Game Theory in Management

ProjectManagement.com’s theme for March, Leading PM Trends, is conversely both broad and focused, germane to what we do while also maintaining that elusive characteristic of existing in the future (which, again, cannot be quantified). Along these lines I would like to explore with the rest of GTIM Nation another duality that I’ve witnessed over and over again in organized efforts at advancing PM capability within an organization, and it has to do with an axiom from our near cousins, the Information Technology PMs. This axiom may be among the most tightly-packed six words in all of the management science codex, and it is this: begin with the end in mind. So, here’s my question: what end do we have in mind?

I think that, generally speaking, there are two main trains of thought here. One camp seeks to change the behavior of the targeted organization, to lead, compel, or force them to “do” Project Management, and do it to the level of robustness these self-appointed experts are expecting. The other camp seeks to place into the hands of decision-makers the information they need to make, well, informed decisions. Experienced members of GTIM Nation already know where I stand; but, for newcomers and for those who need a little more than a priori assertions to justify the acceptance or rejection of management science theories, I’m going to do a little exploring.

The “change behavior” crowd, it seems to me, dominate the common thinking here. Their exhortations in conference paper presentations, scholarly articles, and boardroom laments are as predictable as they are tiresome. These people simply know that their organizations would be much, much better managed if the principles would adopt their principals, set up a Project Management Office, and encode their insights into must-obey company policies and procedures. If possible, these ones become even more insufferable when they attain their PMP® Certifications, as if the entire weight of PMI’s academic progress was behind their unworkable implementation strategies. Their end, or targeted end-state? Of course they want to see all project work (and maybe a little bit of the work that clearly is not project-related) captured in Work Packages, which roll up to Control Accounts via Work Breakdown Structures, and feed data to Earned Value and Critical Path Management (EVM and CPM) systems, variances captured and explained in Variance Analysis Reports, consistent with the thresholds described in the Project Management Plan, Change Control Boards meeting regularly to review well-written Baseline Change Proposals, etc., etc. But it goes beyond that: they also want to witness Control Account managers eagerly awaiting their Cost Performance Reports (in Format I, of course) and Gantt Charts, clutching them to their hearts as they grab their hard hats and rush out to the job site, suddenly illuminated as to the best course of action to bring their projects in on-time, on-budget. But, given the choice between managers who don’t care at all about these artifacts of doing “proper” PM who, nonetheless, bring their projects in on-time and on-budget on a consistent basis, versus those who do the CPR (Format I) and Gantt-Chart-clutching, but somehow manage to finish late and over-budget, the change-the-behavior crowd would actually prefer the latter.

On the other had we have those who simply want to place into the hands of the decision-makers the information they need to maximize the odds of bringing their projects in on-time, on-budget. This is actually far simpler than the change-their-behavior crowd would ever admit, but it is demonstrably true. Want to know how much your Work Package or Control Account will cost at its completion? Divide the cumulative percent complete into the cumulative actual costs. Yes, it’s that simple. The same is true for duration. Divide the percent complete into the total number of days since it started, and you have its most likely duration, accurate to within ten points. For those whose purpose is to put into the hands of the decision-makers the information they need, such techniques are simply golden. Bereft of such superfluous requirements as tapping a master resource dictionary, or (GTIM Nation totally saw this coming) risk analysis, the project controllers become highly effective, but also extremely efficient. And they become so with hardly any changes to the way the actual project teams actually perform their work – sometimes, with no changes at all. This makes them infinitely more popular with the personnel performing the scope than their change-behavior counterparts, who are far more likely to disrupt the in-place business models, and on a massive scale.

Here’s the ironic part of the whole duality: whereas the change-behavior crowd virtually always fails in attaining their desired end-state (due to silent veto or slow-roll counter-strategies employed by the project team), the provide-the-information team almost always succeeds in changing the organization’s behavior. Even with the most rudimentary cost/schedule performance information being bandied about at the most casual of project review meeting venues, those previously given to ignoring (or even rejecting outright) PM precepts will quickly find themselves discussing negative cost variances being offset by positive schedule variances, and processing change orders to mitigate scope creep.

So, let’s circle back to the question underlying how best to advance PM capabilities within the organization: advance to where? Are we changing behavior, or generating key information streams as innocuously as possible? These are two very different destinations. It would be prudent to know where the PMO is headed.

