Game Theory in Management

When discussing project communications (ProjectManagement.com’s theme for August), the so-called experts tend to spend a lot of time focused on the identities of the senders and receivers of the information. I think this whole discussion can be brought to an appropriately brief conclusion via the use of Game Theorists’ favorite tool, the payoff grid:

The communications experts I’ve read seem to spend a lot of time worrying about the scenario in the lower right hand block, which leads them to go on excessively about the “need” to expand outgoing communications to ensure it never, ever happens, seemingly oblivious to the fact that that strategy does absolutely nothing for the It’s all good scenarios, and dramatically amplifies the dangerous scenario in the upper left block. Additionally, consider the potential outcomes of the non-It’s all good scenarios. If some communication is withheld from a “stakeholder” who ought to have received it, what’s the worst that could happen? That the project isn’t a recipient of some sort of insight that might have helped it perform better? Now consider the potential downside of communicating relevant project information to an Inappropriate Recipient, a recipient that, perhaps, seeks to slow down (or even derail altogether) the project. Surely this latter should be considered far more detrimental to the chances of the project’s overall success than missing out on some potential insight. My main problem with the whole discussion, however, is that it completely misses a much larger point – Is what’s being communicated actually valid?

One of my guilty pleasures during the 1980s was watching the prime-time drama Dallas, where the famously Machiavellian J.R. Ewing would often use the ruse of sending out false information to his competitors, specifically Cliff Barnes, in order to induce them to take an action that would ultimately benefit Ewing Oil, if not ruin the competitors in the process. Since oil is a commodity, and commodities are notorious for their seemingly capricious and arbitrary price fluctuations, any piece of data that swerved near insider information could lead to astonishing profits (if true), or ruinously bad decisions (if false). J.R. was a master at manipulating such communications, and it wasn’t through simply lying. In one episode I recall J.R. actually did invest significant resources into an oil field that he knew would not produce, all in order to induce a reaction from the other members of the fictional cartel to which Ewing Oil belonged.

This being the case, what types of Project communications are most vulnerable to inaccuracies, or out-and-out mendacity? Several devious tactics are available to our latter-day Iagos, but the thing about the common tactics is that any PM, or auditors of PMs, knows them, and knows them well. Attempting them in today’s PM-savvy environment would be analogous to bringing your own set of marked cards into a Las Vegas casino, and expecting the dealer to use them – it simply wouldn’t work. So, is there any commonly-used information bit that is also vulnerable to misdirection? Yes, yes there is.

The information bit I’m referring to is the so-called bottoms-up EAC. Yeah, I know GTIM Nation is probably tired of my railing against it, but I’m not going to go back over the reasons why it’s bad information – I’m going to discuss how GTIM Nation members can reveal for themselves when they’re being lied to misled.

Recall the basis for the reliability of the calculated Estimate at Completion, the study performed by David Christensen on Cost Performance Index (CPI) stability.[i] Since the CPI virtually never changes more than ten points once the project has cleared the 20% complete point, a simple comparison of the CPI with its near-cousin, the To Complete Performance Index, can be quite illuminating. For those of you new to Earned Value analysis, the TCPI is calculated so:

To Complete Performance Index = Work Remaining / Budget Remaining

or

TCPI = (Total Budget – Cumulative Earned) / (Total Budget – Cumulative Actuals)

Like the CPI, everything’s going exactly as planned if the TCPI = 1.00. Unlike the CPI, if the TCPI is above 1.00, something’s probably wrong, and more wrong the further you get above 1.00. So, here’s the litmus test for evaluating whether or not you’re being hoodwinked by a “bottoms-up” EAC: If the subject project’s CPI is more than ten points below its TCPI, then any EAC more optimistic than the calculated one is almost certainly false. If you want to be conservative, go ahead and set the “this EAC is nonsense” indicator to trip if the TCPI is 15 or 20 points above the CPI. In any case, if the TCPI is more than 20 points higher than the CPI, then the project isn’t coming in on-budget, or even close.

And if that’s not the communication being relayed, you don’t need to be concerned about the who, you need to worry about the what.

