Game Theory in Management

As my regular readers are aware, I take a rather dim view of the entire risk management arena, and have, on more than one occasion, referred to it as “institutional worrying, tripped out in statistical jargon.” I have also accused them of pushing their ideas of management information generation and analysis way past their  proper epistemological boundaries, wasting time and resources that could be better spent on the creation or maintenance of legitimate information streams. And, while I still hold these views, it occurs to me that the risk managers could actually provide a much-needed service to the project management world.

This much-needed service has to do with the second accusation I’ve leveled against them – that they push their Gaussian-curve-based notions of management information creation into areas where they simply don’t work. This is also something our friends, the accountants, do all the time. To be fair, business schools across the world regularly teach that virtually any piece of management information that involves money must originate with the general ledger, and their students simply take this notion into the real world. However, once a project has been provided its actual costs by Work Breakdown Structure element at the reporting level, the general ledger has no further contribution to the information systems that allow the assessment of project cost, scope, or schedule performance, period. None. Zero. Zilch. Nada.

Ah, but the accountants will never accede to that notion. Need an analysis on the cost variance? They’ll be happy to compare your budgets to your actuals, and can’t be convinced that that’s not a cost variance. Need an estimate at completion (EAC)? They will gladly provide a number based on the rate that you are spending, without taking into account (or even recognizing, really) the role of the actual performance against the project’s scope. It’s just the way they roll. It is futile to try to reason them out of these analysis techniques – they’re convinced of their efficacy, and similarly convinced that all who disagree with them are rubes. What’s a project management information system analyst to do?

Call in the risk managers!

Look at all the damage they do to legitimate PMISs. Surely, with a little redirection, they could inflict similar devastation on the accountants! I remember in the early 1990s, I saw a whole host articles from contributors who would perform some sort of statistical analysis on the float (both free and total) from complex schedule networks, trying to tease out some kernel of insight. It would take a few attempts to read the entire article, since these tended to be about as interesting as watching grass grow. 

Just think of all the introspection that could be caused by a statistical analysis of some similarly irrelevant data sets, such as the number of transactions within a given project compared to the variability of labor overhead rates! It sounds really insightful, yes? But it’s completely irrelevant, much like the “information” the risk analysts force upon project teams. Something similar has already occurred – the whole statistical analysis of how much women make compared to men. That this analysis has been completely debunked once one takes into account the nature of the work, the degree requirements, the general preference of women to take jobs that provide more schedule flexibility, etc., etc.,  doesn’t stop the statistic of “X number of cents for every dollar men make” from being lobbed about ad infinitum. 

Also, by Metcalf’s Law, any comparison of the average wages earned by any disparate demographic groups will yield a variance. It’s irrelevant, which will make the accountants’ jobs far, far more frustrating as they attempt to round those square epistemological pegs. Let the risk managers perform their analyses on the data sets within the general ledger! With the accountants’ energy so diverted away from advancing their misguided agenda, the risk analysts will have finally contributed significantly to the advancement of PM!

