Game Theory in Management

Last week I wrote of the PMO’s natural enemies, the accountants (and other asset management-minded ones), and project management theory hucksters, who outrageously over-sell their particular discipline’s or techniques’ capabilities. The Project Management Office has other natural enemies, of course, but these two are prime. Fortunately, the PMO also has natural friends within the organization, and they are, paradoxically enough, enlightenment and fear.

Enlightenment is one of the best natural friends of the PMO. As I have mentioned previously in this blog, the worst 20% of managers who are in command of 80% of the information they need to obviate any given decision will out-perform the top 80^th percentile managers who have access to only 20% of the information they need to make a completely informed decision. The enlightened executive who is aware of this will make every effort to make accurate, timely, and, most of all, relevant information available to his managers and project team(s), and two indispensable information streams – how your projects and performing in cost and schedule performance space – typically come exclusively from the PMO. Oh, the accountants or others may try to make the case that this information can come from the general ledger, or from some sort of issues tracking database, or something, but that’s all hooey. Schedule performance comes from a properly set-up critical path method-capable system, almost exclusively. I say almost because a properly set-up earned value management system can also provide accurate schedule performance information, but the EVMS’ primary role is to provide project cost performance information. Without these two systems, however basic or elegantly implemented, there is simply no way of accurately knowing how your projects are performing, or where they are likely to end up.

This last is key. Where are the projects in your portfolio likely to end up? Some years ago the director of a rather large organization asked his mid-level and above managers to send him an e-mail that described their main worry. What’s keeping you up at night? The largest set of responses were derivatives of the concern that they were sitting atop a project disaster, and no one on their project team would tell them about it until it was too late to avoid massive overruns or delays. This fear of being caught flat-footed when project disaster looms, all the while knowing that if they had just been informed of the issue when it was younger it could have been dealt with, is a natural ally of the PMO. You see, the PMO can provide this highly relevant information, accurately and timely, but, most important of all, quickly and easily.

Consider the elemental estimate at completion, or EAC. The basic way of calculating this obviously extremely relevant piece of information is to divide the budget at completion (BAC) by the cumulative cost performance index (CPI). (For those of you who don’t have an EVMS that can deliver this piece of information, stand by.) Studies have shown (Christensen, et al) that a project’s CPI only rarely varies more than 10% once the project has cleared the 15% complete mark. The implication here is that the BAC / CPI formula is going to be accurate to within ten points once the project is only a bit out of the starting gate. But another fascinating piece of this puzzle is that the BAC / CPI formula can be algebraically reduced to dividing your cumulative actual costs by the estimated percent complete. Our “friends” the accountants have the first of these numbers. All the PMO team member needs to do to deliver an accurate estimate at completion is to come up with an estimate of the project’s percent complete, and this is not that difficult of a parameter to nail down. All you need is one subject matter expert, and you’re there.

And here’s the kicker – the same thing is true for duration!  Simply divide the cumulative duration by the same estimated percent complete, and you have a poor man’s calculated schedule end-date, and it’s going to be accurate to within 10%. Now, I have a couple of questions I would like to pose. To all you project managers out there, I’m going to channel my inner Montgomery Scott, from Star Trek IV, The Voyage Home. Scotty has just shown a plant manager/engineer the formula for transparent aluminum, and asks him “Would that be worth somethin’ to ya?” If I could tell you to within 10% how much your project is going to cost at completion, before you are even half-done, and how long it will take, quickly, easily, cheaply – is that worth somethin’ to ya?

And to all you PMO directors – I just showed you how to quickly, cheaply, and effectively alleviate the fear of all of those managers who want to avoid looming project disasters stemming from a lack of information. Is that worth something to you?

It’s not pleasant to think that your organization, which, perhaps, set up its Project Management Office with much fanfare and enthusiasm and put you at its head, may be harboring those who are not only reluctant to help you succeed, but are determined to frustrate your goals, techniques, and advancement, and actively desire your failure. But it is true, and the sooner you and your team understand that, the better your chances of advancing. Typically, the PMO has two major enemies, and I will address them in reverse order of the threat they represent.

