Game Theory in Management

I used to live in Texas, and regularly vacation there (especially in the Corpus Christi – Padre Island area), so I watched the news coverage of hurricane Harvey rather closely. Of course, our thoughts, prayers, and donations go out to the victims. I have additional concerns that reach into the management sciences arena as well. I wouldn’t want any common misperceptions about how projects – specifically, rebuilding projects – can be optimally executed to get in the way of a speedy and efficient recovery for the area.

So, I experienced some level of trepidation when I heard media analysts complain about “price gouging,” which, I take it, is the practice of selling an item or commodity at significantly higher prices than consumers are used to seeing. The common narrative accompanying the charge of price gouging is that the owner of the item or commodity is “taking advantage” of the devastation in the wake of the hurricane in order to make an “unfair” level of profit. This charge, and its accompanying narrative, is invalid, and I can prove it.

First, let’s make a couple of definitions clear. A commodity is a resource that’s virtually indistinguishable from others like it. One gallon of unleaded gasoline is pretty much like any other, which is why a single gas station is highly unlikely to charge a price more than a few pennies more than its competitors. The same is true of purified drinking water, or canned peaches, or any other commodity. Those who deal in the selling of commodities are said to be “price takers,” since they have little control over the price at which they can expect their products to sell. The laws of supply and demand determine that selling point, which is why commodities trading can be so volatile and is a prime example of high-risk investing.

A certain television news website ran a story about a convenience store in Houston charging $99 (USD) for a case of bottled water, with the implication that it represented a prime example of price gouging.[i] Let’s take a look at that, shall we? Since many of the roads to Houston were flooded, the chances of prompt resupply of bottled water in the hurricane’s aftermath were remote, meaning that supply of that commodity was low. At the same time, there are a lot of people who live in Houston who chose not to evacuate, meaning that anticipated demand was high. The presence or lack of avarice on the part of the sellers of bottled water in the Houston area is irrelevant. With limited supplies and high demand, the price will escalate automatically. When it does, it signals potential suppliers that, if they can bring more bottled water into the area, they will be rewarded for doing so. This will lead to those who have access to (a) bottled water, and (b) a boat or high-suspended truck to risk bringing water to the area. What happens when additional supplies are brought in while demand stays level? If you said “the prices come down,” go to the head of the class.

And The Benefits Don’t End There

An additional benefit of the price going up is that, for those people who chose to (a) not evacuate and (b) not buy bottled water when it was only mildly overpriced, they will now only buy what they absolutely need to get by. If the price were to be artificially kept down, say, by well-meaning but micro-economically naïve cable news business analysts, then the first few customers who came in to that store and realized that a rare commodity was underpriced would tend to buy much more than they needed, meaning that later customers wouldn’t be able to purchase bottled water at any price. In addition to signaling the nearby communities that drinking water was more valuable in the Houston area, the higher prices also helped guarantee that the maximum number of people would receive the minimum amount needed, rather than a few having more than they needed, and most having nothing at all.

Meanwhile, back in the PM world…

But enough about commodities. What about Project Management? The same rules of supply, demand, and price are true here, as well. When the waters recede, and the city, county, State and Federal Governments start taking bids on the re-building projects, does anybody really believe that the bids will be at the exact same levels as similar jobs performed before the hurricane hit? The area’s utilities (yes, including drinkable tap water) are off-line, and most major construction projects require a reliable source of energy, water, and sewage/waste disposal. Sure, there are work-arounds, but the work-arounds tend to cost more money, as when the job site requires its own electrical generator, which itself needs potentially scarce gasoline. Many skilled workers won’t think of an area recovering from a major disaster to be a preferred work destination, and will probably need a little extra incentive to be attracted to such an area – at the very least, a dry and cool place to sleep and eat – so labor costs are likely to climb. And we’ve already seen what is likely to happen to the availability of the commodities used in construction.

Now imagine the same cable news business analysts who harangue water-selling convenience store owners goading politicians into performing a review of the recovery projects’ bids, and comparing them to previous budgets for similar projects, and discovering that the post-disaster bids are significantly higher. If they employ the same “logic,” will they not want to accuse the contractors of price gouging? No seasoned PM will view any of these cost-adders as representing an act of taking advantage. It’s simply the way projects are bid, accepted, and executed. If a contractor’s bid is too high, all the customer needs to do is award the work to a lower-priced competitor. And, if some politician or official were to review the project estimates with an eye towards charging those bidders on the high end with price gouging, what do you suppose would happen to the pool of potential bidders? If you said “It would dry up,” you probably also had the right answer to the previous pricing question.

In short, I believe everybody would be better served if certain cable news outlets would leave the management science “insights” to people other than journalists – preferably, to PMP®s.

