Game Theory in Management

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?

For my last blog on Sustainability (ProjectManagement.com’s theme for April), I want to get away from analyzing the more technical aspects of the Project Management Information Systems that comprise a mature, sustainable PMO, and focus instead on another key element: organizational behavior and performance. After all, even the best, most efficient system, implemented with the optimal strategy, is going to fail if the personnel involved can’t (or won’t) make it work. While modelling human behavior can be very tricky, there are some usable insights that can be gleaned from the available scholarship, mixed with my own observations.

For example, I’ve often referred to Michael Maccoby’s excellent book The Gamesman: The New Corporate Leaders (Simon and Schuster, 1977), and the organizational archetypes he discusses, particularly the Jungle Fighters. I have come across more than my share of this type (or, perhaps, I’ve become sensitized to them, and more readily recognize when they’re around), and it seems to me that they can be sub-categorized so:

• While all Jungle Fighters use deceit and calumny rather than actual performance to get ahead, the subcategory I’ve dubbed the Novice is the most innocuous. The Novice will pretty much confine his dubious machinations to claiming credit for work he didn’t do, while deflecting blame for things that went wrong. Some non-Jungle Fighters will engage in this behavior episodically, but JF-Novices will use it as a kind of standard template, their go-to canned strategy whenever they interact with the rest of the project team. These shouldn’t be ignored – pretending to address the projects’ scope while actually manipulating people and circumstances in order to evade responsibility for one’s mistakes is clearly counterproductive behavior. If you are confident that even this anodyne variety of Jungle Fighter is on your team, it would be good to get rid of him; if you can’t, at the very least keep a sharp eye out.
• The next step up in my scale of Jungle Fighter severity I’ve named the Aggressor. In addition to the Novice’s tactics, the JF-Aggressor will deliberately select targets within the project team to undermine, and will then carry out a series of actions to make their lives miserable. Their favorite approach is to engage in ex parte discussions with the other members of the team, at first, and then, when their slanderous narrative begins to gain traction, such discussions will happen with management. The point is to make the JF-Aggressor appear to be the target’s superior in some way, by downplaying the target’s contributions, or by making some claim to having been victimized by the target. If a JF-Aggressor perceives he is not receiving the level of attention or accolades that his inflated ego demands, he can (and will) make their targets’ working hours nightmarish, and can unravel team cohesion at light-speed.
• The most dangerous variant of the Jungle Fighter to the successful initiation of a sustainable Project Management Office I’ve labelled the Master. In addition to being able to expertly perform the tactics of the Novice and the Aggressor, the JF-Master will attempt to manipulate the thoughts and feelings that third-party Project Team members have among each other. Consider the example of a Project Team made up of two Craftsmen (Craftsman A and B), a Company Man, the Target (who can be of any of the Maccoby archetypes), and the JF-Master. The JF-Master will attempt to turn the opinions of the two Craftsmen against the Target using slander and calumny. When these tactics fail (Craftsmen are usually resistant to the Jungle Fighter’s machinations), the JF-Master will begin to lean on the Company Man, not to antagonize the Target, but to influence the stubborn Craftsmen. Think of Iago in Othello, who successfully poisons Othello’s opinion of the virtuous Cassio and, by extension, Desdemona, who dies as a result. As far-fetched as this sort of strategy sounds, I’ve seen Jungle Fighters engage in it, and succeed.

I genuinely hope that the vast majority of GTIM Nation is now thinking “ProjectManagement.com clearly does not care if its bloggers are from the universe where Spock has a beard, ‘cuz I have never encountered any of the archetypal behaviors that Hatfield is ranting about.” But my sense is that at a significant percentage is thinking “Michael just described one of my (former or current) co-workers to a tee.” What to do about it?

First off, Jungle Fighters cannot advance at all in a pure meritocracy. Unfortunately, the only large organization that I’m aware of that operates as a pure meritocracy is the United States Chess Federation (US Chess®), where your point ranking is your value to the organization, and Jungle Fighters can slander away without ever changing a thing. If the target can consistently point to an objective record of scope accomplishment and/or high performance, some level of JF insulation can be had.

