Game Theory in Management

I believe that part of the reason why risk management-types have a hard time getting the management science community at large to actually execute the types of analysis they keep harping on about is that the underlying concepts are not very intuitive. Besides their relentless abasement of the language (e.g., you will search dictionaries of the English Language in vain for the definition of “opportunity” being somehow related to “upside risk”), the risk managers’ attempts to expand the use of Gaussian curves into areas of business analysis where they truly do not belong via eat-your-peas-style hectoring are not conducive to more wide-ranging acceptance. What’s needed is a vehicle for them to reduce the results of their analyses into more intuitive formats, similar to last week’s blog’s discussion of alternate ways of portraying (valid) cost and schedule performance information. I think I may have found this vehicle – the Chernoff Face.

Herman Chernoff is an American applied mathematician, currently working at Harvard. He devised a way of conveying information in a graphic format that could be readily understood by a variety of people, with varying degrees of sophistication. This format is called the Chernoff Face. The desired information is compared to a baseline for each of its components; then, when the data deviates from that baseline, the aspects of the face change correspondingly.

Consider the following cartoon face:

We’ll use this as our baseline. Now, the risk management types categorize risk events as administrative, insurable, technical non-somethingorother, Sagittarius, and only within the last two minutes of a half. Since administrative risks tend to be low-impact, we’ll adjust the face to include smaller diameter eyes, upticked brows, and a bit of a frown, so:

When the risk assessment indicates a low-impact, administrative risk, this pensive-looking Chernoff Face does a much better job of conveying this information quickly and intuitively than some decision-tree alternative listing. However, when a serious threat appears on these guys’ radar screens, a more dramatic look is indicated. For real trouble, we should increase eye diameter, push the brows up at a more severe angle, and do something with the mouth, as in:

Aside from little-trouble-big-trouble, though, the risk managers’ main communications have to do with their frustrations with people not listening to them. For those project managers who just don’t get it, in the risk managers’ eyes, this report should do the trick:

Alternately, for those PMs who do understand risk management, and simply eschew it, this style conveys the appropriate sentiment:

…which often leads to the need to figure out how to get at the project’s charge codes anyway, so…

The downside, of course, is that, by conveying risk management data this directly, it goes a long way towards de-mystifying the nature of the analysis when decoupled from the mind-numbing statistical jargon. Well, “downside” from the risk managers’ perspective, anyway…

…and if you’re a PMO Director, you will often have less time than that.

In one of my earlier, high-falutin’ gigs, I was making presentations on portfolio cost and schedule performance to some senior-level executives. A canny assistant to one of them took me aside one day, and told me “Listen, Michael, these guys may be masters of the universe, but they have the attention spans of fourth graders. Whatever you put in front of them has to arrest their interest inside of 30 seconds, or they’re checking the view of the butterflies out the window.”

This advice reminded me of my path-not-taken career, in advertising. My parents ran an advertising agency while I was growing up, and they spent time schooling me in the industry (and were somewhat taken aback when, upon attaining my undergraduate degree, I became a site rat at the Air Force Weapons Laboratory, but that’s another story). For print ads, the rule of thumb was that you had no more than 3 seconds to attract the readers’ attention with your headline; and, if you got them that far, no more than an additional 10 seconds for them to grasp the essence of the entire ad.

Does it strike anyone else as odd that many key decisions, from which types of projects to pursue to where to spend the household’s furniture budget, are so often determined by (relatively) snap decisions, or, at least, snap persuasion? I suppose it’s just part of human nature, a part that bodes very well indeed for us Project Management types (finally!).

My regular readers are, by now, used to my carping about the intellectual vacuousness inherent in the asset managers’ (read: accountants’) automatically-accepted meme of having all of the inside information the organization needs with respect to cost, budget, and project performance. But what do they have, really? The general ledger’s two main (only?) outputs are the balance sheet, and the profit-and-loss statement. Funny thing is, only a fraction of the people who use the term “the bottom line is…” really know how to perform an advanced interpretation of the profit-and-loss statement, and even fewer non-bookkeepers can make heads or tails of the balance sheet. These report formats are literally medieval, arriving around the time of Machiavelli (a coincidence?).

Now, that’s not to say that we PM types are incapable of inducing instant MEGO (a P.J. O’Rourke-ism, short for “my eyes glaze over”) by insisting on generating our cost/schedule performance information in the 1960’s era Cost Performance Report, Format I, or, for the uninitiated, the familiar (well, to us, anyway) Gantt Charts. But, once we move away from these staid formats, the sky’s the limit. One of my favorites is the calculated Variance at Completion histogram.

First, calculate the project’s at-completion costs. A simple but surprisingly accurate formula is:

EAC = ACWPcum / % Complete

… where EAC is the estimate at completion, ACWPcum is the cumulative amount of actual costs on the task or project, and % Complete is the estimate of the task’s percent complete. Next, subtract this figure from the budget at completion (BAC), and you have the calculated variance at completion. For the piece de resistance’, arrange these figures in a table in a spreadsheet, and sort on their values, lowest to highest. Use this to set up a histogram – color all of the overruns red, and all of the underruns green. Include this graphic in your next presentation to the executives, and the following will happen:

·         Since it’s a far more intuitive format than anything the accountants have, you will surpass them easily when it comes to conveying critical cost performance information; so, naturally, they will envy you.