“Hi, this is Ron, and I’m here with my partner Verne to call the 30th annual Business Management Championship. Verne, it’s pretty much been just the asset managers in blowout victories every year. Kind of makes you wonder why they bother having the competition in the first place, much less give it world-wide network coverage.”
“Well, Ron, you’re right about the accountants dominating the series thus far, but I think this year may be different. For one, the project management team isn’t just the Project Management Institute® – this year they’ve added ProjectManagement.com to their roster, and they look much more modernized. I mean, have you ever actually performed an internet search on ‘accountants.com’? I have, and it’s completely lame. Also, due to the success of the AMC hit series ‘Mad Men,’ the strategic managers seem to have a handle on the concept that they can’t win by playing the other teams’ games, that it’s all about market share to them.”
“But what can either of the latter two do against this asset management team? They dominate in almost all phases of the game – their pet theories are in all the business school texts, and their adherents are on all of the corporate boards.”
“That’s right, Ron, but their overuse of that one play – the Return on Investment – is going to come back to haunt them.”
“We’ll see as the players take the field. The asset managers are in their lederhosen, with suspenders and wire-frame glasses, and wing-tipped shoes. The project managers are a bit more stylish, in their khakis, polo shirts and penny loafers, and finally here come the strategic managers, and what a sight they are. They’re dressed in suits and ties, but their clothes look like they’ve been worked in all day, partied in all night, and worn unapologetically the next day!”
“Here come the teams as they approach the center of the Y-shaped field. The asset managers are in their traditional maximize-shareholder-wealth formation, where they’ve been unstoppable. But wait, what’s this? The project managers appear to be picking off the accountants from the poorly-performing organizations! Their juggernaut is slowing down!”
“I see it, Ron, but look a little closer to what’s happening on the project management bench. The risk managers, who we know have nothing at all to do with actual project performance, are claiming the credit for all of PM’s success! And there it is – a penalty flag for inappropriate celebration!”
“Amazing, Verne. Nobody has scored a point, and those risk guys are acting like they’ve won the game on their own!”
“Meanwhile, over in the strategy management camp, they seem to be having their own problems. The advertising guys – wait, are they disoriented, or something? It almost looks as if they’ve been drinking…”
“Or, maybe they just have no idea what the business management game is truly about, even though they are clearly indispensable to the strategy managers’ overall efforts.”
“In any event, the advertising squad of the strategic management team appears to be wandering aimlessly around the field, even as the asset managers make inroads into strategic management space!”
“Now here comes the PM team – they’re advancing into the asset managers’ territory – I’m seeing their leads now, the Agile and Scrum Teams, from the IT squad! What do we know about them, Verne?”
“They burst on the scene a few years back, and have been talked about on many business publications, even past the usual PM coverage.”
“Well, they’re making significant progress towards the goal at the end of the asset managers’ side of the field, they may score, but …. Ohhhh! Agile and Scrum just got slammed by the asset managers’ goalies, the Human Resources and Payroll players!”
“Is that even legal? If the asset managers can simply waylay anyone who disagrees with their business model by not hiring or promoting them, what chance does anyone else have on this field?”
“Yeah, I think we just saw why the asset managers keep winning this ‘competition’ year after year…”

I think that one of the funniest bits from the late Douglas Adams’ Hitchhikers’ Guide to the Galaxy (misnamed) trilogy involves a scene where Ford Prefect and Arthur Dent are getting a ride on a ship populated by 1/3 of the people from their home world. The backstory is that they were told their planet was about to be destroyed cataclysmically, and so the population was loaded onto evacuation ships and divided into three groups:
•    Those who actually produced food, goods, and materials;
•    Those who actually produced building designs, literature, computer programs, and other intellectual properties, and
•    Those who served as middlemen, such as advertising agency employees, or phone sanitizers.
Ford and Arthur find themselves with this third group, when it becomes apparent that their home world wasn’t in any danger – the other two groups of people simply figured out a clever way of ridding their world of, essentially, non-productive people.

In my previous two blogs I discussed the dichotomy between two types of project management practitioners, whom I labelled Processors and Effectives. Since the August theme is Business Project Management, I thought I’d take an opportunity to evaluate some of the distinct disciplines within PM, to see which ones are of more value to the overall enterprise management information feed, and which, well, are not. In short, I want to make the case for which PM sub-groups we ought to put on their own starship and send them away. Okay, that might be a little harsh, but I have to admit that, now that it’s written down, it might not be such a bad…

Just kidding! From an overall business point of view, the most valuable PM-type is the one who knows which kinds of work ought to be managed as a project, and which should not. Much harberdashery exists here, with accountants trying to provide insight on project performance, critical path schedulers being asked to perform staff allocation, and risk managers pretending it’s all about Gaussian Curves. 

