Game Theory in Management

I don’t know what it is about Project Controls Specialists – the data gatherers, processors, and deliverers of information in the PM world – that their reports are often held in lower regard than, say, the data from the action item listing. It’s strangely reminiscent of the character of Cassandra, from Greek mythology. She received her prophetic capabilities from the god Apollo, in exchange for agreeing to have sex with him; however, she refused him after gaining her prophetic ability. Since Apollo couldn’t take back the gift, he cursed her by arranging for her to never be believed, even though she was always right (funny how she failed to foresee that particular outcome stemming from her refusal). She correctly predicted the fall of Troy, even down to the use of the Trojan Horse, and also knew beforehand the fates of key characters from The Iliad¹. However, true to the curse, nobody believed her.

On a mildly less epic scale, Project Controls Analysts (particularly the ones who read this blog, calculate their Estimates at Completion and eschew risk management techniques) are often noted for their ability to precisely call out which project tasks are doing well, but also which ones are in trouble, and are likely to finish over budget or late. Even though they are almost always provably accurate, the other members of the project team, customers’ reps, or organization’s execs will tend to not believe them until well after it’s too late to circumvent the unfolding disaster. I believe there are several reasons for this, including the idea that there’s always time to reverse the fortunes of poorly-performing tasks, the accountant’s take is always more accurate, or even that young priestesses inhaling volcanic fumes at Delphi provide better insights. I continue to be amazed that, each time I’m asked to perform a forensic analysis on a project that experienced a significant overrun or delay, but nobody seemed to know about the causal factors until it was too late to correct, the Earned Value Management System had correctly predicted which tasks were in trouble, had pegged the range of overrun/delay to within ten points, and had done so months in advance. Every. Single. Time.

As the fates would have it (get it?), I’m confident I have a solution to this ancient curse that the cost/schedule performance assessors have borne since the advent of the Cost/Schedule Control System Criterion, and it does not involve laying siege to the other business analysts’ walled cities for a decade. It is this: the Project Controls Analysts must provide their PMs with the information the PM wants, and in the format they want to see it. Nothing more, nothing less. Here’s why I’m confident this tactic will work.

Back during the days of the aforementioned Cost/Schedule Control Systems Criterion, or C/SCSC, the use of Critical Path and, specifically, Earned Value techniques was a requirement of the organizations performing major project work for the United States Department of Defense. All of those organizations had to “do” Project Management, and in a fairly particular way. Those who performed the role of collecting, processing, and delivering PM information didn’t have to justify anything – the performance of their roles was a condition of the contract. However, in those arenas where doing PM was not required, many organizations (foolishly, in my opinion) took advantage of the opportunity to cut some PM administrative costs, and downsized (or even eliminated) their Project Controls staff, leading into a cycle that repeats the following steps:

• A major project experiences a significant overrun.
• The organization has a re-dedication to PM principals in general, and Cost/Schedule Performance Systems in particular.
• These systems perform as expected, notifying upper management of where completion-threatening problems arise, and allowing them to be avoided.
• As months go by without another major overrun, management begins to question the need for the PM Administrative budget, at the same time as the unenlightened PMs begin to express frustration with having to provide status updates every reporting period.
• The budgets for the EVMS and CPM experts get cut, and those systems cease reporting.
• The organization experiences another major overrun, and the cycle begins again.

In order to disrupt this cycle, the head of the Project Controls organization needs only to supply their PMs with what the PMs want to see. Not only will this tend to keep their organizational costs low, but those PMs who eschew the cost/schedule performance information will have a notably higher incidence of failure, and will drop out of the pool for future project assignments. Those who believe the prophesies take advantage of this irreplaceable information stream will have a higher success rate, and will either continue to receive the preferred projects being brought in, or will be promoted into the higher levels of management where they can continue supporting the Earned Value and Critical Path folks. It’s a simple survival of the fittest, but it won’t work if the EVM/CPM-owning organization attempts to mandate the use of those tools. The PMs are the customers of these organizations, and won’t take kindly to an attitude of having to be educated on how to do their jobs.

In short, successful PMs already know who they should listen to. Unsuccessful ones will have epic poems written about the people they should have heeded.

