Game Theory in Management

In previous blogs I’ve referred to the old saw, Availability, Affordability, Quality: Pick Any Two. To elaborate:

• If it’s readily available and affordable, it’s probably not high quality.
• If it’s high quality and available, it’s going to be expensive.
• And, if it’s high quality and affordable, there’s probably going to be a lot of people in line in front of you to get one.

Another rather inescapable rule of free market economics: the price of an item or service is what aligns supply with demand. When the price of something is allowed to move freely, rare somethings will command higher prices, signaling the macro economy that more of that something is in demand. If there’s an excess, prices will fall, and the macro economy will respond in such a way that the resources used to produce the something could be better directed elsewhere.

Now consider what happens when some outside controlling influence, like government, decides that a certain good or service is “too important” to be allowed to have its price set by something as seemingly arbitrary as supply and demand – in the United States, gasoline in the late 1970s, or health care now. With the price set lower than it otherwise would be by something as arbitrary as bureaucrats, what happens to availability and quality? In most instances, they both suffer reverses from what they would have otherwise attained in a truly free marketplace. In the case of the gasoline shortages during the 1970s, since the artificially capped price of gasoline meant that oil producers could not with confidence make a profit, American oil production actually went down during the period, resulting in more unintended negative consequences to the macro economy. As far as health care is considered, the effects are identical: by employing the political “solution” of artificially holding down prices, there’s an abundance of evidence that both quality and availability are suffering (along with the patients!). Conversely, if those cases where the price is artificially set too high, surpluses will occur as consumers seek viable alternatives. If the something that is subjected to artificially high prices is perishable, massive amounts of waste will ensue – it’s pretty much automatic.

Meanwhile, Back In The Project Management World…

So, what does all of this basic economics have to do with Project Management, specifically? Let’s indulge in a little thought exercise, where we are setting up a PM consulting firm. Our start-up is capitalized, but we’re not rich. Since nobody is going to hire outside PM help that’s not provably advanced, we can’t skimp on the quality aspect of our service; nor will customers be inclined to wait, so our deployable consultants had better be able to arrive on-site relatively quickly, meaning that the availability parameter is already set. Can we, then, expect to be successful if we are charging high rates? Clearly not – as a startup, we’re going to have to come right out of the starting gate offering the full availability—quality —affordability (AQA) trifecta.

For the sake of this analysis, let’s say our new little PM consulting firm does pull off that very trifecta for its first three fiscal quarters, and we’re attracting more customers than we can quickly address. What to do? We will have to select which two aspects of the AQA model we want to maintain, since:

• If our people have been providing a high-quality service at an affordable price, then they’re probably being underpaid, meaning that in order to retain them, our prices will need to go up;
• If we fail to provide consultants to customers on a timely basis, they’ll look elsewhere;
• If we hire additional people at bargain-basement rates, odds are our quality will quickly drop below that at which our customers could probably provide in-house.

In short, competition in the free marketplace will inevitably force us to decide which one of the two AQA functions we should embrace. There is, however, one aspect that allows an overcoming of these decision-driving factors: technology advances.

Referring back to gasoline prices, an advancement in extraction technology – hydraulic fracturing, or fracking – made so much more crude oil available in the United States that it changed energy prices around the world. Similarly, advances in the Project Management sciences will put those discovering or embracing them into a superior position to consistently deliver a higher-quality service at a more affordable price than the competition, with availability far easier to maintain. That’s one of the reasons I keep harping about the need for the PM community to not only return to performing legitimate management science research, but to shed the vestiges of the more archaic or obsolete aspects of PM.

To summarize, then: any formal guidance that posits a cap on PM budgets – a 5% limit is often bandied about – represents an arbitrary application of pressure on the price of the Project Management role, and is a force pushing any PMO so afflicted towards failure. The solution? I’m not going to offer a solution per se, other than to point out that any organization claiming to produce usable PM guidance that attempts to set a cap on Project Management (or any other function, for that matter) expenses has already exposed itself as being singularly backwards in the realm of basic economics.

Do we really want to accept guidance or advice from those organizations?

In last weeks’ blog I discussed one of the advantages that PM’s new practitioners (ProjectManagement.com’s theme for January) have, that of being more likely to recognize a simple, direct solution to a complex problem should one be available, analogous to the Scarecrow realizing he can use the Tin Woodman’s axe to discombobulate the Wicked Witch’s castle guards in The Wizard of Oz (1939). But there are two sides to every coin, and the flip side of this one represents a real disadvantage to the new practitioner: They tend to believe the other members of their organization are automatically on their side.

A lot of the material presented in PM coursework, PMP® preparation classes, and PM-themed seminars can be rather sterile. Yes, yes, I know I’ve been advocating for a return to more, well, science-based analysis here in the management science arena, but I also freely admit that there’s a side to what Project Management practitioners do that defies quantification, let alone valid, logical analysis. And the quicker the new practitioner comes to a working knowledge of these more subjective factors, the better off they (and their project teams) will be.