[i] Retrieved from http://money.cnn.com/2017/08/31/news/hurricane-harvey-price-gouging/index.html on September 1, 2017, 14:28 MDT.

The 1960s television show Batman was rather campy, much of which was injected into the dialogue by the Robin character’s tendency to announce any surprise development with the announcement “Holy _______, Batman!”, with the blank being filled in by a series of extremely random nouns. A partial list (the full list is 356 expressions long[i]) includes:

·  Holy fate worse than death

·  Holy hardest metal in the world

·  Holy journey to the center of the earth

·  Holy Venuzuela

·  Holy stalactites

·  Holy trolls and goblins

·  Holy known/unknown flying objects

·  Holy unrefillable prescriptions

·  Holy Robert Louis Stevenson

·  Holy priceless collection of Etruscan snoods[ii]

And, although it doesn’t show up in any of the official lists, I could have sworn that I saw an episode where the batmobile was stopped by a bovine in the road, prompting a “Holy cow!”

And Now, To Move The Discussion A Tiny Bit Closer To Management Science…

Italian sociologist and economist Vilfredo Pareto (1848-1923) is probably best known for the common interpretation of the Pareto Principle, that 80% of the effects are attributable to 20% of the causes. In business, this is most often used in reference to things like 80% of a company’s revenue tends to come from 20% of its customers, but it has many other applications, such as 80% of the traffic wear in a typical home’s carpet occurs in 20% of its area. One of my adaptations of the Pareto Principle is that the 80^th percentile best managers, who have access to 20% of the information needed to obviate a given decision, will be out-performed by the 20% worst managers who have command over 80% of the information so needed. But the more time I spend in the arena of Project Management practice and scholarship, the more I’m beginning to believe in another application, one that differentiates between true professional PMs, and their pretender counterparts.

I began formulating this application upon observing self-described PM “experts” weighing in on types of projects where they had absolutely no previous experience. Any attempt to dissuade these “experts” on the grounds that they, well, really didn’t know what they were talking about would be met with the fiercest of chest-thumping resume´ comparison challenges, where, inevitably, the attainment of the PMP® certification would be put forth as the argument-stopper.

Pulling this thread a bit more, I began to realize that the “experts” were strongly asserting their “insights” on the basis of the canned strategies they had learned, either through experience or by studying the PMBOK Guide® while preparing for their exams. Since the literature on Project Management presents itself as having a wide range of applicability (if not out-and-out universality), it’s natural for those who ingest this not insignificant codex to assume that they have at least some level of mastery in Project Management, even if the specific application is new to them. I think this, however, is folly, leading to my next application of the Pareto Principle, so:

Most PM practitioners think that mastering Project Management is 80% familiarity with learned strategies, and 20% adapting to the novel conditions of the project. However, the opposite is true: PM mastery is 20% implementing canned strategies, and 80% adapting to the new project team/environment.

If this application is valid, one of its primary implications is that attaining the PMP® certification isn’t ipso facto evidence of mastery. What does it mean, then? I think that the PMP® is like Batman’s utility belt, with its numerous compartments. The specific tactics and strategies that real PMs use are “placed” within this structure, and used as the unique project circumstances demand. And, just as Batman and Robin would be in real trouble if they were to confront the (extremely colorful) criminals without the use of the utility belt, the wearing of the utility belt does not automatically make one The Batman.

So, that’s (one of) my PM validity tests. If your new PM approaches the project with a sense of humility, and seeks to discover what makes this project different from all the other ones she has encountered before offering strategies or solutions, you probably have a winner (it doesn’t necessarily have to be precisely the 80/20 ratio, but you get my sense of proportion on this matter). On the other hand, if the new manager already has all of the answers, and bitterly denounces all opposed to his agenda, start listening for the bizarre “villain” music to begin playing in the background.

Also, the camera angle will suddenly become somewhat askew.

[i] Retrieved from https://www.66batmania.com/trivia/robins-holy/ on August 25, 2017, 17:57 MDT.

[ii] Ibid.

When Glenda, the Good Witch of the North, makes this inquiry of the newly-arrived Dorothy in the movie The Wizard of Oz, Dorothy responds with alarm. Apparently, all witches in Kansas at the time could be readily identified by certain visual ques, most of which would be on display when we meet the Wicked Witch of the West a little later in the scene. Dorothy is completely unaware that, in Oz, there are good witches who present much more like, well, Glenda. But since Dorothy’s appearance is somewhere in-between Glenda’s and the Wicked Witch’s, Glenda is unsure, and has to pose the question.

Meanwhile, Back In the PM World (including Kansas)…

There’s a lot of churn in the PM industry these days about the features that must accompany a “good” Project Management Information System, or PMIS. The primary value of PM information systems lies in their ability to provide critical performance information to the projects’ decision-makers so that they can increase their odds of bringing in their scope on-time, on-budget. While the previous sentence is undeniably true, it does carry with it some rather prickly implications, the primary one being that any PM information stream that supported a provably successful project was just fine, and any – any – ex post facto analysis to the contrary is, well, wrong.