Do you members of GTIM Nation know very many rich PMs? I know it kind of depends on one’s definition of “rich,” but the only truly wealthy PMs I know just happen to own companies that provide project controls specialists to contractors who run large very large facilities. That’s not to say that former Project Managers are rarely among the ranks of upper echelon of executives – quite the contrary, virtually all of the highly-placed executives I’ve met have at least some experience as a PM. A natural take-away from these anecdotal data points is that PMs become relatively wealthy once they stop doing Project Management exclusively, and bring that level of expertise to a different position, one that requires a broader-base of management expertise than can be attained through Project Management alone.

My thinking is that such a state of affairs is messed up. There simply has to be a way for the more advanced Project Managers to amass more wealth than, say, our friends the accountants (to be fair, the only wealthy accountants I know own their own bookkeeping or tax firms). We do, after all, have a far more advanced and nuanced grasp of management science writ large than those following the simplistic “maximize shareholder wealth” mantra. But the accountants have a very powerful ally in the management world: the taxman. In what has to be one of the both earliest and most powerful examples of a political/governmental structure essentially ensuring the success of one specific variety of business discipline, it’s simply illegal to run a commercial enterprise without doing accounting. One has to employ the double-entry bookkeeping system, and do so following a very specific (and massive) set of rules, or else risk imprisonment. Why? Because governments are funded by the taxes these companies generate, and the amount they generate is based on their books, which are set up and maintained by our friends, the accountants. So, running your business based on the information stream emanating from the accountants’ data feed seems natural, enlightened even. What’s a Project Manager to do?

Let’s start by stipulating that the eat-your-peas-style hectoring has never worked, does not currently work, and will never work. One of my oft-stated axioms is that you cannot advance a capability maturity by leveraging organizational power (you can’t make people get better at a thing). A readily-discernible corollary is that you can’t nag them into improving, either. Oh, sure, harping about how managers who eschew Earned Value or Critical Path methodologies are really dummies who don’t deserve their executive positions might provide some level of catharsis to the presenters at certain PM-centric conferences, but I seriously doubt they change anybody’s mind. And, if you think about it, the presenters at these conferences, with very few exceptions, actually pay money to push their ideas on the attendees, which is the exact opposite of monetizing PM. So, of the potential methods for monetizing PM, let’s scratch “nag executives into recognizing the value of the presenters’ cliched positions, and pay them and their like-minded colleagues more” off the list, shall we?

Perhaps one of the most compelling arguments for monetizing any given business strategy would be to establish its ability to predict the future. Another Hatfieldian axiom is that, if you could give even a poor stock trader a copy of next week’s Wall Street Journal, such a one could pretty much start picking out the color of his soon-to-be-purchased Jaguar (the high-end car make, not the predatory feline). This is where our friends, the risk managers (no initial caps) come in, since they’re in the business of using Gaussian curves to do just that: quantify the future, in a way that provides meaningful information to PMs. Of course, pointing to a high-value information stream and actually delivering one are two very different things. And when I say they are in the business of providing such a feed, I really mean they make their particular take on management science appear attractive through a combination of two strategies: asserting that they can provide some sort of meaningful quantification of the future (they can’t), and the aforementioned eat-your-peas approach, but with a snarky overlay that shifts the narrative to “anyone not doing risk management is doing a poor job of managing in general, and Project Management in particular.”  Risk management (they only got one initial cap because the term started the sentence) is a big business around the world, so I suppose this combination of pseudo-management science pushes is somewhat successful in monetizing PM. However, astrology is also big business, so there’s that.

Then there’s probably the most appropriate method of monetizing PM, that of documenting the clear link between those managers who have an appreciation and working knowledge of it, and their measurable instances of out-performing their PM-devoid colleagues. This gets rather tricky, though, due to that facet of human nature illustrated by the axiom “Victory has many fathers, but defeat is an orphan.” Failed managers will never admit to having crashed their projects due to a lack of competence, while successful projects will have a seemingly never-ending list of business model proponents, anxious to pin the success on the presence of their favorite PM-related theme.