Of course, not all PM curriculum are excessively or unrealistically sterile. Exhibit A is the use of Michael Maccoby’s excellent book The Gamesman[i] , which I have referenced in this blog before. Maccoby posits four archetypal behavior patterns among workers, so:

• The Craftsman is interested in his output and its quality, but not so much for whom he works.
• The Company Man tends to assume the persona of the macro organization.
• The Jungle Fighter gets ahead through deceit and calumny, and
• The Gamesman tends to see his pay and benefits not as food on the table or a roof over his head, but as tokens in some grand game. Because of this, he tends to have an advanced mastery of the “rules” of this “game,” and is more willing to take risks.

One of my main takeaways from Dr. Maccoby’s work as it applies to the PM world specifically is the working assumption that, in project teams of any significant size, there is going to be at least one Jungle Fighter. The new project team leader can count on it. The implications here include:

• At least one of your team members will be engaging in office politics, usually egregiously so. My personal definition of office politics includes those activities that are designed to help the practitioners personally, but at the expense of the team or organization. The primary tactic here involves harming (or even destroying) the meritocracy elements of the group, and substituting a structure that benefits the Jungle Fighter specifically.
• If this approach to satisfying ambition is allowed to succeed, the Company Men archetypes will see it, and tend to emulate it, given the fact that this type tends to assume the persona of the group anyway.
• Once a sizable percentage of the project team recognizes that merit is not the exclusive – or even primary – vehicle for advancement, the odds of that project team realizing its objective on-time, on-budget decreases significantly.

Another landmine that I’ve encountered multiple times in real-life but have never seen addressed in PM literature or paper presentations has to do with the business model pathologies stemming from the teaching of the asset managers’ narrative, that the point of all management is to “maximize shareholder wealth.” Even though this assertion is in sharp contrast to the Project Managers’ goal of completing the customer-defined scope on-time, on-budget, I have yet to read other writers’ work pointing this out. The real-world difficulties that come from this clash of visions is probably most often manifested the first time the new PM approaches her organization’s accounting department with the request to collect actual costs at the reporting level of her project’s Work Breakdown Structure (WBS). The ability to collect actual costs based on the WBS is critical to the creation and maintenance of an Earned Value Management System, the only method for accurately gauging a project’s cost performance. Many of the accountants I’ve encountered, however, will be inclined to (a) maintain that cost performance is performed by comparing actual costs to budgets (which is false), and (b) collect actual costs based on the Organizational Breakdown Structure (OBS), which is, after all, an ordering of the company’s assets. By pushing the asset management narrative, whether through a genuine belief that that’s the way things are done, or due to a more vindictive motive, the information streams that the PM needs in order to make informed decisions are eroded or even prevented outright.

I am, however, at a loss as to how to articulate these two new-PM-practitioner traps without sounding cynical or even paranoid. I mean, “Welcome to the company, new PM practitioner. You should know that at least one member of your project team is going to advance their agenda at the rest of your team’s expense, and the most powerful single group within the company, Finance and Accounting, has been educated to believe that the information you need to succeed is the wrong way of doing business” is hardly a rational-sounding introduction. I suppose I could be a bit more circumspect, as in “beware the enemies within your project team, and those external to the project team, but internal to the company,” but that version is so vague as to sound even more psychotic.

I think I’ll settle for a Wizard of Oz reference.

[i] Maccoby, Michael. The Gamesman: The New Corporate Leaders. New York: Simon and Schuster,1976

In the classic film The Wizard of Oz (1939) there’s a scene that takes place in the Wicked Witch’s castle, where Dorothy, the Scarecrow, the Cowardly Lion, and the Tin Woodman (and Toto, too!) are cornered in the castle’s great room, with halberd-armed guards advancing menacingly towards them. The situation appears to be completely hopeless when the (supposedly brainless) Scarecrow notices that the massive candelabra hanging high in the room is suspended by a rope, and that rope just happens to be secured to a cleat on the wall right next to them. When the Wicked Witch, who is standing on a mezzanine above them, throws the large hourglass to the floor where it explodes, the Scarecrow simply grabs the Tin Woodsman’s axe and severs the rope (he doesn’t even remove the axe from the Tin Woodman’s grasp, or tell him what’s going on), dropping the massive candelabra onto the assembled guards. The protagonists then escape (temporarily) in the confusion.

I was reminded of this scene recently when I was working a little project of my own, restoring a 29-year-old sedan that I use for getting around my far-flung workplace. It has over 200,000 miles on the odometer, and it was looking so ratty that I was concerned my co-workers would take me for a ragamuffin. Here’s a before picture:

Posted on: January 14, 2019 09:46 PM | Permalink | Comments (1)

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