Another very effective anti-Jungle Fighter strategy is the elimination of ex parte conversations. If any employee engages any manager on the topic of another Project Team member, the manager must stop such conversations until the third party being discussed is present. The first time the PM does this, the Jungle Fighters will have one of their key tactics ripped away from them, and they will become far less effective. Unfortunately, this counter has to come from management, and a lot of managers are either unaware of this type of toxin, or they do not care.

A third strategy is to make other Project Team members aware of the existence of Jungle Fighters within the organization. But don’t use ex parte discussions to do so – that’s a marker of the Jungle Fighter. Instead, copy this blog’s link, and send it to the members of your team. The beautiful part of this action is that the Craftsmen, Company Men, and Gamesmen will either ignore the link, or read it with casual interest. The Jungle Fighters, though, will become agitated, thereby revealing their true natures.

Alternately, one could hang a full-length mirror in the Program Office, and note those who do not cast a reflection.

No self-respecting management science blog with the term “game theory” in its title can go long without using that favorite analytic tool, the Payoff Grid. What can a Payoff Grid add to the Sustainability discussion (ProjectManagement.com’s theme for April)? Plenty, as I will demonstrate.

GTIM Nation is familiar with a couple of themes I would like to revisit, one of which is my personal implementation of the Pareto Principle, that the 80^th percentile best managers who have access to 20% of the information needed to obviate a given decision will be consistently out-performed by the 20^th percentile worst managers who have 80% of the information so needed. If we add in another theme that I’m in the habit of addressing, that of so-called PM experts joining guidance-generating organizations that churn out a whole bunch of, well, nonsense, we have the two main ingredients needed to set up our Payoff Grid.

On one axis, let’s put managerial expertise, with the extremes represented on the one end by managers who are either inept or possess personality traits that makes them extremely poor leaders(or, sadly, both), and on the other end by extremely capable managers, blessed by both an advanced technical understanding of PM and the scope being pursued by their team(s). On the second axis we’ll use as the gradient the nature of the management information systems feeding them what they need to know in order to make the optimal decisions for the attainment of their program/project/portfolio goals. Such a Payoff Grid would look like this:

Table 1. Sustainability Payoff Grid

Before reviewing the Scenarios themselves, here is my list of the attributes of an advanced Project Management Information System:

1. Its information has to be accurate. While this may appear to be obvious, it’s clearly not to many “advanced” practitioners, due to the prevalence of systems that are predicated on subjective data.
2. Its information must be timely. Old information – even when accurate – will get you beaten by the competition, or by fast-moving changes in circumstance.
3. Most importantly, it must be relevant. Irrelevant information clouds the decision-making environment, rather than adding clarity.

Based on this standard, GTIM Nation can see why I have so much heartburn with modern risk management theory, as-practiced. Having someone – anyone – tell you, say, that there’s a 67% chance that you will experience a weather delay will almost never be accurate nor relevant.

So, on to the individual scenarios.

Scenario C exists far more often than it ought and, as I pointed out in my two previous blogs, some of the blame rests with us practitioners. If the people setting up the baselines are far more interested in the risk management plan than they are the critical path schedule network or the Earned Value Management system, then the PM information systems created will be virtually worthless, feeding a poor PM to boot. It will be next to impossible for this Scenario to result in a sustainable system.

Scenario D will also not result in a sustainable system, but for very different reasons from those underpinning Scenario C. An advanced PM who is successful not because of, but in spite of the deficiencies of her PM Information will lose patience with those who designed and set up the baselines, and will select very different personnel/systems in the future. So, no sustainability here.

Scenario A improves the Sustainability odds considerably, due to Hatfield’s application of the Pareto Principal. Oh, sure, there’s a chance that the poor manager will not recognize that his success rate is far more predicated on his ability to make informed decisions rather than any innate ability; but, for the most part, he will not only recognize the essential nature of the Earned Value and Critical Path information he has consumed, but will insist that these relevant information streams be set up in all future projects he works. Sustainability achieved!

Finally, Scenario B holds the best chance that a given PM maturity is sustainable. Successful PMs tend to attract more work, and are additionally better attuned to the relative merits of the various management information systems available for any given budget. The odds of a consistently successful PM basing cost performance decisions solely on, say, the information coming out of the General Ledger are remote indeed. These PMs’ strategies will contain the ability to discern which information system characteristics are vital, and which have nothing to do with an enhanced ability to advance the implementation of those strategies. The vital ones will remain, or become “sustained,” while the others fall by the wayside.