The first class of enemies the PMO team must be aware of is the Accountants. Yeah, yeah, I know, they come across as benign number-crunchers, but, generally speaking, they are anything but, and to understand why we must articulate the specific mission of the Project Management Office. The PMO exists for one reason above all: to put into the hands of decision-makers the information they need about project performance. If there was an Harry Potter-like spell that could magically deliver this information (“Projecto Performi Educationo!” perhaps), then all of that effort your team puts into setting up work breakdown structures, cost baselines, schedule logic, and then collecting costs and status – it would all be moot (I didn’t include risk management, ‘cuz it’s already a waste of time). So, it follows that you as PMO lead are the advocate for an information stream, and an extremely valuable one at that. Knowledge of which projects are performing better than others has huge implications, ranging from an early tip-off of when a project is going off the rails, to which proposals your organization should be pursuing or ignoring, all the way to whom among the management team are performers, and who, well, isn’t. In any organization, information is power, and this type of information is to management what Sith lightning is to dark Jedi masters acquiring political status. It is virtually indispensable, to those who recognize it for what it is.

Ah, there’s the rub. So much of management “science” has been dominated by the asset managers’ (read: accountants’) narrative that there are many organizations, large and small, where the project management-types don’t even have a place at the discussion table. But you just know that at these companies, the head of the finance and accounting has a place at the table, and probably near the head. These people are convinced that any piece of management information that has a currency sign in front of it must come from the general ledger. When the PM-types start demonstrating the power of even an elementary Earned Value Management System, this makes the asset managers very nervous, or even apoplectic. The asset managers’ narrative cannot survive the alternate memes, that their own information stream is but one of three needed for true portfolio management (what are the other two? Click here). And they’re not going to sit back and have that narrative impinge upon the perceived efficacy of their own information stream. They will strike back, either by minimizing the power of the PMO’s information stream(s), or by maximizing the perceived power of the general ledger to do things like, say, generate a reasonable estimate at completion (EAC), which it utterly can’t. In short, the CFO is not your friend.

Enemy number two is more insidious, because it’s more stealthy, even while it’s under our very noses. Consider the Project Management Institute® (don’t get ahead of me here – they’re not the enemy, they are enablers). The PMBOK Guide® is divided into nine sections: Scope, Cost, Schedule, Risk, Communication, Human Resources, Quality, Procurement, and Integration. And yet, none of these sections addresses the limits to the efficacy of their advocated information streams (or parts of the streams). It’s as if nine authors (or, if I know PMI®, committees of authors and editors) were given nine different-colored crayons and a coloring book, and told which parts they should color. The result was that none respected their epistemological lines, attempting to color the whole, and no one would call them on it. I don’t mean to pick on PMI® here – virtually all of the organizations that set themselves up as standard-bearers for project management “science” end up becoming inadvertent vehicles for charlatans and hucksters, pushing their narratives in order to maximize their own particular perceived value, while muddying the waters of legitimate management science scholarship. The director of the PMO becomes the victim of the overreach of PM advocates everywhere, and they are everywhere.

As Pogo said so many years ago, we have met the enemy, and he is us.

Tom Peters published In Search of Excellence (Harper Collins, 1982) with Robert Waterman, and it led to a sharp correction in the way many executives viewed their organizations and their places in it. The problems with Mr. Peters’ scholarship, in my opinion, are varied, but certainly the most irksome element of them is that they are conveyed with such certainty that many managers will embrace them without a sense of proportion or perspective, and then attempt immediate implementation. Peters was right when he challenged the notions of the asset managers, that the point of all management is to “maximize shareholder wealth.” And I must admit a certain level of glee over watching him address an auditorium full of Sloan School MBAs, and essentially mocking them to their faces over what they had paid thousands and thousands of dollars to learn.

But the reality of Peters’ work is that it is often lacking in conveying a sense of perspective or proportion. He advocates, for example, much greater emphasis on customer satisfaction, but offers absolutely no upper boundary as to when the organization might want to ease off on such an emphasis. He simply loves the idea of empowering the rank-and-file, but, again, offers no evaluation method for testing when this empowerment might have gone too far. He presents as if his scholarship was predicated on an even-handed, honest attempt at identifying high-performing organizations and learning their secrets to success, but, later, in an interview with Fast Company magazine entitled “Tom Peters’ True Confessions,” asserted that the process for identifying the organizations profiled in In Search of Excellence was far less ordered than presented.

But the damage has been done. In Search of Excellence, and his books that followed it, have sold millions of copies, mostly, I would imagine, to managers desperate to improve their skills and the organizations for which they are responsible. How do you know if your organization is headed by such a manager? Well, here are some tell-tale signs:

1.      The people in your organization who interact with your customers on a day-to-day basis are trying to give away all of your assets. Peters stresses over and over the need to abandon the previous, moribund notions of generating profit, and embrace the need to satisfy your customers at all costs, and I do mean at all costs. So, if your staff is caving in to any and all customer requirements, no matter how outlandish or outrageous, you might be in a Peters-influenced organization.