What About The Projects That Don’t End Successfully?

But it does not follow that any PM system that supports a failing project is automatically invalid. Consider the following payoff grid (for those of you who aren’t fans of payoff grids, I remind you of the title of this blog, and how game theory aficionados love these things):

I propose a simple two-step filter to test if a given PMIS is “good,” or “bad.”

• Was the project successful?
  • Yes: the PM system is fine.
  • No: Did the Cost/Schedule System accurately document the project’s performance issues at least three reporting cycles prior to the actual overruns or delays?
    • Yes: the PM system is fine.
    • No: in this circumstance – and ONLY in this circumstance – should we assume an actionable deficiency.

But the fact that PM experts rarely, if ever, follow this common-sense approach points to one of Hatfield’s Incontrovertible Rules of Management, that you can put fifty Project Management experts into a room and they will not agree on the color of an orange. Why so much disagreement? Because the standards being employed have veered away from objective, verifiable parameters.

Finally! A Valid Use For Risk Management!

I believe that a sure-fire tell that the people bestowing “good” or “bad” labels on Project Management Information Systems are unaware of the existence of good witches is if they threaten to identify a system as “bad” for its mis-application (or just missing) risk management program. Such a “finding” would represent ipso facto evidence that the evaluators are relying on epistemological ques that aren’t really relevant.

And, once these ques are misidentified, can simply handing the ruby slippers over to the Wicked Witch of the West be far behind?

I had to smile when I saw that the ProjectManagement.com theme for August was virtual project management. Back in my PMNetwork columnist days I actually wrote a piece by that very title, and it was fun to do. That column was based on the computer game The Sims, a version of which my older son had set up with a house that contained four members of a project team: the PM, an administrative assistant, an engineer, and a technician. We gave them all template personalities, and I wrote about the behaviors we witnessed, the strangest of which had to be the PM’s predilection for tickling the other members of the project team once he began to lose popularity. Happens all the time in your projects, right?

Since I wrote that piece over a decade ago, the producers of The Sims have come out with far more sophisticated versions of the game. If I were to recreate a nominal project office for an updated version of that column, I would have a few upgrades to interject myself, based on the archetypes described by Dr. Michael Maccoby in his book The Gamesman.

In The Gamesman, Dr. Maccoby describes four basic archetypes:

• The Craftsman doesn’t really care as much about who employs him, but does care about the quality of his output.
• The Company Man tends to adopt the persona of the team around him.
• The Jungle Fighter gets ahead by engaging in gossip and calumny, taking credit for others’ accomplishments and deflecting accountability for his own errors.
• The Gamesman (after whom, obviously, the book is named) doesn’t perceive his paycheck or other perks as representing a roof over his head and food on the table; rather, he sees these things as tokens in some grand game. Because of this, this type tends to both possess a mastery of the business they engage in, and are willing to take more risks than the other archetypes.

I have also previously written of the incomparable Dave Post, who worked with me on a paper presentation on the topic of Project Management implementation strategies. Dave pointed out another version of employee archetypes, in this case the types of reactions the project team could be expected to manifest in the implementation process. He theorized that, if the employees were to be represented on a bell curve, that:

1. The leading edge of the curve would represent the early-adapters. These people probably had beta-format VCRs (if you aren’t old enough to know what “beta format” means, I don’t want to hear from you; and, if you don’t know what a VCR is [was], are you really old enough to be on a project team?), and could be counted on to readily embrace the change being introduced.
2. About one standard deviation around the left side of the mean represents those who will accept the change, but only after they have been convinced that it will be beneficial to them in the short-to-medium term.
3. About one standard deviation towards the right side of the mean represents those who will resist participating in the implementation process, and will only come on-board when they realize that most of the rest of the organization has done so.
4. At the tailing edge towards the right of the curve are those who will oppose your implementation, no matter what pressure is brought to bear.

Did everybody notice how I switched from bullets to letters in the two lists? Dave and I, lacking originality (apparently), decided to refer to our archetypes by these letters. Somewhat coincidentally, these archetypes align with Dr. Maccoby’s rather loosely:

• As are Gamesmen,
• Bs are Craftsmen,
• Cs are Company Men, and
• Ds are Jungle Fighters.

When we discuss virtual project management, another way of stating this subject is the modelling of project management environments, where various strategies can be employed and tested for efficacy without actually endangering budgets or critical schedules. I believe that a key component is the modelling of the project team itself, with considerations of how the PM can handle the team’s interactions representing a key parameter.

And if you PMs believe that there are no Jungle Fighters, or Ds, in your project team, think again.