Not to put too fine a point on it, but, as the Payoff Grid shows, a relevant, accurate, and timely PM information system is far more likely to become Sustainable, even in the event of being paired with a poor manager, whereas a poor PMIS is pretty much doomed, no matter the level of PM expertise it’s supporting.

Is your particular system going to be Sustainable? Check Table 1, and I’ll get back to you.

In my previous blog posts on Sustainability (ProjectManagement.com’s theme for April), I addressed how to overcome barriers to achieving some level of sustained PM capability, both from pressures internal and external to the team. This week I thought I’d take a step back, and ask: why are there pressures working against advancement of Project Management capability in the first place, not to mention energy working against its sustainment in the event your organization even gets to an advanced PM state? I mean, think about it: are there pressures against more advanced engineering precision? More advanced talent recruitment? Better communications? When such pressures are discovered, they’re almost always immediately recognized as clear symptoms of some sort of business model pathology. But not Project Management, no siree. Engineers, HR recruiters, and even communications specialists can (and do) rail against certain aspects of an advanced PM capability, and can do so with relative impunity. Why is that?

Could one reason be that they have a point, that there are several aspects of what is considered to be a more advanced PM capability that are truly wastes of time and money? I sort-of touched on this last week, but laid much of the we’re-doing-this-to-ourselves blame on nefarious but unnamed guidance-generating organizations, and much of the blame does, indeed, belong with them. But in many cases our own organizations aren’t being forced to take this guidance at face value. We PM-types could, for example, perform an actual management science-based eval of the management information streams within our PMOs, and discontinue those that don’t truly add value.

The problem with performing an experiment on the efficacy of competing management information streams is that, even if the results point to a clear winner, the losing MIS stream’s advocates can always dispute the findings (usually with some sort of word salad), or ignore them altogether. However, bets are a little harder to ignore. So, I’m proposing a series of bets, starting with Earned Value versus risk management. Here’s how it could work.

For you PMO Directors out there, pick a medium-to-large project within your organization’s portfolio. Call a meeting with any Project Controls Specialist and your risk managers, and give them the following task: given a list of the Control Accounts (or even Work Packages) that are at least 20% complete within the project, forecast which tasks will overrun their original budgets or go past their original baseline dates, and which will not. Take the lists and compare them to each other, and archive the agreements (for overall accuracy rates). You will be left with a list that the EV analysts say will overrun/come in late, and a different set of tasks that the risk analysts predict will do the same. Then, when those tasks are actually complete, compare the late/overrun list with the predictions.

But, before we get all the way to comparing the predictive capabilities of risk management systems with basic Earned Value, I’d like to point out the data set each specialist will need to make their predictions. The EV specialist will need:

• Original beginning and ending dates,
• Original budget (total – it doesn’t even need to be time-phased),
• Cumulative actual costs,
• An estimate of each tasks’ percent complete,
• Today’s date (the date of the ask),

…and that’s it. Conversely, the risk management specialist will need:

• Original beginning and ending dates.
• Original budget (total – it doesn’t even need to be time-phased)
• Description of the original scope.
• A subject matter expert who can tell them:
  • Possible ways (at least three) the work can unfold in a way that’s different from the way it’s described in the scope statement.
  • The estimated cost of each alternative.
  • The estimated duration of each alternative.
  • The odds of the alternate scenario unfolding.
  • Whether or not any of the alternate scenarios are mutually exclusive.
• A way of discerning if any of the alternate scenarios has taken place.

The comparative ease with which the EV specialist can collect the objective data needed to perform her analysis compared to the difficulty involved in gathering the risk manager’s almost completely subjective data should, all by itself, be a strong indicator as to which PM analysis technique is going to win this little wager. I mean, seriously, no SME in the world is going to be able to reliably provide a definitive list of the tasks’ scopes’ alternatives, along with anything resembling an accurate estimate of those alternatives’ duration and costs, let alone odds of occurring. And feeding all that subjective data into either a decision tree analysis structure, or a Monte Carlo simulation, will not overcome those problems.

However, since I know beforehand who is going to win this bet, I’ll be magnanimous. We’ll choose to not compare the data collection minutes needed by the EV specialists with the hours needed by the risk manager, and put the entire basis on its performance results. I’m extremely confident of the outcome; however, if a member of GTIM Nation is in a position to actually perform the experiment, I’d love to hear the real-world results.

