Game Theory in Management

Why does any organization need a Human Resources department? Yes, I know they set policy, the ground rules that any repeated gathering of people need to have in order to perform their functions properly, and that these rules apply to virtually all aspects of our professional lives, from how much we’re paid to what constitutes appropriate dress. But for those people who have been paying attention, these rules are almost never uniformly and consistently applied across the organization. High-performers and members of the top executives’ families can (and do) incur at least mild infractions of the rules with relative impunity, while poor performers and those with no connections can be subjected to harsh enforcement of the exact same rule set. Are there any organizations where this is not the case?

Well, yeah. Chess teams. Wanna know why?

Organizations of chess players in general, and chess teams in particular, are set up in such a way as to determine who’s best at playing the game. To this end they will usually set up a point system, almost always mirror-images of the ones used by the United States Chess Federation (USCF), or the Federation Internationale De Eschess (FIDE), where points are awarded for winning sanctioned tournament games, deducted for losing them, all adjusted for the relative strength of the opponents. Your value to such organizations is equal to your current score. Nothing more, nothing less.

The system is as beautiful as it is uncompromising. You could be the direct descendant of Jose Raul Capablanca, and be of no use to a chess team; or, you could be Phiona Mutesi, from the slums of Uganda, and be of extreme value to the same team. Your USCF or FIDE chess rating does not know or care about your background, the color of your skin, your religion or your social-economic status. It simply reflects your ability to play the game of chess, and groups of people who want to win in tournament play will base their decisions on organizational placement on that number alone. It’s an infallible indicator of capability, and vastly outweighs any other consideration.

Meanwhile, back in the project management world, the ability to precisely quantify any given project team member’s value to accomplishing scope on-time, on-budget is a bit more elusive. Most project teams include personnel from a variety of specialties, any of which, if done poorly, could utterly wreck the project. Each of these specialties requires a varied set of talents. Even if a particular person possesses these talents – at a high level – they may still not be much of a contributor if they are unwilling to work hard. As is the case with so much else of the so-called management sciences, there are simply too many parameters to capture and evaluate, and many (if not most) of those parameters are impossible to quantify.

Which lands us back into that swamp of subjective business analysis, the very bane of legitimate management science.

The inability to structure, much less enforce, a more pure meritocracy in the way in which project team members are hired, fired, promoted, demoted, assigned or reassigned has to be one of the most dangerous PM hazards out there, right behind scope creep in its potential negative impact while presenting as something completely innocuous, due to its familiarity, no doubt. By this I mean that many management pathologies have crept in to the typical decision-making process when it comes to matters human resources, such as whether or not the candidate appears to be a “good fit,” or other such subjective evaluation criterion. So, is there a “tell,” an indicator of which project teams are probably comprised of winners, and which are likely to be besotted with marginal talent? Sure there is. Consider these more objective measures:

• College degree(s)
• Professional certifications
• Successful experience
• Previously-held leadership roles
• Ability to deliver

When these form the basis for who gets assigned and promoted within the project team, you may have a winner. Conversely, the more subjective measures, including:

• Close relationship with executives
• Previous project failures
• Inability to perform

…combined with an absence of the objective measures, means that the project team is probably not based on a meritocracy, and therefore, likely to fail.

If only we all had a PMI®/ProjectManagement.com equivalent of a USCF rating…

Check virtually any organization’s mission statement (or similar self-description document), and you will invariably find words to the effect that they consider their employees to be their most valuable asset. It’s true, of course, but it’s true of well-managed teams and poorly managed ones as well. From recruiting to assignments, compensation packages to promotion criterion, what the Human Resources Department does, or fails to do, clearly has an extraordinary impact on the chances of the organization’s success. Since much of management science has to do with recognizing and frustrating those pathologies of thought that can infest and harm the organization’s chances of success, the question must be asked: from a Project Management point of view, what are the behaviors of poorly-performing HR divisions? Put another way, is your company’s HR department filled with Jedis, or Sith?

Who, Exactly, Taught Those Sith Guys How To Talk Smack?

For those of you who have been confined to that part of the world free from American pop culture influences, according to the Lucasfilms/Disney Star Wars movies, a long time ago, in a galaxy far, far away, a galactic empire arose from a galactic republic because an evil cult, known as the Sith, infiltrated the government, eliminating the virtuous sect of the Jedi. Similarly, in this galaxy, as 2016 gets ready to transition to 2017, the virtuous ProjectManagement.com website struggles against the forces of fraudulent management science initiatives, some of which have wormed their way into typical Human Resource departments. Had the Sith revealed early on in their insidious efforts who they were, or exactly what they were trying to accomplish, they would have been frustrated; however, since they were able to hide their allegiances and true intent, they successfully overcame the forces of good and attained absolute control. Similarly, one sure way of advancing an agenda that advances the careers of a few insiders at the expense of the macro organization is to influence the HR department to enact certain practices. If your HR department does some of these things, it may have already been compromised. In that galaxy far, far away, we had Obi-Wan Kenobi state “Only a Sith deals in absolutes” (which is, itself, an absolute, but we’ll let that pass for now). Is there a similar, readily-articulated test in our PM galaxy that could help identify the forces within HR working against the whole organization?

