Game Theory in Management

Much has been made of the issue of project baseline integration. And when I say “much,” I mean virtual tons of pixel ink that need not have been sacrificed on the altar of this suspect quality metric. One of those guidance-generating organizations that I consistently refrain from naming has made baseline integration pretty much the basis for assessing the quality of any Critical Path Methodology schedule network in its relation to the same project’s Earned Value Management System time-phased budget.

For those members of GTIM Nation who are unfamiliar with what I’m talking about, here’s a quick primer. For (what are considered to be) highly robust Project Management Information Systems, the development of the Performance Measurement Baseline (PMB) is a big deal. A typical sequence involves defining the scope fairly precisely, and then decomposing it into a Work Breakdown Structure (WBS). Once the scope has been defined down to the Work Package level, the estimators, schedulers, or both are brought in to excessively pester the WP managers as to (in the case of the former) which resources are going to be needed to complete the activity, and (for the latter) how long it’s expected to take, which activities need to be completed prior to the start of the one under the microscope, and is the WP manager aware of which activities need this one to complete prior to starting? If both the estimator and scheduler are either not present or not the same person, this is the first opportunity for “baseline integration” to become an issue. Some “experts” will insist that the cost estimate must be derived first, and then loaded into the CPM software for time-phasing. Others will insist that the schedule be established first, and then resources added (from an organization-wide and approved Master Resource Dictionary, no less) to derive the cost estimate. I have seen adults shouting about this very disagreement. No, I am not making this up.

Of course, even if the relevant (and even the irrelevant) parameters of the two baselines line up at the start, this only means the PM’s problems are just starting. You see, most estimating packages assume an annual adjustment to rates to accommodate inflation; however, Master Resource Dictionaries can be updated at any time, usually quarterly. After three months, the cost estimate as represented in the estimators’ version of the Cost Baseline suddenly doesn’t exactly match the time-phased budget as represented in the Schedule Baseline. The baselines aren’t integrated! It’s PM Armageddon!

If GTIM Nation thinks this is an absurd state of affairs, wait ‘til I tell you about what happens when a Baseline Change Proposal (BCP) is submitted. Assuming the BCP is reasonable, its changes to the Cost and Schedule Baselines are expected to happen almost immediately. This means an almost instantaneous and thorough update to those documents that retain information on the affected Work Packages, and the Cost Accounts that they impact, on up the WBS chain. A short list of these documents includes:

• The affected WPs themselves, including
  • Scope description
  • Cost estimate
  • Schedule parameters
  • Selected method of ascertaining percent complete
• Their “parent” Control Accounts
• The WBS Dictionary
• The risk management plan
• The Change Control Log
• The Contingency Budget (if applicable)
• Cost Performance Reports
• Schedule updates
• Variance Analysis Reports…

…and I’m not joking about this being the short list. The kicker? None of it changes cost and schedule performance system quality. None of it. I can prove it.

Let’s do a little thought experiment, shall we? Posit that a project has both a Cost Baseline and a Schedule Baseline, loaded into an EVMS and CPM software, respectively. But, while these two software platforms could communicate with each other, they don’t, because the head of the Cost Performance analysts can’t stand the head of the Schedulers, and vice versa. Let’s further assume that the Earned Value baseline is wildly optimistic, with its Estimators placing the Budget at Completion at $5M (USD). In reality, the project will come in at $10M, but the Cost guys are spending too much time pranking the Accountants, and can’t be bothered to cross-reference their estimates. Conversely, the Schedulers are spot-on with their original Critical Path Network, and show a project completion date of the Start Milestone plus one year. The baselines aren’t even remotely “integrated,” and any comparison of their parameters will quickly reveal this.

So, our little thought experiment project gets underway, and three months along both the Cost and Schedule teams pull status (i.e., glean the percent complete of each WP from their managers). Everybody’s on-schedule, so the overall project’s percent complete is compiled at 25%. Since 25% of the project’s actual time has gone by, the Schedule Team doesn’t have to explain any surprises. Conversely, the Cost Team is comparing their Earned Value (BAC * % Complete, $5M * 0.25, or $1.25M) against a cumulative actual cost of $2.5M. Flawed as it is, the Cost Baseline is now reflecting an Estimate at Completion, based on the derived Cost Performance Index of 0.5, of an overrun of $5M, accurately forecasting the $10M total cost. The fact that the Cost Baseline and Schedule Baseline were wildly inconsistent with each other had no impact whatsoever on each system’s ability to predict the projects ultimate at-completion parameters. Indeed, to assert that the baselines must be in complete agreement is to insist that an EVMS and a CPM Schedule Network cannot be independently operating on the same project, which is clearly absurd.