1. Wikipedia contributors. "Cassandra." Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 17 Nov. 2018.

Okay, GTIM Nation, it’s time for another payoff grid (yaaaah)! Last week I discussed the problems presented when a project’s cost/schedule performance system was relaying information showing that a project was in trouble, but its principals rejected that insight, or even attempted to cover it up or refute it. Technically speaking, this is one of four possible outcomes from the cost/schedule performance system interacting with management, so:

So, under what circumstances would the cost/schedule performance system indicate that the project is doing fine, but the project team reacts as if it’s in trouble? Well, that depends on the information system.

In past blogs I’ve asserted that all valid management information systems have all of the following attributes:

• The information is timely. Depending on the data cycle, information has a relatively short shelf-life, after which it really can’t be relied on for making decisions of import.
• The information is accurate. Inaccurate information is useless.
• …and, perhaps most important but most elusive, the information has to be relevant.

Why is relevant management information elusive? Consider the following scenario. Midway through a medium-sized project, the Earned Value performance indicators Cost Performance Index and Schedule Performance Index (cumulative) are sitting at 1.02 and 1.05, respectively, meaning that, at the current rate of performance, you will wrap up under-budget and early. However, your friend the accountant, and that risk management fellow, are insisting on interrupting your project review meeting.

“Look you here, Ms. Project Manager!” the accountant begins, “you are spending more than your cumulative time-phased budget. At this burn rate, your project will overrun!”

The risk manager chimes in. “Also, the risk analysis indicates a 25% chance of weather interfering with some of the soon-to-start Control Accounts, which add up to $150,000 (USD – the RM wouldn’t actually say “USD,” that’s just for the international readers). Unless you have $32,500 in ready contingency, you will overrun, based on this analysis.”

You look over at your Project Controls Analyst.

“Jay, how confident are you in your figures?”

“You’ve got more than 90% of your tasks’ budget using one of the quantifiable EV methods, and the actuals have been verified. I’m very confident.”

The accountant speaks up.

“I’m a CPA, and the risk manager happens to be a recognized expert in the field. Whom are you going to believe?”

Whom, indeed?

Here’s the problem with those pushing management information streams that are essentially irrelevant: if they err in saying that a problem is nigh, and needs to be addressed, but that “problem” never actually materializes, there is rarely a downside to such alarmism. In fact, such ones as our fictional accountant and risk manager would be in a position to assert that it was their sounding-of-the-alarm that helped prevent the negative future predicted from unfolding. Conversely, should something really go south on the project, but their systems failed to provide any kind of an advanced warning, then not only would their systems’ vulnerabilities be laid bare, they, themselves, might very well have a harder time convincing the next PM (certainly the current PM) that the data they bring to the project review meetings is, well, relevant. If we assume that accountants weighing in on project cost performance or risk managers weighing in on, well, anything (a caveat: after the original risk analysis is performed, and contingency plans and budgets established), then these purveyors of marginally relevant information would be crazy to not constantly beat the sky-is-falling drum.

On the other hand, I have never – never – witnessed a properly functioning Earned Value Management System – even a very simple one – fail to give fewer than three reporting cycles’ worth of warning when any activity or task (with a duration of at least six reporting cycles) at the reporting level was headed for significant (>20%) overruns or delays.

So, whom are you going to believe? One more clue: the first party to point to their education level or depth of experience as a reason their arguments should be considered valid, as happened in our little story, is directly signaling that they have lost the relevancy argument on its merits.

They’re also signaling that you would be crazy to believe them.

I believe that we all overly dependent on our experiences. We become familiar with how certain scenarios unfold, and tend to expect similar results from analogous situations whenever we encounter them. Of course, each time these scenarios proceed as expected, it reinforces the notion that our formulaic expectations will be realized at the next iteration. I’ve written previously on how our experiences can become our worst enemy when it comes to selecting the optimal Project Management strategy for resolving a given problem, but what I’d like to address now is the phenomenon where we stick to pre-selected strategies even in the face of evidence that it’s a mistake to do so.