2.      The so-called rank-and-file members of your organization are suddenly engaged in activities that are somewhat tangential to their original job duties. Did you, as an entrepreneur or manager, have a clear idea of the technical approach your team should take in tackling their day-to-day issues? Well, forget it. Any worker without the word “manager” in their job title must be assumed to have a better handle on the work than you do, so, in the name of superior management approaches, deal with it.

3.      Your accountants are visibly agitated on an ongoing basis. I actually believe that this is Tom Peters’ greatest contribution to management science, the pointing out and socializing the idea that there is much folly emanating from the asset managers’ playbook (though, to my knowledge, he never articulated it as such). As I have pointed out, both in this blog and in my second book, the flawed (if not utterly invalid) theories coming from eminent business school academicians are legion, but are not only accepted, they have many people paying a lot of money to learn them. When Tom Peters writes about companies making money hand-over-fist while maintaining business models very different from these conventional theories, he is actually doing the management science world a huge favor. But he’s also frustrating the stuffing out of those members of your staff steeped in this set of narratives, and chief among them are your accountants.

4.      The parts of your facilities that the customer never sees are showing signs of neglect. Since customer satisfaction trumps all other business considerations in Mr. Peters’ world, and there’s only so much budget to be spent on facility upkeep, we all know which parts are getting short-shrift here.

5.      Everybody’s suddenly on a first-name basis. This is also an area where I tend to agree with Mr. Peters, since the flattening of the organization does indeed enhance communications and information sharing, and information is the life-blood of any organization. However, if your candy-stripers are referring to the head of your hospital’s neural surgery ward as “Bob,” then a copy of The Pursuit of WOW may be on your administrator’s desk.

I’m confident that, overall, Tom Peters’ impact on the business world has been a positive one. But, as is the case with so many business model advocates or management science theory marketers, without some sort of acid test to evaluate where your ideas lose efficacy, or even stop working altogether, those ideas invariably are applied where they do not belong.

And then disaster ensues.

In my previous blog I compared and contrasted consultants who provide valuable information with those who provide a narrative as a contest between Gandolph and Grima Wormtongue from The Lord of the Rings trilogy. Now I’d like to take that analysis a bit further by again invoking another character from epic literature, Cassandra.

Cassandra was the daughter of King Priam and Queen Hecuba of Troy. As seems to be the case with every female renowned for their beauty in Greek mythology, she was desired of the gods, specifically Zeus, who granted Cassandra prophetic power. When she subsequently rebuffed his attempts at seduction, Zeus added a curse to her – she would retain her prophetic power, but none would believe her.

Now, if there (in mythology, at least) exists those who are right but not believed, the inverse of this curse – far more deadly, in my opinion – is that there are consultants out there who are usually wrong, but are always or often believed. This is undeniably true. There are simply millions of people whose internal narrative is chock full of delusions, many of them rather preposterous, who yet influence decision-makers who, in turn, have impacts on our lives. Does anyone remember Carl Sagan predicting that the fires from the oil rigs set alight by Sadam Hussein’s troops at the end of the first Gulf War would lead to an environmental disaster, similar to the (also fraudulent) “Nuclear Winter?”

Consider the asset managers’ axiom, that the point of all management is to “maximize shareholder wealth.” Umm, no, it’s not, and it’s provably not. Look at what happens in a hostile takeover. The targeting company is willing to spend considerable sums of money to purchase a controlling share in a rival, and subsequently liquidate its assets. At the beginning of the attempt, the targeted company’s shares usually jump in price. Isn’t this good for the targeted company, by the asset managers’ rule? Yet somehow, mysteriously, the targeted company will often resist, and a favorite tactic is to take a “poison pill.” A poison pill in business refers to a company’s attempts to make it a less attractive candidate for takeover. It involves taking on significantly more debt, since, unless you’re an American car manufacturer, liability owners must be satisfied prior to equity holders in any bankruptcy proceeding. So, if the point of all management (their usage, not mine) is to maximize shareholder wealth, then no targeting company would ever initiate the attempt, and no targeted company would ever resist. And yet the attempts are made and resistance offered over and over again. But the asset managers’ axiom still undergirds much of what passes for contemporary business theory as well as a significant share of the business schools’ textbooks, textbooks written by Ph.D.s from very prestigious schools.

My regular readers know that there is no way that I can have a discussion of consultants who are usually wrong but often believed and leave out risk managers. The notion that the future will unfold bounded by the precepts of Gaussian curves is, well, idiocy, and yet it’s highly coveted idiocy. Maybe it’s their jargon – all that talk of “80% confidence intervals on the cost baseline” works on those unfamiliar with relevant management science information streams like catnip. Another possibility has to do with the searing, sneering treatment of those who recognize current risk management theory as the farce that it is from its practitioners. In my previous gig, as columnist for PMNetwork magazine, it was almost automatic: refer to the risk management types in any way that even slightly implies they might, just might have it wrong, and the nasty e-mails would pour into my e-mail account. The other columnists from that time have told me of similar experiences.