Now, don’t get me wrong – I’m not saying that the Cost and Schedule Baselines ought not to be completely consistent with each other. What I am saying, though, is that, should they disagree in part (or even entirely), it does not represent a cataclysmic loss of system quality.

I love reading Nassim Taleb’s books. I’m currently devouring Skin In The Game (Random House, 2018), where Taleb passes along this gem (among many): on the basalt slab that contains the Code of Hammurabi, it is written that if a builder builds a house for someone, and that house later collapses and kills its owner, then the builder shall be put to death. This brings a couple of things to mind:

1. Although it’s next to impossible to imagine what life was like 3769 years ago, I think it’s reasonable to infer that the presence of this law on the basalt tablet that essentially contained the entire codex of civilization’s guidelines indicates that catastrophically poor house construction was a real problem. Seriously – consider the last time you perused a major university’s law library. Now think about the reduction of the entire collection to 282 laws, and the significance of this kill-the-poor-quality-house-builder law making that final cut.
2. Whaddaya wanna bet house construction quality improved significantly after 1754 B.C.?
3. Since we don’t go around killing the principals involved in failed residential construction projects, what has taken that practice’s place? That would be the Municipal building codes. But this implies that, in exchange for demonstrably attaining exacting quality standards set forth in local law, that the builders can’t be (legally) killed for subsequent fatal failures. So, the next time GTIM Nation Members have a contractor, say, make an addition to your house, and the local code inspectors appear to rubber-stamp approvals without rigorous inspections, it doesn’t mean your construction is of high quality. It just means you have limited legal recourse if the new structure collapses.

Meanwhile, Back In The Project Management World…

According to zdnet.com[i], 68% of Information Technology (IT) projects fail. And before the non-IT PM members of GTIM Nation roll their eyes and think “Yeah, well, that’s why they invented Agile/Scrum,” consider: virtually all of the management information you use to make the decisions that allow your projects to succeed is the product of one of the residual 32% of IT projects. Critical Path and Earned Value Management Systems don’t simply fall off the management information system tree into their consumers’ outstretched hands. Even if the existing systems appear to be sustainable, it doesn’t necessarily mean that they were successful. There must have been quite a few Babylonians who moved into seemingly sound houses who were ultimately disappointed (or dead) in order for the kill-the-builder law to have entered the Code of Hammurabi, after all.

So, how do we know if our Project Management Information Systems (PMISs) are of reliably quality? There are a bunch of software programs out there that purport to conduct a quality control check of Critical Path networks or EV systems’ output, and in some cases they do a pretty good job. I can’t say “most cases,” because I am not convinced that in most cases they perform a relevant function. Some of the systems that I find to be particularly disappointing perform functions such as checking for the number of start-to-start logical links among activities in a Critical Path network, and express the results as a percentage. For some reason, the conventional wisdom has averred that a percentage of such logic ties above a certain (rather low) threshold should be considered evidence of poor quality. Why? Because of the narrative that a high percentage of start-to-start logic links carries with it an enhanced possibility of returning artificial schedule variances.

Do I have to say it? This is just plain wrong, an attempt to slather on yet another layer of complexity in the name of PM maturity or quality. Clearly the primary quality test for any PM information system is whether or not the information system provided prior warning of a task at the reporting level coming in late or overrunning its budget. Now, had some researcher conducted an analysis of hundreds of projects that had actually come in late or overrun, and had traced a common pathology of their PMISs to artificially-generated positive schedule variances masking real negative ones until it was too late to efficiently correct[ii], then I would have no objections. But if that’s what happened, this researcher has not shown his work. Here’s the kicker: if this speculated fear were true, it would mean that those projects with “excessive” start-to-start logic ties would tend to report artificial negative variances, as those activities that could start with others actually didn’t. It’s analogous to the ancient Babylonian house appearing to be on the verge of collapse without ever actually losing structural integrity, and the law changing to “Whomsoever builds a house that the owner perceives is about to collapse, causing death, but never actually falls down or injures anyone, well, that builder should be put to death anyway.”

Well, enough of this “put to death” business. In its place, though, can we have the start-to-start logic ties Ringwraiths replaced with proponents of a real QC standard, like “did the PMIS accurately predict the overrun or delay?”

[i] Retrieved from  https://www.zdnet.com/article/study-68-percent-of-it-projects-fail/ , which itself cited an article entitled The Impact of Business Requirements on the Success of Technology Projects; however, the link doesn’t appear to work, 9:39 MDT 27 May 2019.