Sure. Consider first off the difference between the desired goals of the self-seeker and the macro organization: the macro organization seeks to improve itself by attracting and retaining talent, and ensuring that the rewards the organization has to offer go towards the most deserving. It is, in other words, striving towards a true meritocracy. Compare that to the goals of the self-seekers, who look to be the recipients of the rewards that the organization has to offer without actually having merited them.  I discuss this at length in my most recent must-have book, but, for the purposes of this blog, here’s a short list of symptoms that the people in your HR department might have glowing orange eyes sometime soon.

Beware Whom You Elect Emperor

Some of the cruder compromised HR departments won’t even bother to erect a convincing facade of following merit-based processes when hiring or promoting, meaning that people who are clearly not deserving or competent will suddenly be announced as having been “assigned” a certain role, with no opportunity for others to compete for that position. Compromised HR departments that do erect such a facade aren’t much better – they invariably skirt the vetting process by pointing to an acute need, or some amorphous capability or experience owned exclusively by the selected “candidate.”  When some capacity not normally part of the job description suddenly becomes the standard by which all candidates are measured, it’s a “tell” that the position is, as we Americans colloquially put it, wired. And, just so we’re clear, applying for a position that’s wired, and not for you, is a colossal waste of time.

An ancillary effect that occurs as the less-deserving advance within the organization is that the more-deserving are displaced, or frustrated. What happens then? Well, it rarely happens immediately (Hatfield’s Rule of Management #3: Your antagonists never receive their comeuppance in a timely manner, or in your presence), but over the long term frustrated superior performers will be drawn to organizations that more closely resemble a true meritocracy. Organizations structured more like a true meritocracy will almost always out-perform those that do not. Combining the premises inherent in the previous two sentences yields the conclusion that organizations based on a true meritocracy will attract talent, while those that don’t will repel it.

Meanwhile, Back At The Jedi Temple…

Oh, sure, they’ll attract the occasional Darth Maul or Darth Vader, though it should be noted that Vader was originally Skywalker, a powerful and virtuous Jedi, prior to being converted to the Sith. The truly talented never need to resort to the underhanded political tactics of the inept to get ahead, but the inept can’t get ahead without them. The ability of your HR department to differentiate among them is one of the primary indicators of long-term project management success.

However, if you experience difficulty breathing when a new addition, who’s been assigned a high rank, holds their thumb and finger up about one inch apart, then it may be time to look for a more meritorious project team.

It was yet another dark and stormy night. My secretary had just left, complaining yet again over not having been paid exactly on-time, and slamming the frosted glass door with my name on it, ylnatS yrrebpsaR, eyE etavirP behind her, when the phone rang.

“Is this Raspberry?” the older man’s voice at the other end inquired.

“Is that who you called?”

“Yeah, but I was expecting your secretary to answer.”

“She’s upset about something, and left early. Is this Roger Doright?”

Roger had been one of my earliest clients. He was a regular, straight-up guy, something of a mentor to me. As he approached retirement age, he had turned over more and more of his corporation’s decision-making to his kids.

“Yeah, it’s me. How have you been Stanly? I haven’t spoken to you in years.”

“I’m good Roger. How are things with you?”

“Well, I’m having a bit of a problem, which is why I called you. I have a hunch that a couple of the major projects in my company’s portfolio are about to go off the tracks, but their PMs insist that all is well, and offer up reports reflecting that. I can’t argue with the reports, so I need somebody to dig a little bit deeper. Are you available?”

“Sure. I can be out there tomorrow morning.”

“One more thing…” Roger continued, “my youngest son, Irvin, needs to learn the project management ropes, so I would like for him to accompany you.”

“What’s his background?”

“Oh, he’s been through all the relevant classes and coursework to do what you do, the whole investigative PM thing, with his specific role being ‘Clue Analyst.’ But he lacks real experience. He’ll meet you at my corporate headquarters tomorrow morning.”

As I put down the phone, I remember thinking “Great, just great. A newly-minted ‘Clue Analyst.’ But Roger has done so much for me, that I suppose I can grit my way through this.”

*   *   *

The dark and stormy night had given way to a bright, clear morning. An overly enthusiastic young man approached me in the foyer of the office building.