I think it’s fascinating how this effect influences management decisions and business analysis (ProjectManagement.com’s theme for November), because I’ve witnessed countless times managers making poor decisions in the light of evidence that their decisions are ill-advised. But probably the best dramatic example of this effect is beamed into households around the world here in Holiday Season, that example being George Baily’s behavior in the film It’s A Wonderful Life (1946). Briefly, George manages a small Savings and Loan (or Building and Loan) in the town of Bedford Falls, but his uncle Billy misplaces an $8,000 deposit to the local bank, which is run by the antagonist, Mr. Potter. As George contemplates suicide, his guardian angel appears and arranges for George to experience Bedford Falls as if George had never been born, in an attempt to get him to see how his life has had a positive influence on so many others’.

So what we have in this movie is George Baily experiencing an altered reality, but he spends almost the entire time rejecting his new circumstances, even in light of the following:

• By my count, Clarence Odbody, George’s guardian angel, tells George no fewer than twenty-seven times that the world around him has been changed to reflect what it would have been like had George never been born. Rather than accept Clarence’s information at face value, George constantly explains the things he is seeing and hearing as coming from different causal factors, including:
  • Clarence is crazy,
  • Clarence is playing some elaborate prank on George,
  • George drank some “bad liquor,” or something,
  • Everyone else is crazy,
  • Or George has gone crazy.
• The clues that Clarence should have been taken at face value far earlier in the movie mount quickly. These include:
  • George’s daughter Zuzu wanted George to fix her flower, which had shed some petals. George surreptitiously hides the petals in his pocket, and pretends to have fixed the flower. When George is transported to the George-less world, the petals have disappeared from his pocket.
  • In what has to be a blow to those who do not accept anthropomorphic global warming, it doesn’t snow in Bedford Falls on Christmas Eve if George is never born.
  • His acquaintances do not recognize him, and his home is obviously derelict.
  • The landscape around Bedford Falls has changed, since the Building and Loan was not in existence to build homes for its families.
• These and other clues point to the, frankly, inescapable conclusion that Clarence is right, and George is experiencing the world as if he had never been born. Even so, George feels compelled to track down his wife, Mary, to see what’s become of her. Still not completely accepting the alternate-world explanation, he confronts Mary, telling her that he’s her husband. She faints.

Meanwhile, Back In The Project Management World…

The well-known study in Cost Performance Index stability[i], performed by Captain Scott Heise, with attribution to Major David Christensen, represented, in my opinion, a significant event in Project Management Information system efficacy. Probably the most significant inference that came from that research is that, since a project’s Cost Performance Index (CPI) is fairly stable relatively early in its life cycle, then the common Estimate at Completion (EAC) formula of dividing the Budget at Completion (BAC) by that very same CPI will yield an EAC that’s reliably accurate to within 10 points.

However, even in light of this well-done and clearly relevant study’s results, there are many George Baily PMs out there who refuse to accept its implications, that the easily-calculated EAC is reliably accurate. They’ll see that the calculated EAC is indicating a future overrun for their Control Accounts (or even the project as a whole), but will convince themselves that they can correct the negative variance prior to project’s end, even going so far as to generate the so-called “bottoms-up” EAC to indicate that there’s no real problem, or it’s not as big as the despised calculated EAC is showing. I’ve been told of executives who order their PMs to perform this very tactic when the calculated EAC is an embarrassment to them. Cost performance report after cost performance report, project after project, and these PMs won’t accept the evidence in front of their eyes.

Just as George Baily’s ordeal would have been much shorter had he simply accepted Clarence’s explanations earlier in the movie, and proceeded directly to understanding how dreadful the lives of his family, friends, and associates would have been without him, I believe that many managers in the PM world would be far more successful if they were to rely on the calculated EACs, and deal with the indicated overruns more quickly and directly than attempting to deny or minimize their implications (or accusing the calculated EAC aficionados of being crazy).

But then, had George accepted that Zuzu’s missing petals constituted ipso facto evidence of the validity of Clarence’s assertions, It’s A Wonderful Life would have been a much shorter movie.