[ii] Similar to the approach that the excellent David Christensen used when researching the stability of projects’ Cost Performance Index in his now famous study.

The primary information systems that allow PMs to make, well, informed decisions are predicated on two methodologies: Earned Value for cost and Critical Path for schedule (anyone expecting me to include the risk management guys in this list hasn’t been reading this blog for very long). While many pieces of insight flow from these systems when they are operating properly (or even a little improperly – these systems have amazing self-correcting capabilities), their primary outputs deal with the ability to accurately forecast when your project will finish up, and how much it will cost when it does. Because of these capabilities, those PMs who eschew EVM or CPM rarely stay within the ranks of management for very long, being easily out-performed by their better-informed competitors.

However, like any other Management Information System (MIS), Critical Path and Earned Value are susceptible to what is colloquially known as the garbage-in, garbage-out phenomena. As my regular readers know, I maintain that all valid MISs have the same basic architecture, comprised of the following three steps:

1. Data is gathered based on a certain discipline, e.g., accountants need a handle on all expenditures and incomes to make a general ledger work.
2. The data is processed into information, based on some methodology. For (again) accountants, this involves properly identifying what place the transaction has in the ledger, and entering it as either a debit or a credit, and, at a set time, compute the totals of the entries and compare ledgers.
3. The information is then delivered to decision-makers in a way that they can readily understand it. If a manager doesn’t know the difference between a balance sheet and a profit-and-loss statement, being fed information from the finest accounting system in the world loses much of its utility.

Based on this basic, three-step MIS architecture, any information system that messes up Step 1 is going to be vulnerable to the information delivered in Step 3 being inaccurate and, therefore, not actionable.

So, is there an aspect of PM that can have an influence on the quality of the data being collected for Earned Value or Critical Path analysis? Sadly, yes, and this aspect is captured in the old, cynical observation “All projects proceed on-time to the 95% complete point, and then stay at 95% complete forever.”

The percent complete parameter is central to both EVM and CPM. It’s how they produce all of their usable information. In the original Cost/Schedule Control System Criterion there were seven approved methods for collecting the percent complete figure:

• Direct Units is the most objective. If your project is to make 100 widgets, and you need to know what your percent complete is, just go and count the completed widgets. This applies to square feet of concrete poured, or linear feet of pipes installed, or any other scope that can be directly measured.
• Apportioned Units has to do with a proportional relationship with other, direct units. If each of your widgets needs two gonculators to make a complete unit, then measure the gonculator task on a two-to-one basis with the widgets.
• For very short-term tasks, the 0 – 100 method is often used. You’re either completely done with the task, or you can’t claim any progress against it.
• For tasks that should finish within two reporting cycles, the 50-50 method can be useful. You can claim either 50% complete, or 100% complete. No other percent complete figures may be used.
• Weighted Milestones are a bit more subjective, but still highly useful. This is where the PM decides the percentage weight of interim milestones within the task, such as, in performing an analysis, the initial investigation is worth 15%, first draft of the report equals 40%, second draft is 65%, submission of the report to the customer is 85%, and customer approval is 100%.
• Level-of-Effort is kind of cheating at the percent complete game. The amount claimed as having been accomplished is set equal to the cumulative amount of the time-phased budget. This technique is set aside for those activities that don’t really have tangible output, like (ironically) the project management task.
• Okay, here’s the fatal percent complete technique, the Milestone Estimate. This is where you contact the Control Account Manager (CAM), and request an estimate of the percent complete as of the end of the reporting period. This is also known as the “liars’ method.”

If one of your CAMs is manifesting the behavior of passing along a percent complete that is known to be overstating progress in order to avoid the scrutiny that would otherwise come from honestly reporting a negative variance, then neither your EVM nor CPM will deliver accurate information about the impacted Control Accounts.

Fortunately, there are two effective fixes (and one hack) for this fatal MIS quality issue. First, minimize the number of Control Accounts or Work Packages that use the Milestone Estimate method. Level-of-Effort is routinely avoided, but even it doesn’t present the system-blasting capabilities of a mis-used ME technique. Second, only allow highly-trusted CAMs to be in charge of tasks being measured with the ME technique. And when I say “highly-trusted,” I do not mean “well-regarded.” I mean, if the CAM in question has ever indulged in that whole “projects proceed on schedule to 95%, and stay at 95% forever” business, they are removed from the trusted ranks forever. The hack I referred to is this: never allow any task to claim over 85% complete until it is completely done. I know, I know, this will introduce a few artificial negative cost and schedule variances in to some long-lived tasks.