“Stanly Raspberry? I’m Irvin Doright. Let’s get  you badged in – the portfolio reviews are about to start, down in the Hatfield Conference Room.”

“The what conference room?”

“It’s in the basement. It was named after an obscure ProjectManagement.com blogger my father liked to read. Let’s get going.”

As we walked into the conference room, several of the PMs glanced up, recognized me, and stifled grimaces.

“What’s he doing here?” I heard one whisper to another.

I looked over the review documents in the pack that was passed out to the participants as I took a seat in the back. The first PM got up to address the projected slides behind him.

“As you can see, my project is on-time and on-budget. At this rate of performance…”

“Excuse me,” I interrupted, “but I can’t seem to find the Cost Performance Reports.”

“The CPRs are in the back.”

“Oh, okay, but why aren’t they in the front? Why are we talking about … what is that chart, anyway?”

“It’s the bottoms-up Estimate at Completion, showing that we’ll finish on-budget.”

“Well, I did a quick calculated EAC, and your own Earned Value data indicates a $12 million dollar overrun.”

“Mr. Raspberry, I’m not seeing that in the risk register!” Irvin hissed at me.

“Nor is that consistent with our information” the PM added.

“That’s because conventional risk analysis techniques and bottoms-up EACs are irrelevant to project performance and accurate at-completion figures” I replied.

Most of the people in the room gasped, almost as if they were paid actors awaiting some common-sense challenge to their embraced business model.

“Irvin Doright here is the owner’s son” began the PM, “and heads up our risk management division. Irvin, do you agree with Mr. Raspberry’s assertion?”

“Absolutely not – risk management deals with virtually all aspects of project management, and my Monte Carlo analyses have been spot on.”

“Not this time” I answered.

“Bruno, confiscate Mr. Raspberry’s badge, and escort him off the premises” Irvin ordered.

Once I was “escorted” off the site, I placed a call to Roger.

“I think I see your problem…”

We all have our own way of looking at the world, and this worldview is shaped by our experiences. Indeed, B.F. Skinner launched an entire school of psychological thought, known as “Behaviorism,” that essentially said that we are all products of our experiences, to the point of minimizing – or even eliminating – the concept of the autonomous, free-thinking person. These experiences he broke down into a stimulus-response-consequence sequence, a model that came to dominate Behaviorism for its time in the psychological world’s limelight.

It was hard to argue with them. When I did my undergraduate work, the university I attended had a psychology department dominated by Behaviorists.  My three semesters (required) on the subject were taught by them, and they had some pretty impressive stories. One of the ones that stand out for me was the one where Behaviorists were invited to manage a mental hospital, taking over from a group of Freudians. Instead of having the patients lie on couches and describe their dreams, the Behaviorists instituted a system where the inmates would be awarded with a white marble if they got up on-time, made their beds, and performed other basic functions without mishap. Should they help others, or go above and beyond their normal chores, they would receive a black marble. These marbles could be exchanged for extra desserts, or more television time, or extra time in the recreation area, or other desirable things. According to my professors, the Behaviorists would have virtually the entire institution’s population acting fairly normally in a brief period of time, previously unmatched by the adherents of any other school of thought. Skinner actually wrote a novel, “Walden Two,” in which a reporter is assigned to report on a commune that had been founded and maintained on the ideas of Behaviorism. And – wouldn’t you just know it? – the commune’s inhabitants were all so much more happy, prosperous, well-adjusted, and sophisticated than the rubes outside that the reporter ends up staying on in order to become a part of the society.

Behaviorism has fallen into disrepute since my undergrad days. One sure indicator had to be the redefinition of key terms by the pop culture (“negative reinforcement” came to be commonly associated with punishment, when it was actually the exact opposite). Another hint was in Walden Two itself: if you can only advance your theories in a fictional setting, you probably have precious little hard data supporting your position. Basically, the notion that we are little (or no) more than the sum of our experiences came to be viewed as sub-optimal (to hijack yet another psychological term).

So, as we shift gears to November’s theme of business analysis, I caught myself wondering if something similar to what happened to the Behaviorists might occur within the business analysis realm. Does anyone remember the quality craze of the 1980’s? Or, even closer to home within the PM world, the emphasis on “life-cycle cost” management?Or “critical chain scheduling”? In each of these cases an idea that had been around for years and years was assigned a new lexicon, trotted out as a new idea that had never (or only incidentally) been considered previously, and then laden down with story after story about how organizations went from struggling to succeeding wildly once they adopted the new, trendy theory set.  Eventually these organizations would run into difficulties that were outside the trendy theories’ purview, and management science’s buzz would return to its nominal dominance by the general ledger custodians’ ideas. In the case of critical chain management, its supporters went so far as to write a novel, advancing the well-known concept of crashing the schedule, as some kind of special insight.