On the question of whether or not some element of work ought to be managed as a project or not, one simple question represents the litmus test: what percent complete have you accomplished? If asked of legitimate project work, a usable answer can be provided. If asked, say, of the document preparation organization, as an organization, there can be no sensible response. These ought to be managed as an asset, and not a project. Besides, if you were to ask them to develop a critical path methodology baseline, it would just be a series of constrained activities, yielding no usable performance information.

At the opposite end of the spectrum, the least valuable PM-types are those whose analyses provide little or no value when it comes to bringing the project in on-time, on-budget. Among these I list:
•    Accountants (bookkeepers, yes – the project team has to know how much it has spent. Accountants – no. They keep pretending that comparing budgets to actuals on a line-item basis or the return-on-investment calculation creates usable project management information – they also dress funny.)
•    Risk Managers (yeah, I know, I keep banging this gong, but someone has to point out that these guys do nothing more than counsel institutional worrying, tripped out in statistical jargon.)
•    Human Resources (how many organizations claim that their people are their most valuable asset, or resource? This capability, valuable as it may be, does not belong as part of project management. Don’t believe me? Invoke the litmus test: “Hey, HR director, what percent complete have you accomplished?”)

These are the ones I recommend putting on the epistemological starship, and sending away from planet Project Management. Also, I understand that recent developments on an electromagnetic drive could power a ship to the Moon in four hours…
 

In my last blog I made the observation that those seeking to advance project management capability in the macro organization tend to fall in to one of two groups, whom I called the Processors and the Effectives. Processors, as one might guess, love the process of performing project management practices, and tend to define PM success as having a project team demonstrate compliance with procedures. Conversely, Effectives will define PM success as actually bringing their projects in on-time, on-budget, or even early and under-budget. I wrapped last week’s blog speculating that the Processors, by definition, had very little opportunity to bring innovative approaches to the table. That may have been a rash assertion.

If others on the project team aren’t “doing” project management, there are two broad categories from which the Processors can pull their tactics: if the Processor is of high rank, they can attempt to leverage their organizational power to compel compliance. However, if our Processor is of equal or lower status, they are reduced to whining and eat-your-peas-style hectoring to change the behavior of their associates. 

The first category, that of attempting to leverage organizational power to compel an advancement in project management capability, never works in the long-term. Some short-term “success” may be realized, sure, as the project team becomes painfully aware that the prospects for their continued employment may hinge on how effectively they can perform the added requirements placed upon them as they pursue the project’s objectives. However, as soon as they can opt out, they inevitably do, leaving the macro organization no better off than before. This is especially true if the added procedural burden doesn’t have any clear link to the project’s overall success in cost, schedule, or scope performance. Indeed, the leaned-on project team will often come away with an embittered perspective on project management in general, and will tend to avoid (or even openly eschew) it in the future, all thanks to the way the Procedurals like to try and advance PM in their teams.

The second category – hectoring and whining – can (and often does) assume the audio acceptance level of a dentist’s drill on a molar needing a filling replaced. But there is a variety of hectoring that invites innovation, and is, in fact, somewhat compelling. This is the appeal to sophistication.

The appeal to sophistication works on Processors like catnip. Not only can they nakedly assert that others ought to be doing that project management thing they way the Processors want, but it goes without saying that to do otherwise is, well, kind of dumb! How convenient! Leveraging off of the fear of the project team’s members looking intellectually backwards, the Processors can advance all sorts of charlatanisms, to wit:
•    Gaussian curves have nothing to do with project performance. But the risk managers have many, many bamboozled to believe that, without a “proper” risk management analysis and plan, their projects are doomed.
•    Past letting the project team know how much they’ve spent, the General Ledger has nothing to do with project performance. However, the accountants have led so many to believe that any insight on business information that involves costs simply must come from them that virtually all textbooks on quantitative analysis in business begin and end with the return on investment calculation, which is virtually worthless in PM.
•    Communications are great – except when they’re not. Keeping “stakeholders” abreast of project performance is nominally a good thing … except when the definition of “stakeholder” includes those who actively oppose your project attaining its objectives, which the definition held forth by the communications experts often does. In those cases, keeping these “stakeholders” apprised is sheer idiocy.