[i]Heise, Scott,  A Review of Cost Performance Index Stability, September 1991, retrieved from http://www.dtic.mil/dtic/tr/fulltext/u2/a246621.pdf  on September 12, 2018, 14:17 MST.

According to 4pm.com, organizations can see a project failure rate as high as approximately 70%.[i] Bad as that is, according to a research paper by McKinsey and Company and the BT Centre for Major Programme Management at the University of Oxford, 17 percent of IT projects fail so badly that they threaten the existence of their companies.[ii] With rates like these, it’s small wonder that project-oriented organizations make it a point to set up Project Management Offices, or PMOs, in order to instill in their project teams the techniques that maximize the odds of their projects coming in on-time, on-budget. So, how ironic is it that the effort to set up and maintain the PMO is, itself, so likely to fail?

I don’t have any hard data on that last assertion, because I’m fairly certain it would be next to impossible to collect. PMO failures do not usually manifest the same way that individual projects do. Individual projects succeed (or, as the data suggests, crash and burn) when their actual performance is compared to their original success criterion of scope, cost, and schedule. PMOs fail much more subtly, and I think it’s important to Game Theory In Management Nation to be able to quickly recognize those signs.

The symptoms of a soon-to-be-failing PMO are easiest to read if you happen to be in the organization when the PMO is initially set up, but they are still observable if you happen across it in the middle of its story arc. There’s this widely accepted implementation approach, or template if you will, that is often employed by start-up PMOs which dramatically reduces its chances of success. This strategy involves employing the following tactics, usually but not necessarily in this order:

• Executives make the announcement that a Program/Project Management Office is being funded, usually because they’ve just been stung by one of those massive project failures that threatens the very existence of the organization.
• Then comes the announcement that the PMO will be headed by a person assumed to be in high standing, either within the organization itself or from the outside PM community. Typically, however, the remaining members of the new PMO will be from other teams performing administrative functions.
• There will be an attempt at clarifying the scope of the new PMO, usually with some reference to one of the maturity models out there, the most famous being Carnegie Melon University's Software Engineering Institute's Capability Maturity Model®. This reference will be wildly speculative, both about the organization’s current Level®, as well as the one to be attained “within 18 months.”
• Other organizations, recognizing the groundswell of support for “doing PM right,” will vocally support the initiative, promising the head of the PMO the “support” needed to attain the stated goal. Personnel will be encouraged to get their PMPs®.
• The PMO will get to work on three specific tasks:
  • Identifying the software platforms for handling schedules and cost performance reporting,
  • Arranging to train the recently-transferred staff, and
  • Writing procedures.

It’s that last bullet which proves to be the most poisonous, as we shall see.

• The tools get selected and installed, and the staff goes through the training, but the procedure-writing will begin to get bogged down. If the original versions of the documents detail minimum standards for all of the organization’s projects, then the existing PMs who disagree with the content of the documents will find ways to argue that these procedures ought not apply to them. And they will succeed, regardless of the level of “support” promised by their superiors only weeks previously.
• The procedures are finally finished, and very senior executives within the organization sign off on them, implying dire consequences for non-compliance.
• Some projects make sincere efforts at implementing the procedures, most make half-hearted attempts, some pretend, and others ignore.
• Once it is realized that the pretenders and ignorers don’t face consequences, the half-hearted teams stop their efforts, and the organization quickly returns to its previous project failure rate.
• The PMO has now failed, but it has done so quietly. The head of it will be replaced, and this person will go out raging about the lack of genuine support from upper management.

I’ve seen this pattern repeat so many times I could probably recite the steps in my sleep. Naturally, I believe I have a far superior approach to PMO set-up and maintenance, predicated on some rather basic Game Theory, and its key components are…

Look at that! I’m out of pixel ink for this week. Besides, GTIM Nation is probably contemplating which aspects of the failed model are intrinsic to their home organizations, and probably isn’t in the mood for the right answer right now.

[i] Retrieved from https://4pm.com/2015/09/27/project-failure/ on November 3, 2018, 19:40 MDT.

[ii] Retrieved from https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/delivering-large-scale-it-projects-on-time-on-budget-and-on-value on November 3, 2018, at 19:44 MDT.