I don’t know, maybe the best way of monetizing PM is by making snarky comments about its detractors in a weekly blog, and awaiting a soon-to-be-realized payday…

As GTIM Nation is aware, I don’t believe that any discussion of leading-edge trends and technologies in Project Management (ProjectManagement.com’s theme for March) can deliver insight without first considering Thomas Kuhn’s seminal work The Structure of Scientific Revolutions (University of Chicago Press, 1962). Yeah, I know that practitioners of the hard sciences tend to wince at the term “management science,” and rightfully so; but, to the extent that management science advances in ways analogous to real science, it follows that discussions on March’s theme must start with this work. Some key takeaways include:

• While Kuhn referenced Karl Popper’s falsifiability as a key component in the advancement of science, he also emphasized the notion of verifiability, which essentially posits that meaningful assertions must be supported by hard data (enough with the surveys about how people feel about PM within their companies!) or valid logical deduction.
• Coherence is another significant theme in The Structure of Scientific Revolutions. While Kuhn used the term to advocate for a logical structure to any given theory, I would like to adapt it in PM space to mean that an internal consistency must be present in any PM-themed guidance document. I’ll go further and state that any PM guidance document that has within it a singular inconsistency or lack of coherence should be eliminated from the overarching Project Management codex.
• One last theme I would like to lift from Kuhn is incommensurability, or the idea that, as scientific theories are hypothesized, tested, accepted, challenged, overturned, and ultimately replaced, the theory doing the replacing is utterly incompatible with the previous one.

Meanwhile, Back In The Project Management World…

Since I’ve spent gallons of pixel ink on the first bullet, and the affliction of a priori statements making up the overwhelming majority of what is considered innovative or cutting-edge Project Management, I’ll continue on to the next two.

One of my favorite objections to the way risk management (no initial caps) is currently practiced is the fact that none of the publications I’ve seen on the topic seems to be able or willing to determine that discipline’s outer limits. One well-known writer on the subject used to insist (he may still) that risk management encompasses all events that impact projects, positive or negative, with “positive risk” serving as some sort of stand—in for the word “opportunity.” Obviously, a specific management discipline that claims to pertain to all events having an impact on project performance has no epistemological limits whatsoever, which is not only incoherent (literally), it is absurd.

By moving on to incommensurability I get the opportunity to address another one of my favorite targets, our friends the accountants. That asset management theory continues to dominate executive thinking and college-level business schools is clearly shown by the fact that the assertion that the point of all management is to “maximize shareholder wealth” is not only nearly universally taught, it’s considered something near-lunacy to contradict this axiom. Even their jargon has wormed its way into idiomatic English (e.g., the “bottom line” no longer refers just to the end of a profit-and-loss statement, but is analogous to an ultimate summation of any discussion or analysis). This is where our favorite organization, the Project Management Institute®, comes in to play.

Like it or not, PMI® is Copernicus to the accountant’s Ptolemy. The notion that there is a type of management, distinct from finance and accounting theory, that is focused on the customers’ parameters of cost, scope, and schedule, and has little or nothing to do with short-term maximizing of shareholder wealth is not only contradictory to the “maximize shareholder wealth” paradigm, it directly contradicts it. Like our friends the risk managers (no initial caps), the asset managers (also no initial caps) were unwilling or unable to set an epistemological limit to their theories. Perhaps the best way to demonstrate the intellectual vacuity of the two positions would be to get the risk and asset managers’ thought leaders in the same room, and let them answer the following question: if risk management covers all events that occur to a project, and the point of all management is to maximize shareholder wealth, which of y’alls’ techniques should take precedence in the information feed to any given project-centric organization’s management team? Announce that the winning position will be awarded premium positions for their adherents in the world’s premier business schools, and that they have 24 hours to resolve the question. Just to be on the safe side, ambulatory care should be provided.

To be fair, I’m not gloating that PM is destined to overturn existing paradigms in management science. I would, though, like to point out that the currently prevailing management theory has been in place for around 400 years. In another 400 years’ time, if that era’s management science theorists want to overturn the assertions in this blog, they are perfectly welcome.

Since it looks as though this will be my last blog for February, and ProjectManagement.com’s theme for February is creativity, I thought I’d use the cover of “creativity” to address a topic that, I’m confident, has gone unaddressed by hundreds of PM-centric writers over decades of publications, with articles and blogs running into the tens of thousands: Did the Munchkins from The Wizard of Oz do Project Management? If so, were they any good at it? Does an evaluation of Munchkin PM offer up some insights to us on this side of Oz?