But it will also give you, the PM, a usable warning when one of your Cost Account Managers have been gaming the Milestone Estimate method, and exploiting Project Management Information Systems’ fatal flaw.

Well, I am, for one.

Don’t misunderstand – for any given good or service I procure, I want the highest possible quality version, and become quite frustrated when the things I buy end up failing in executing their purposes, either in effectiveness or lack of longevity. Like anyone else, I tend to avoid those vendors who sharply disappoint me, usually forever.

“So,” I can hear GTIM Nation say, “why do you claim to be against quality?”

Because of the way it has been shoe-horned into the Project Management codex, that’s why. Examples follow.

The first reason I find Quality Management experts highly off-putting has to do with their tools, especially the Ishikawa, or fishbone diagram. According to WhatIs.com, a fishbone diagram

… is useful in brainstorming sessions to focus conversation. After the group has brainstormed all the possible causes for a problem, the facilitator helps the group to rate the potential causes according to their level of importance and diagram a hierarchy. The design of the diagram looks much like a skeleton of a fish. Fishbone diagrams are typically worked right to left, with each large "bone" of the fish branching out to include smaller bones containing more detail.[i]

Note the use of the term “brainstorm” in the first two sentences – clearly it’s a large part of creating the diagram. But science is not consensus, and consensus is not science, not even management science. If you are relying on the subjective opinions of the members of your team in order to uncover some hidden truth or insight, you’re doing it wrong. And, as if that wasn’t bad enough, the “facilitator helps the group rate the potential causes according to their level of importance.”[ii] Rate the level of importance? Based on what, exactly? It’s yet another opportunity for subjective inputs to influence the direction of the analysis of the problem under investigation.

Then there’s the whole issue of identifying causality. I’ve been in my share of Six Sigma quality reviews, and never, not even once, heard the facilitator mention the distinction between proximate and material causes. The short answer is that a proximate cause is clear and direct, as in the first domino caused the second one to fall over by being, itself, tipped over. The material cause would be that the second domino fell over because it had been stood up on edge right next to the first domino, thereby qualifying for the “if-not-for” test. This may seem to be mere semantics at first glance, but the distinction in properly identifying remedies to the problems being investigated is huge. For example, one tactic in filling out the fishbone diagram is to ask “Five Whys.” An example I’ve used before involved the sinking of the Titanic. The cause of the Titanic’s sinking, of course, was that it hit an iceberg on the night of 14 April, 1912. One line of the “Five Whys” can go like this:

• Why did the ship hit the iceberg? Because it couldn’t turn away from it in time.
• Why couldn’t it turn away from it in time? Because the lookouts did not give the helmsman sufficient warning.
• Why didn’t the lookouts provide sufficient warning? One reason was that they didn’t have access to the binoculars they would usually use.
• Why didn’t they have access to their binoculars? Because they were locked away in a storage locker, and nobody on-board had the key.
• Why didn’t anybody have the key? Because the person who had the key had been fired prior to the Titanic setting sail, and hadn’t handed them over when he left.

So, based on this “analysis,” some useful strategies in the avoidance of similar maritime disasters would include:

• Don’t fire the person who has the keys to the binocular locker.
• Or, if you do, make sure you get the keys back.
• Alternately, you could ensure that multiple pairs of binoculars are carried on every voyage, and no two of them are kept in the same locker.
• If, however, you find that the only pairs of binoculars are, indeed, in a locked locker, take an axe and destroy the door to the locker.
• If your ocean liner company has a rule against axing open any locker, turn the ship around and go back to port where more pairs of binoculars can be procured (hopefully, quality ones [get it?]).

I could go on (and often do), but you see my point. Without a clearly articulated distinction between proximate and material causality, all the Ishikawa diagram does is help structure a conversation. It doesn’t really help identify the optimal Project Management strategy to either an experienced or looming PM disaster stemming from poor quality.

The other reason I’m opposed to the way Quality Management has been pushed onto the PM universe is due to the notion that those doing the pushing are somehow automatically afforded the intellectual high ground. Touching on the title of this blog, there’s a definite stigma attached to anyone who actually comes out and challenges the notion that Quality Management-types could ever be mistaken in their recommended strategies. But as I’ve been reminding GTIM Nation over the past few months, the old PM saw “Quality, Affordability, Availability: pick any two” is unavoidable. For the Quality guys to automatically assume that their favorite aspect of project delivery is a foregone conclusion strikes me as, well, lacking perspective.

Think about it: you don’t see Affordability or Availability getting their own sections in the PMBOK Guide®, do you?

[i] Retrieved from https://whatis.techtarget.com/definition/fishbone-diagram on May 12, 2019 at 17:14 MDT.