And yet, to real business analysts, it’s all fake. Hooey. Alchemy. Smoke and mirrors. It’s the marketing of a narrative as a substitute for legitimate management science.  Behaviorism worked as long as its researchers could engineer the experiences of its subjects – hence their success at getting lab rats to run mazes faster via punishments, rewards, or a combination of both. But business analysts know that, with very few exceptions, they cannot engineer (or even quantify) the external parameters that lead to management success (at least not legally). The best they can do is to help prepare the organization to present the most robust response to whatever happens to (in our case) the project team as they pursue their target scope.

Unfortunately, there remains a plethora of “management insights” masquerading as legitimate business analysis, making claims to deliver success to their adherents, and there’s really no way of making them go away. Hey! Maybe we can borrow ideas from the Behaviorists, attach electrodes to some of these management narrative promoters, and…

Hatfield’s Rule of Management Number Ten is that in order for a piece of management information to be of any value, it must be timely, accurate, and relevant. If it is not all of these three things, it’s not only useless, it’s hurting your organization. But where quantifiable criterion for information’s timeliness or accuracy can be developed and used, solid bases for evaluating relevancy is a trickier matter, and yet a business analysis issue that the PMO must get right, or risk the organization’s own relevancy.

Does Relevancy Even Matter In Pick-Up Lines?

Take, for example, one of my favorite targets for the irrelevant label, the comparing of budgets to actual costs. This has value only in the asset management arena, specifically:

• Depreciation, and
• When performing an analysis of how accurate your estimates are

… and that’s it. However, since such a comparison is a critical part of managing a household budget, a natural assumption is that it’s important to evaluating project performance. It’s not, and a simple thought exercise can demonstrate this clearly.

Suppose a $100,000 (USD) construction project. To keep it simple, let’s assume that the original estimate included $75,000 in labor costs, and $25,000 in heavy equipment. At the end of the project, the final costs were $20,000 in labor costs, and $70,000 in heavy equipment. According to the “analysis” of comparing budgets to actual costs by category, this represents a monumental failure, even though the project came in under budget by 10%! Further, for each reporting period that this analysis was performed the resulting information was inaccurate inasmuch as it portrayed a performance issue with the work.

It Actually Gets Worse

This technique can be critically wrong in the opposite direction, as well. Let’s say our $100K project was actually spending at the 75%/25% split of labor-to-equipment at the 2/3rds-spent point of the project (i.e., $49,500 in labor, $16,500 in equipment), but the project is only half-complete. The comparison of the budget to actual costs by category (or even at the line-item level) indicates no problem, when even a simple earned value analysis would readily indicate that the project is on a path to a $32,000 overrun.  A broken clock, as they say, is right twice a day, but comparing budgets to actual costs, even at a detailed level, is right only by coincidence. It’s far more likely to be profoundly wrong, indicating problems where none exist, and portraying smooth sailing when the project is in deep trouble. If there were a toolbox of the exact opposite of valid Business Analysis techniques, then comparing the budgets to actual costs (no matter the level) would have to be near the very top of the set. Yet, I can almost guarantee that the majority of PMOs will engage in this form of analysis, and treat the illusory variances as if they were legitimate cause for concern.

The problem is actually worse than even this. Management Information Systems require time, effort, and money to design, set up, and maintain. Another quick thought exercise: why would any manager pay for information that’s already readily available? Obviously they will only spend money and staff time chasing information streams (a) that are not already available, and (b) that they are convinced are relevant. It follows, then, that should those resources pursue irrelevant information, they do so at the expense of the relevant info streams – a prime example of opportunity costs. For example, your business analysts can be assigned to either set up a basic earned value system for the projects in the portfolio, or else you can ask them to perform whatever skullduggery they need to do to uncover the zodiac signs of the competitor’s project managers. A comically extreme example, to be sure, but irrelevant is irrelevant, and having your business analysts pore over projects’ initial baseline estimates, line item by line item, and compare them to the actual project costs in the general ledger, again, line item by line item, is just as futile (if not more so, since it’s not inevitable that knowing the competition’s zodiac signs will lead to a singularly erroneous conclusion the same way that the budgets-to-actuals comparison will).

You Didn’t End Up Marrying That Person, Did You?

The budgets versus actual costs at the line-item level comparison is not only common, but I know of at least one PM guidance-generating organization that mandates it. If your organization is committed to this silliness, it’s committed, and that’s unfortunate, since there’s no telling what other irrelevancies they have embraced. But, if that’s the game being played, perhaps you can convince them to stop performing that particular analysis by asserting that a Feng Shui expert has established it’s damaging to the organization’s invisible forces.