I think we can safely assume that the Munchkins did do Project Management. How do I know? Check the YouTube® clips from when Dorothy arrives in Oz, specifically near the main square of the Munchkins’ village. There are several buildings (presumably houses, but none of them have signs or features that would indicate one way or the other), an impressive fountain, an extremely flat cobblestone pavement, and, of course, the Yellow Brick Road. In addition, the visible buildings appear to be in an architectural style consistent with what one would find in an 18^th century English town in the countryside that has been hit with an excess charm bomb (in the megaton range), with a seizure-inducing color-enhancement feature. If the Munchkins were ducking in and out of caves, that would be one thing. But, given that their village is presented the way it is, it’s inescapable: those civil engineering artifacts didn’t create themselves. The Munchkins clearly “did” Project Management.

Were they any good at it? I think that, in approaching this question, we must be careful about our basis of comparison. GTIM Nation members know that among my favorite axioms is “All things fail by irrelevant comparisons.” We have no way of knowing what the Munchkins’ cost or schedule baselines were, so we’re left with comparing their buildings and infrastructure to the other examples within The Wizard of Oz. These include:

• The Emerald City. This would probably be an unfair comparison, given that the Emerald City is presented as the zenith of architecture and building expertise in all of Oz, and the Munchkins’ village is just a place in the countryside.
• The Wicked Witch’s Castle. A foreboding place, it is, nevertheless, an impressive piece of construction. Garrisoned by what appears to be around twenty soldiers, it looks like it could withstand a prolonged assault by thousands. We’re not told if the Wicked Witch of the West had it built herself, or if she inherited it, or how she came to be in possession of it, but I think it’s a safe bet that the winning contractor for this project wasn’t headquartered in the Munchkins’ village, which leaves us with…
• …Dorothy’s house. Granted it’s somewhat worse for wear for having been scooped up by a tornado and flung who-knows-how-far; but, having been dropped on the Wicked Witch of the East while she was in the town square of the Munchkins’ village, it does provide a good opportunity for comparative architecture and building technique analysis. The house itself is a simple plank-on-frame affair, made entirely of wood. It is in remarkable shape for having been scooped up by a tornado and dropped who-knows-how-far, but that’s kind of the point. The Munchkins’ houses/buildings look like they are made of polished stone, which would tend to make them impervious to random cyclones running over them.

Based on the only valid comparison left to us, that of comparing the level of building expertise on display between the Munchkins’ village and Dorothy’s house, one would have to conclude advantage: Munchkins, meaning that they not only “did” Project Management, they did it well, at least in comparison to Kansas-based construction project contractors of the same vintage.

Which leads us to the last of my posed questions, is there anything we can learn from Munchkin PM? Before legions of GTIM Nation wise-guys enter comments to the effect “Michael, you know that those Munchkin buildings you’re going on and on about are really just painted backdrops, right?”, I want to focus on things that didn’t happen when Dorothy arrived on the project site in Munchkin Land. My thinking is that, had the Munchkins retained an “advanced” capability in one of the PM disciplines that is mistaken for insightful PM, say, risk management (veteran GTIM Nation members totally saw this coming), then the scene immediately after Dorothy emerges from the dropped house would have unfolded in a dramatically different fashion. Consider that no risk analyst in the universe can possibly restrain himself from pointing out that, had they documented a specific “risk event,” with odds of occurrence and impact to the cost, scope, and schedule baselines thoroughly analyzed, and that event were to actually take place, that they actually predicted as such. It’s simply not in their capacity from engaging in the rarely-encountered-but-completely- documented “I told you so.”

But the Wicked Witch of the East had clearly been antagonizing the Munchkins for some time, since they broke out into an obviously rehearsed song of joy on the occasion of her being squished by Dorothy’s house. It follows that, had any Munchkin risk manager performed an analysis of any of their considerable public works projects, that one of the identified risks would have to be “Wicked Witch of the East arrives, antagonizes the Project Team, leading them to flee the job site, leading to X impact on schedule.” And, if such a risk analysis did actually exist, with the recommended work-around being “Wait for a house from a completely different place to drop on her head,” then I would become the risk managers’ biggest fan. Interestingly, none of that happened.