So, I’ll return to the question in the title. If your PMO includes a significant risk management component, and that particular information stream is easily out-performed by a far simpler, cheaper method, it certainly raises the question: Does any PMO that includes a significant but irrelevant management component deserve to be sustained?

Official GTIM Nation Members are aware of an axiom that I take as valid, which is Affordability, Availability, Quality: pick any two. Specifically,

• An item or service that’s available immediately for a low price is probably not going to be of the highest quality,
• An item or service that’s available immediately and is high quality is likely to be expensive, and
• A high-quality item or service that’s not expensive will probably involve some amount of waiting.

I’m reminded of this axiom due to a recognition of a systemic barrier to sustaining an advanced (or even adequate) level of PM capability maturity, a barrier which stems from the very nature of organizations that let contracts and those that write proposals for them: the winner tends to be the lowest bidder. Circling back to the axiom that opened this blog, this tendency will pretty much automatically settle the Affordability aspect of the triple constraint. Organizations that maintain a highly mature, or quality Project/Program Management Office, with personnel who can be made available within a couple of weeks of the contract winner announcement, are not likely to be cheap, putting them at a distinct disadvantage in such competitions.

This leaves two alternatives: the Quality PM teams are likely to be late for the start of the project, while the Available PM teams might not be aware that a Cost Variance is definitely NOT a comparison of budgets to actual costs (keep this example in mind – it’ll come up a little later). Now, I’m sure there are lots of times when a winning Project Team has some latitude in hitting the ground running, and can have a robust Performance Measurement Baseline up and reviewable very soon after the project has officially started. But I’m also pretty sure this isn’t the norm. Customers tend to expect the level of quality they paid for to be displayed fairly early in the project, otherwise they wouldn’t put all those infernal requirements for the resumes of “key personnel” in the Request for Proposal.

So, what does all of this leave us? If we assume as true the aforementioned axiom, and fold in the fact that most major projects are let to the lowest bidder, we have a systemic force that’s set up against the very thing that PM-aware organizations are trying to establish and sustain: an advanced capability in Project Management. The deck, as they say, is stacked against us. That being the case, we PM-types can certainly expect that those who claim to be within our ranks are not actually making things worse, right? Right?

Well, no, actually. Consider that we’re talking here about a capacity to sustain some level of PM maturity, and the Affordability card has already been played. The winning contractor is attempting to assign the talented PM peeps to the new project as soon as possible, where they can set up the necessary project management information systems (PMISs) that will provide the data needed for the actual PM to make informed decisions. Let’s say, for the sake of argument, that the talent is actually available, and on-site (available) for the beginning of the project. They set up the baselines in record time, and are ready to pull status. What’s standing in their way? The list includes:

• Certain guidance-generating organizations pump out what they consider to be minimum quality standards for PMISs, and these include extremely dubious characteristics, such as the ability to compare budgets to actual costs at the line item level. Anyone familiar with even the most basic aspects of Earned Value Management will instantly recognize that such a comparison is clearly outside the purview of EVMS. Nevertheless, these organizations insist that it’s intrinsic, and mandate its usage.
• Our old friends the risk managers. I believe that risk management, as currently practiced, is openly fraudulent management science. However, certain guidance-generating organizations insist that some sort of risk analysis is vital to “quality” PM Information Systems, when it’s clearly irrelevant.
• The demand to include all stakeholders. This unwanted assertion, oft put out by communications specialists, completely ignores the fact that the set of “stakeholders” usually includes those who actively seek the failure of the project at hand, ranging from competitors to activist who reject the project in its entirety. Arranging the PM approach to accommodate this “quality” characteristic is a barrier that’s not only unneeded, but represents a serious impediment to successful project completion.

What we have here is, even in those instances where the winning bidder (remember – lowest cost!) has a quality team available, there are forces internal to the PM community who seek to add irrelevant standards of what they assert to be “quality” project management, making the third aspect of service/product delivery that much more unattainable, and, therefore, unsustainable.

So, to answer the question in the title, yes, the sustainability game is rigged against us. The kicker is that, through those nefarious guidance-generating orgs, we’re kinda doing it to ourselves.