No, the answer to being able to realize when your consultant is providing high-sounding irrelevancy is to…

Oops! Out of time. I guess you could look into my must-have book, Game Theory in Management, or wait until I get around to addressing this more specifically in this blog.

For those who steadfastly refuse to expose themselves to epic literature or epic motion pictures, Gandolph and Wormtongue are characters from J.R.R. Tolkien’s Lord of the Rings trilogy. Gandolph is a very wise and helpful wizard, and all who take his words to heart are greatly helped. Grima Wormtongue (what a name, right?) is actually an agent of ultimate bad-guy Saruman as he “advises” Theoden, king of Rohan. Theoden in particular, and Rohan in general, are greatly diminished and made more vulnerable because of Grima’s council, until Gandolph finally rides up to the castle (on a white horse in the movie, naturally), confronts Wormtongue, and drives him away, even though Gandolph initially encounters resistance from Theoden himself, who is not convinced that Wormtongue is an agent of Saruman. Got all that?

Okay, back to the office. Is there in existence a sure-fire test that can determine if your consultant is on the up-and-up, or a devious weasel, short of having an appearance that suggests that the consultant in question appears to be applying for a job as a model in Vogue by pursuing the “heroin chic” look? Yes, there is, but to learn how to invoke this test I’m going to need to cover some management information theory first.

As I discuss in my must-have book, Game Theory in Management, management information (not data, but information) is extremely powerful if it’s timely, accurate, and relevant. (How can you test for relevancy? Click here.) Indeed, the mediocre or even poor manager who has command of, say, 75% of the information he needs to make the best decision in a given circumstance will out-perform the exceptional manager who only has 50% of the information she needs, every single time. This effect is probably why real scientists tend to have such disdain for managers – their decisions are almost universally made based on complete information, whereas managers are often (always?) compelled to decide based on incomplete information. When I was in graduate school, one of my textbook’s authors asserted that information is the life-blood of any organization, and I’m not at all sure I disagree with that notion. And, from an organizational behavior and performance point of view, think of the groups or divisions within your organization that attempt to gain or leverage power over other groups by hoarding, limiting access to, or altering the flow of coveted management information. Timely, accurate, and relevant management information is power, and if you’re the person delivering that information to the upper-level managers who need it, and can convince them that you are the only source, than you have the same power over the organization’s decision-makers that a pusher has over a junkie. They simply cannot function without you. And, like Sargent Foley in An Officer and a Gentlemen, people will use any means, both fair and unfair , to be perceived as such a one.

Let’s jump back to consultants. They are usually brought in due to some realization on the part of the host organization, either that some vital piece of management information is missing, or else, given that a vital piece of information is missing and may not ever be provided, some level of expertise in making the right call working from an insufficient data set is needed. In my humble opinion, the vast majority of the perceived demands from consultants can be fulfilled with superior management information systems (and, no, I’m not talking about Wall Street “quants” – those guys are barking up the wrong epistemological tree) rather than the seat-of-the-pants advice, but I digress. How can one ascertain whether a consultant is performing their function with fidelity (Gandolph), or if they are engaged in a deceit that will allow them to collect their fee without truly advancing the attainment of the goals of the organization they serve (Wormtongue)?  Here’s the acid test:

·         A Wormtongue is advancing a narrative. Always at its core this narrative will make the decision-makers feel good about themselves, reinforcing their conceits and leaving them with an inflated view of their importance in the organization. The need to be recognized for our abilities is near-universal: all humans believe that they are under-appreciated.  Wormtongue knows this, and will push a narrative, often at variance with reality, that will insinuate himself into a position analogous to the provider of essential information, whether he actually provides this service or not.

·         Gandolph will analyze the current management information system architecture, reject as irrelevant some of the streams, and seek to set up others that are essential. If he is politically savvy, he will throw the occasional bone to the egos of those who hired him, but that’s not his primary focus. Of course, this puts him at odds with those who have sought to manipulate the clear and healthy functioning of the existing information streams, especially those that serve no legitimate purpose (like the risk managers’). But, if he has read my book, and is successful, then, suddenly, your organization’s 50% managers are out-performing your competitors’ 75% managers, every time.

And that’s how you tell if you have a Gandolph or a Wormtongue.