its plot involves an Island of Misfit Toys, whose inhabitants, quirky as they are (their leader is a winged lion toy), long to be given to children around the world, and enlist a runaway Rudolph in their efforts to be re-entered into Santa’s worldwide toy distribution queue. (SPOILER ALERT!) They are eventually successful in this endeavor. 

Meanwhile, back in the nearly-as-fantastic world of competing Project Management theories, I have noticed a pattern in the introduction and attempted implementation of hypotheses that ostensibly fall under the PM umbrella, but are really either tried-and-true ideas that are being repackaged with new terms and being reintroduced as something new, or else they are notions that lack serious evidentiary underpinnings, but are nevertheless being sold as profoundly insightful analysis methods or management practices. Both versions of this PM strange toy concept tend to follow observable and repeatable patterns, which might help with early identification the next time one of them bursts onto the scene, thereby shortening the amount of time needed for them to be relegated to the Island of Misfit Management Science Theories.

The first step involves performing some sort of cross-pollination of existing management science ideas (generally accepted or not), and kluge them together into a cohesive structure that can be presented as a new idea. Typical sources of these conflated ideas are from the areas of statistics and the general ledger, since each of these sources have the following characteristics:
•    They are generally accepted as valid,
•    They aren’t easy to understand in-depth, making serious challenges (or challengers) more rare, and
•    Should an informed challenger actually contest the “new” theory, a ready riposte exists in implying (or even stating outright) that the challenger is simply moribund in their management approach, or else too ignorant to recognize the importance of the “new” concept.
Next, the new idea will need a whole new lexicon to accompany its introduction to the PM world. Hence, Crashing the Schedule becomes “Critical Chain,” performing a thorough cost and schedule estimate becomes “Life Cycle Estimating,” and institutional worrying tripped out in statistical jargon become “Risk Management.” Some nonsense terms can be brought in at this point, pummeling the language but helping sell the misfit idea. My favorite example is redefining “opportunity” as “upside risk,” which a certain Special Interest Group managed to do a while back. Don’t worry about the various dictionaries failing to follow the new definitions – there’s only one or two that need to be modified. Which brings us to…

Step three is to get an article published in one of the PM trade magazines or journals that introduces and markets the idea. Note that I did not say presents the evidence, scholarship, and logic behind the idea – that approach belongs to legitimate advances in the management sciences. No, I’m talking about out-and-out selling the concept, trendy jargon and all. Getting published in the Harvard Business Review is pretty much the gold standard here – get your absurd but jargon-clouded concept onto those pages, and you’re ticket to Misfit Island might not get punched for months, or years. (In fact, as an indicator of how far the overreach of Gaussian Curve aficionados have progressed in their infiltration of legitimate management science, HBR ran an article entitled “Managing Risks: A New Framework,” that had – I swear I am not making this up – a disclaimer added that read “Editors’ Note: Since this issue of HBR went to press, JP Morgan, whose risk management practices are highlighted in this article, revealed significant trading losses at one of its units. The authors provide their commentary on this turn of events in their contribution to HBR’s Insight Center on Managing Risky Behavior. ” (ii) Here’s my plain English translation: “Events following the publishing of this piece pretty much invalidated all of its assertions. Where’s the map to that one island?”)

Once reality finally bumps up against these misfit ideas, they generally drift on ice floes (strikethrough) discussion boards towards the Island of Misfit Management Science Ideas. Occasionally they are retrieved and trotted back out onstage, but it generally requires someone with Santa Clauses’ level of influence to do it.

  (i) Rudolph, The Red-Nosed Reindeer, retrieved from IMDB, http://www.imdb.com/title/tt0058536/, on October 18, 2015, 20:39.
  (ii) Kaplan, Robert S., and Mikes, Annette, “Managing Risks: A New Framework,” June 2012, retrieved from https://hbr.org/2012/06/managing-risks-a-new-framework on October 17, 2015, 19:48 MDT.