I could go on (and often do), but I’m sure my readers see my point: Processors don’t actually advance project management as a science; rather, they use pseudo-science tripped out in PM phrases as leverage to try and convince others to do as they say, and respect them for saying it.

And I think that’s dumb.
 

In the near-science of Economics, two predominant free-market theories stand in stark opposition to each other: Keynesianism, named after John Maynard Keynes (1883 – 1946), and Economic Freedom, probably best articulated by Friedrich Von Hayek (1899-1992) and Milton Friedman (1912-2006). Each of these schools of economic thought has their adherents, with probably the most articulate ones today being Paul Krugman and Thomas Sowell, respectively. So, I have to ask: is there a similar theoretical divide within the project management community?

I believe there is, and, from my observations, they fall along two lines of thought: the first group, whom I’ll call Processors, tend to devote time and energy into perfecting the process of project management. They love to identify “best practices,” and encode these into official procedures that the macro organization is then compelled to follow, to the letter. Failure is determined by the frequency and level of infractions against approved procedures, and success is attained when the process is followed perfectly.

The rival camp, whom I’ll call Effectives, are not only reluctant to embrace proceduralized “best practices,” they will often actively oppose them. Instead, they are interested in adapting the tools and techniques that improve their chances of bringing in their projects on-time, on-budget. If, say, the risk managers want to perform an extensive analysis on the cost and schedule risks involved in a large project, with the end-product being something that an Effective won’t (or can’t) use in coming to informed decisions, the Effective will, in all probability, refuse to fund the risk analysis.

Are you wondering which you are? Well, I’ve devised a little multiple-choice test to help determine this.
1.    You have let a $100,000 (USD) contract, and the winning contractor bid $75K in labor costs, $25K in heavy machinery. The project’s complete scope is delivered on-time, but the final costs were $75K in heavy machinery, and $20K in labor. Was this project a success?
a.    Yes, of course.
b.    No, the original estimate was wrong, meaning someone cheated.
c.    What does the rest of the project team think? Are they happy?
d.    No, because the overhead rates are different for labor and machinery.
2.    Your estimator has created a detailed estimate for your project’s cost baseline, and it has been time-phased and integrated into the schedule baseline. What should the estimator do now?
a.    Work on the next project, and leave you alone.
b.    Stay around to continually re-estimate the remaining work, add that on to the cumulative actual costs, thereby generating an Estimate at Completion.
c.    Stay around to do alternative analyses, or other stuff.
d.    Stay around to continually compare the line items in the basis of estimate with their analogous counterparts in the General Ledger as costs come in.
3.    You are a director of your organization’s PMO, and you have a meeting with the newly-assigned manager of a major project. This manager was put in that position because of her advanced technical knowledge, and formal PM techniques are really not her long suit. After introductions, you begin the meeting by saying:
a.    I have some examples of the kinds of cost and schedule performance reports our tools can generate for you. Can you indicate which of these you believe will give you the confidence that you are on top of your project as it pursues its scope?
b.    I have some copies of the procedures this organization has published with respect to how you are to conduct your project management activities. Would you like me to tell you how your project team can attain compliance?
c.    Can you tell me what you want out of your project controls?
d.    Were you aware that the information from the general ledger does a better job than these Earned Value and Critical Path guys?
Scoring: Each “a” is one point, “b”s are two, “c”s are three, and “d”s are four.
Less than 4: You are an Effective, and I’m actually a little surprised you took the time to read this blog.
4 to 6: You are a Processor, and probably view anyone who selected an “a” response to be an undisciplined rube.
7 to 9: You are in the mushy middle, which is perfectly understandable, considering the conflicting assertions in the PM media.
Over 9: Don’t you accountants have your own websites and blogs to read?

My prediction is that innovations in project management will tend to fall along the lines of the tools and techniques that deliver more on-time, on-budget projects (such as Agile/Scrum), or those approaches that represent more formal observance of process – if such things can even be called “innovative.”