“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.”                                                 -- C. S. Lewis[i]

As we wrap up the hazards involved in disruptive influences (ProjectManagement.com’s October theme), I want to return to the categories I like to use to bin such hazards. They originate in one or more of the following areas:

• Internal to the project,
• External to the project but internal to the organization, and
• External to the organization.

It’s this last category I want to address this week, since it’s both the one that the PM tends to have the least control over, but the one that contains a rather easy-to-avoid difficulty: ceding influence to those who do not have direct involvement in the project nor the organization.

I can’t help but roll my eyes whenever I hear about an organization that has elected to cease manufacturing operations in or purchasing items from countries where the workers are “forced” to work in “sweatshops,” or conditions that most workers in the industrialized world would find objectionable, if not deplorable. As Thomas Sowell has pointed out in his excellent book Basic Economics[ii], when a given manufacturer announces an intent to set up business in one of the poorer countries, it is not at all unusual for people hoping to get a job with the new plant to show up days prior to the actual hiring period. They willingly do so – no one is “forcing” them to do anything. The basic facts are that there are risks inherent in any project or manufacturing initiative, and the entrepreneurs who are doing so are making decisions intended to maximize their chances of running (or expanding) a successful project. Poorer countries are attractive to start-ups because the labor rate is usually lower than in more developed nations. The same nations are unattractive because of their governments’ ability to provide an effective constable force to protect the company’s assets can be uneven, not to mention the chances of an unstable government changing tax rates unexpectedly, or even nationalizing the new plant altogether.

All of these factors, and more, go into the decision of starting business operations in nations perceived as harboring or tolerating “sweat shops.” But the actual people who are desperate for work don’t care about third party tut-tutting about their conditions of employment. Often these positions are critical to them in order to get ahead personally or on behalf of their families. For a third party, who is not directly engaged in either the labor supply nor the hoped-for output, to interfere and act as a disruptive influence over this kind of business transaction strikes me as not only defeating the very purpose – advancing the living standards in poorer countries – they claim to advance, it’s a hazard to the Project Managers. How should this disruptive influence be countered?

First, it must be recognized, the earlier in the cycle, the better. The PM who is assigned to the scope of building the facility, or delivering the expected output, would be well-served to engage in some public relations efforts. The narrative that the disruptive do-gooders are attempting to hang around your neck is one of management exploitation of helpless labor, and they want to use that to push the conclusion that your project is somehow lacking in moral authority. This, in turn, springs from the dopey notion that legal, freely entered-in-to business transactions are either morally correct, or immoral. Actually, such transactions are morally neutral, including those characterized as “price gouging.” As long as neither party is being coerced into entering into a legal transaction – a basic ground rule for valid contracts – then parties not involved in the transaction truly have no grounds for objecting. But that doesn’t stop them from trying, and they are likely not going to experience some kind of epiphany that would enlighten them to their folly.

Keep in mind that this particular type of potential disruptors will almost never have any direct link into the project, neither from its scope completion side, nor from its resource utilization aspect. Much of the disruptive power they wield has been ceded them under the rubric of “engaging stakeholders.” Third party do-gooders suffer nothing for championing a wrong-headed approach. This, by itself, should render anything these stakeholders assert as suspect at best, completely irrelevant at worst.

A practical preventive measure would be to not grant third-party, nothing-to-lose-if-I'm-wrong entities any decision-making authority (or even influence) over the strategic direction for the project.

Also, the savvy PM will be wary of admonishments to “engage all stakeholders.” In my view, the only stakeholders who should be engaged are those who have direct involvement in either the project’s scope, or the resources pursuing said scope. Everyone else is suspect.

So, that’s the litmus test: do the stakeholders have a direct link to the project, AND are in a position to endure losses if the positions they advocate are wrong? Everybody else should read more Sowell and Lewis.

[i] Retrieved from https://www.goodreads.com/quotes/19967-of-all-tyrannies-a-tyranny-sincerely-exercised-for-the-good on October 27, 2018, 19:02 MDT

[ii] Sowell, Thomas, Basic Economics, A Common Sense Guide to the Economy, Fifth Edition, Basic Books, 2015.