[i] https://www.researchgate.net/publication/237574533_Cost_Performance_Index_Stability_Fact_or_Fiction

Given ProjectManagement.com’s theme for August, communications, and my previous two blogs, Communicating With The Future, and Communicating With The Past, this blog’s title seems almost automatic. And, yes, I will continue to avoid an (extended) discussion of the silliness of the concept of sharing any and all project information with anyone with a claim to the “stakeholder” moniker. So, in the spirit of carpe diem, here’s GTIM’s take on what should be happening with communications management for your Project Team in the here and now.

The most common venue for a PM to communicate the status, issues, and adaptive strategies to her, ahem, stakeholders is the Project Review meeting, which typically occurs monthly. However, depending on one’s point of view, these communications can have very different purposes. Such cross-purpose communications can have highly damaging effects on these project reviews which, in turn, can harm the organization’s ability to consistently deliver projects on-time, on-budget. I will delineate the divergent points of view so:

• Upper management – usually the very people who have set up the project reviews and insist that they take place at least once per reporting period, with full PM attendance – tend to worry about one thing more than any other in project-oriented organizations: that they are sitting atop a project disaster, and no one is telling them about it. These execs have almost invariably attained their positions based on their own ability to deliver projects successfully, and are confident that they can help correct the problems being encountered by their subordinate PMs, if only the execs could learn about them in their early stages.
• Somewhere in middle management (the exact level varies organization-to-organization) and on down to the individual members of the Project Team, the main concern is very different: they want to execute the scope, to the best of their abilities, and would really like to avoid relatively clueless executives hovering over them, monitoring every decision. Such hovering is perceived (rightly, most of the time) as unnecessary interference, interference which can easily hinder the Project Team’s ability to successfully complete the project.

This being the case, added to the fact that it’s been weeks since I last used the Game Theorist’s favorite tool, the payoff grid, we have the following communications-changing scenarios:

I’ll start with Scenario 2B, where the project being reviewed appears to be doing well, but the PM appears to be reluctant to discuss its performance in detail. There’s a reason this presents as counterintuitive to the point of being highly anomalous – there’s something else going on here. Either the PM knows the numbers are optimistic, or perhaps even invalid, or possibly there’s another reason (politics, personnel issues) that project performance-threatening data is being overlooked by the Cost/Schedule systems. Unfortunately, the best strategy here is probably to leave it be, at least for the present time, lest the Execs be seen as meddling in projects that are doing just fine based on the existing data.

Scenario 2A is everybody’s favorite, and, if all of the projects in the portfolio find themselves here, then the project reviews can take very little time out of everybody’s day.

Now we’ll address Column 1, where communications systems undergo their stress-test. There’s a (relatively cynical) standard list of reasons for negative cost/schedule performance that tend to show up in Variance Analysis Reports, including:

• Vendor rate changes
• Equipment or material delivery delays
• Contingency event (in-scope, unplanned)
• Completely unforeseen event (e.g., pandemic)
• Formal scope change that hasn’t been reflected in the baseline yet
• Informal scope change (scope creep)
• Poor performance

If the negative variance being analyzed was due to any of the first five bullets, the PM, in theory, should not have any problems with presenting them accurately and in detail, landing us squarely in Scenario 1A. However, if the reasons for the negative variance(s) has to do with either (or both) of the last two bullets above, the tendency is going to be to go to Scenario 1B, the stuff of executive nightmares. To be sure, the PMs so involved do not wish to generate the nightmare scenario. They’re almost universally convinced that they can get the customer to own up to the added additional scope to the existing baseline, and appropriately increasing the cost and/or duration, or improving the performance of the Project Team, or…

The list of motives for “adjusting” the communications goes on and on, but it ultimately has the same, inevitable result. A problem that could perhaps be corrected if the organization’s leaders knew about it early enough gets submerged in order to avoid a perceived interference, and ends up costing the project, as well as its owning organization, dearly.

The solution? Communications experts should abandon the idea of expanding the number of people who receive information on projects’ performance, and instead push for more honesty to fewer “stakeholders,” particularly the ones belonging to the Project Teams’ organization.

And that’s how communications management can put an end to the Executive Team’s nightmares.

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.