[ii] Ibid.

A lot of pixel ink has been spilled on the topic of Project Management, but most of what I’ve read has to do with what it is, or how to do it. There’s been some additional content on where and when to do it (i.e., which situations call for a PM approach), but one topic I do not remember seeing is: why? Why should we do Project Management? (And, no, I don’t accept “because it’s the right way of doing management” as a valid driver.) I think an examination of motives here will help shed some light on the other, more often-addressed questions.

There are a few reasons, to be sure, but before we tackle them let’s define some terms. A first-person transaction occurs when you purchase a good or service for yourself. Depending on which parameters are more important to you (remember: Quality, Availability, Affordability: pick any two), you will select a vendor and a price, and your first-person transaction is complete. In the PM world, this is the kind of transaction that occurs, say, when an airline contracts with an aerospace company to create an airplane that they will use for their routes.

Second-person transactions are a bit different. This is when you are buying a good or service for someone else, like a gift. Even in those instances where you are well acquainted with the gift recipient’s wishes, the purchaser’s parameters (particularly cost) are far more likely to become the deciding factor(s). The PM example here is when a city counsel arranges to repair roads. Sure, the counselors use those roads, but the most usage comes from the population of the city in general. Since the budget issue is usually already fixed, the question comes down to: Should the road repair be of just-good-enough quality, or will the populace be okay with orange barrels and lane closures for an extended period (one would hope that both won’t occur)?

Here’s where the examination of PM motives gets gnarly. In third-person transactions, the person performing the transaction neither pays for the good or service, nor do they receive the benefits. It’s one of the reasons why government-provided services fail so often: the bureaucrat deciding how much money to fund the provider facility isn’t spending his own money, nor is he the person seeking help at the moment the transaction is occurring. Due to this lack of alignment in setting the consumers’ desired parameters against the providers’ goal in providing the service(s), the odds of developing (much less implementing) the optimal management approach are extremely low.

Meanwhile, Back In The Project Management World…

What are the implications for Project Management? Well, in first-person transactions, the customer would be interested in the robustness of their subcontractors’ PM expertise in order to avoid overruns or delays in critical projects, particularly in Cost Plus Fixed Fee (CPFF) or Cost Plus Award Fee (CPAF) contracts. The suppliers of such project work would be motivated to support some level of PM expertise in order to prove to their current or prospective clients that they aren’t complete dufuses when it comes to managing large projects, and are deserving of the contract award. Both customer and supplier are strongly motivated to request and provide some level (note: not necessarily highly advanced) of PM expertise, and demonstrably so.

For second-person transactions, there’s still some level of motivation, albeit a bit lessened from first-person. People purchasing goods or services on behalf of a government, for example, are usually keenly aware of the need to spend taxpayer monies efficiently, if for no other reason than cases of foolish government expenditures tend to make for very bad press (the “bridge to nowhere” scenario, for example).

But now we come to the scenario where much PM chicanery is not only possible, but basically invited. In third-party transactions, where the PM practitioners are neither spending their own money for managerial expertise, nor receiving any goods or services from the contractors, I have to ask: what is their motivation? For example, when one of my favorite targets, the nefarious-but-unnamed guidance-generating organizations, pushes out another document stating that risk management is a really swell idea, and everyone in the PM world ought to do it, I have to ask: why? What business is it of theirs in the first place? What do they have to gain? These guidance-generating “experts” are the equivalent of a self-proclaimed know-it-all hanging around the electronics section of a major retailer, scolding customers if they don’t seek the same options or features the know-it-all thinks matter. Such a one would be sent packing by (real) managers in short order for being insufferable meddlers. In my opinion, the exact same thing should happen to these guidance-generating organizations.

“But Michael!” I can hear GTIM Nation say. “Didn’t you just indict legit professional organizations, like the Project Management Institute®?” No, and here’s why. While PMI® certainly does generate guidance, they have skin in the game via the Certification Department. If someone with a PMI® credential asserts some truly dopey stuff (I’m not saying it never happens, but it’s far from common) then the entire brand suffers, from membership all the way up to the top execs. Conversely, risk managers can point to their allies in the guidance-generating world who assert any project bereft of RM is doing PM “wrong,” and pointing out the percentage of successful projects also bereft of RM will not overturn these assertions. It’s immune to real-world evaluation and analysis, because neither the consumer nor the supplier gains or loses a thing based on the validity of the “guidance.”

So, which PM techniques are most appropriate, efficient and effective for a given project? I have a good idea what the answers are. But first, I need to know: why do you want to do PM in the first place?