As it is, I think we can conclude the following:

• The Munchkins did do Project Management,
• They were good at it, and…
• Even they knew that risk management was a waste of time.

As I’ve discussed in previous blogs, much of the Project Management codex describes techniques and strategies that have been tested many times and found to be effective in circumstances both common and rare. Of course, many decisions facing PMs are not specifically addressed in this codex – otherwise, a robot (perhaps resembling the B-9 robot from the original Lost in Space television series) could be programmed with the PMBOK Guide®, (we would all be out of a job) with verbiage including:

• “Placing Organizational Breakdown Structure elements in a Work Breakdown Structure does not compute.”
• “By rejecting Earned Value analysis techniques, you are a quack.”
• “Warning, warning! Spending budget on a risk analysis is counterproductive!”
• …and the ultimate, “Danger, Will Robinson! The accountants are attempting to generate the cost performance reports based exclusively on data from the general ledger!”

Fortunately for we PM practitioners, the actual performance of the PM function can only be reduced to a series of canned strategies on a highly abstract and uneven basis – hence the need for creativity (ProjectManagement.com’s theme for February), often in large doses, in order to bring in our projects on-time, on-budget, on a consistent basis.

I would like to take a moment to look at “creativity” from the perspective of a PMBOK Guide® --fluent robot. In Game Theory there are whole series of canned strategies available for use in various scenarios, or games, viewed as analogous to real-life situations. Whenever the situations varied significantly from their recommended strategies, though, the practice of alternating the use of different canned techniques is known as a “mixed strategy.”

Referring back to that bedrock of Game Theory, the Nash Equilibrium, the use of mixed strategies makes computing the equilibrium very difficult. Since it’s been awhile since I’ve defined it, here’s one definition, from Dictionary.com:

(in economics and game theory) a stable state of a system involving the interaction of different participants, in which no participant can gain by a unilateral change of strategy if the strategies of the others remain unchanged.[i]

Ah, but that’s the rub with mixed strategies, isn’t it? If the PM were to find herself in a project that presented as a “stable state,” (highly unlikely, but let’s continue with this), but did not adhere to one given strategy, then Thomas Nash himself proved (mathematically) that there would be at least one Nash Equilibrium. More specifically, “Nash proved that if we allow mixed strategies (where a pure strategy is chosen at random, subject to some fixed probability), then every game with a finite number of players in which each player can choose from finitely many pure strategies has at least one Nash equilibrium.”[ii] The other players could not know for certain beforehand if changing their existing strategies would result in a superior payoff, or not. Now let’s throw in the fact that, with extremely rare exceptions, no projects will present in stable states. Even the most cookie-cutter of efforts, performed over and over, will be subject to forces and circumstances that all but eliminate the very notion of a completely repeatable environment. Also consider that the strategies of not just the members of the Project Team, but members of the organization outside the Project Team, members of competitors’ organizations, and just plain random players who become involved for a multitude of reasons ranging from geographic proximity to owning shares in vendors’ companies – all of these people’s strategies come in to play, and cannot possibly be quantified, much less compared on an objective basis. And make no mistake – as Metcalf’s Law (a.k.a. “The Butterfly Effect”) makes clear, very small perturbations in some (or even one) nodes of a complex network can have a cascading, cataclysmic impact on a large number of nodes on far-flung aspects of that network. In other words, that one, lowly person who’s involved in your project simply due to geographic proximity? If he happens to be the chairperson of the Neighborhood Association that brushes up against your project’s job site, things could get dicey, and fast.

What should become clear from such an analysis is that creativity is arguably the essential element of Project Management. I’m not discounting the value of the codex of PM research – far from it. Instead, I’m arguing that we, as PM practitioners, have a very long way to go before we can program our robots to fill in for us.

Unless, of course, like the B9 robot from Lost in Space, there’s actually a person inside of it, and that person is very creative.

[i] Retrieved from https://www.google.com/search?client=firefox-b-1-d&q=nash+equilibrium on February 15, 2020, 21:52 MST.

[ii] Wikipedia contributors. (2020, February 9). Nash equilibrium. In Wikipedia, The Free Encyclopedia. Retrieved 16:03, February 17, 2020, from https://en.wikipedia.org/w/index.php?title=Nash_equilibrium&oldid=939985159