There’s a story I’ve used as an example in this blog before, about a display at the New York Metropolitan Museum of Art that was trash. I’m not engaging in hyperbolic art criticism here – it was literally litter, framed. One prescient critic pointed out that, if everything is “art,” then nothing really is, and I wholeheartedly agree with that assessment.

Meanwhile, back in the PM Universe, I’ve noticed another troublesome trend, particularly among Earned Value practitioners. It seems that almost every EV practitioner I’ve come across thinks of themselves as an “expert,” and can be counted on to allude to it, either in their CV or in discussions about how project management information systems ought to function or be implemented. Sometimes their claims to a high level of expertise have some viability, but other times they’re pretty spotty.

As An Example…

I’ve also already conveyed the story of the young woman who pretentiously demanded that all the managers in the room defer to her “expertise” in EV because she had the PMP® certification. I’m not even sure if she was aware that a significant percentage of the people she was trying to one-up also had PMP®s, or if she cared. She was an expert, by gum, and everyone else was to acknowledge her superiority by either agreeing with her, or else shutting up. It’s unfortunate she chose to use her new PMP® as a bludgeon rather than an accomplishment milestone, but that’s what she did. The funny thing about that story was that she had just asserted a concern that, on that particular project’s Cost Performance Report (Format I), the Earned Value figure didn’t equal the cumulative actual costs (ACWP).

“That’s right” the contractor’s project controls analyst calmly replied, “because that’s not how you calculate Earned Value.”

“Do you know PMI®?!” she stormed. “I’m a PMP®!”

The ensuing percentage of meeting participants who either rolled their eyes or face-palmed probably broke some sort of record.

Unfortunately, It’s Not That Rare

But I know for a fact that this phenomenon is not confined to the naïve-but-arrogant set. In several supposedly high-level meetings of people who have presented themselves as highly advanced in the field of cost performance management, many known-invalid arguments have cropped up, as if they should carry the day and settle the argument then taking place. I tease accountants a fair amount in this blog, but I will say this for them: they generally don’t allow arguments like the sunk-cost fallacy to enter into management decisions, much less let them completely settle a matter.

Conversely, it seems that EV “experts” can be bamboozled by even the simplest syllogisms, as if none of them had ever read Aristotle. Get a room full of these guys into an animated conversation, and the question-begging becomes commonplace. For the record, the phrase “this begs the question…” is not analogous to “this raises the question…”  The syllogism Begging the Question means to assume as true a premise that is either not established as fact, or else has not been agreed to by all participants. In the example I’m thinking of (and, again, have mentioned in a previous blog), the self-proclaimed expert was demanding deference because he had travelled overseas to consult on the topic of Earned Value. I swear I am not making this up. In fact, the fellow became rather irate when I called him on his clearly invalid assertion, that having one’s passport stamped somehow imparts advanced cost performance knowledge. Alarmingly, I had the distinct impression that, had I not done so, no one else in the room would have.

Why This Is A Problem

“So, Michael, what’s the problem here, really?” I can hear some readers say. “What if these EV practitioners think a lot of themselves? Whom does that hurt? Isn’t confidence a good thing, particularly in a consultant?” Well, yes and no. When these consultants start, say, writing guidance documents that are chock-full of these utterly unsupported hypotheses, and those guidance documents get adapted by auditing agencies, then the entire field of Earned Value Management suffers.

Then there’s the problem I began describing in the first paragraph. If everyone is an expert, then it has the same effect as grade inflation at the Ivy League schools. So what if you graduated with honors from Harvard? So did 91% of your fellow class mates![i]

There’s really no point in trying to correct this problem through encouraging all these EVM experts to behave better. That’s simply not going to happen. I mean, look at the offerings from the typical EV symposium. I can almost guarantee that a majority (91%, even) will fall into one of the following categories:

• I saved my project by embracing EV (or its subvariant, My Project Did Great, And We Used Earned Value),
• Everyone should be doing EV, or
• The basics of EV, for the bazillionth time.

…and that’s it. Only occasionally do you see any new research proffered, or even an exhaustive analysis of past projects that have performed well using basic techniques compared to failed ones that did not. And just to be clear, if the EV seminars and symposiums are dropping the ball on advancing legitimate management science theories, then the venues that do perform this function are left to people like ProjectManagement.com bloggers.

As I’ve maintained in previous posts, the answer here is to return to the basics of true management science analysis. For those who have read Aristotle, we should embrace those writers who rely on logos, and eschew those who rely on ethos, i.e., the “experts.”

But, since everyone’s an expert, then nobody really is, so this problem is kind of solving itself.

[i] Retrieved from http://www.sfgate.com/news/article/Harvard-s-dirty-little-secret-is-out-grade-2868775.php on August 5, 2017, 2100 MDT.