·         The PMs of the projects on the far left side of the graphic will be instantly shown to be heading up losing efforts, and by how much. Since they will have normally escaped such scrutiny, they will not appreciate being so exposed.

·         The executives, on the other hand, will greatly appreciate being so graphically alerted to the problem projects within their portfolios, and will love you for it.

However, you need to beam this information into the heads of your organization’s decision-makers quickly, which means the adoption of a more visual venue than you may be used to. Which reminds me – from the movie Star Trek II: The Wrath of Khan, two minutes and fifty seconds after Kirk’s demand quoted in this blog’s title, a bridge officer reports “Captain! The mains are back on-line!” He knows this because he is looking at … a histogram!

I own a Casio® wristwatch that is suspiciously similar in appearance to an Omega® Seamaster, the watch worn by James Bond (we see a close-up of his wristwatch’s face in the movie Goldeneye). A new Seamaster (“James Bond” version) retails for $3,900 (USD), but can be purchased “on sale” for a mere $3,100. My Casio – which is also a chronometer, by the way – arrived at my door for less than $100.

Now, I readily admit that the Seamaster has many more features than my Casio; but, really, how many current Seamaster owners really need a helium release valve? If the object of the game here is to deliver the time of day, accurately and reliably, to humans walking around on the surface of the planet, then those owners of the Omega watch who do not perform dives of excessive depth or extended periods wear them, at least in part, as a signal to others that they can afford to spend amounts that most middle-class folks would view as excessive on their personal effects. Which is absolutely fine by me, don’t misunderstand – I just think we need to be clear about the form-versus-function balance being attempted here.

The first Project Management Office I headed was part of a small niche contractor, and didn’t compete for contracts quite the same way the established mega-firms did. In this environment and during this time, having a PMO at all was something of an anomaly. Since new contracts would come this company’s way more easily than they would have in an environment of proven-excellence-just-to-submit-a-proposal, the pursuit of outstanding cost and schedule performance wasn’t on everybody’s mind, at least not all the time. The establishment of management information systems that would tip off the executives about which projects were doing okay, and which were train wrecks in the making, was deemed sufficient for their purposes.

Again, don’t misunderstand: I and my staff worked diligently, trying to get all of the decision-makers in the company to recognize the value of doing project management properly. But as we droned on about the need to set up the chart of accounts consistent with the reporting level of the Work Breakdown Structures, or how a cost variance IS NOT the difference between budgets and actuals,  weeks turned to months, and months to fiscal quarters. My little PMO’s exaggerated capabilities would be featured prominently on some of the company’s proposals, as if we were one of the most central aspects to managerial decision-making. Away from the marketing spotlight, however, we were largely ignored, or tolerated with a sort-of bemused patience. Some of the PMs would readily accept any help we could give them, and these ones made the whole PMO enterprise worth pursuing. These were, unfortunately, a definite minority within the firm. From that era of figuratively beating my head against the Vice Presidents’ suite office walls, I remember now as alternately an interminable amount of time, and no time at all. The day came when the company was set to graduate from its niche, and had absolutely no record of project execution excellence to point to as they entered the realm of enhanced contract competition. I discreetly left prior to this change, and none too soon: the company, failing to make the transition, was bought out soon afterwards.

The point here is that we can’t all be the Omega Seamasters of the PMO world, and that’s okay. Sometimes it’s alright to simply look like one, while doing the best we can to deliver accurate and reliable cost and performance information, even when our chronometer-like accuracy is taken for granted or ignored. Looking back, not only do I have no regrets, I’m actually very grateful for the opportunity and the lessons I learned during this time. My little PMO did its best to deliver the critical project cost and schedule performance information that the company’s executives should have used to keep the firm viable. I’ve often pointed out that the 20% worst managers with access to 80% of the information needed to obviate a given decision will consistently out-perform the 80^th percentile top managers who have access to only 20% of the information so needed. Those execs willingly chose not to avail themselves of the PMO’s information stream, so they performed like … well, you know.

So, was this a “real” PMO? You can bet the difference in wristwatch prices it was.

As my regular readers are well aware, there are three types of management: Asset, Project, and Strategic, each with their own goals, tools, and techniques. Similarly, there are three heavy-hitters in the realm of science fiction/fantasy cinema: Star Trek, Star Wars, and the Harry Potter series. In previous blogs I’ve described the business model pathologies that afflict the organization when the tools that are germane to one management area are used in others, blah blah blah, with some success; but now I’m thinking that there’s a more direct way of beaming this information (get it?) into my readers’ heads. I’ll equate them with these three fictional memes! It’ll be fun!

Let’s let Jean-Luc Picard, captain of the Galaxy-class starship U.S.S. Enterprise from Star Trek: The Next Generation serve as the representative of the Asset Managers.  Picard is outstanding in this role because:

·         He’s stodgy

·         and supremely confident in his powers, even though he’s relatively slight-of-build.

·         The people around him assume he has all the answers

·         but he doesn’t

·         and doesn’t let it show that he doesn’t.

In short, he’s perfect for the Asset Manager role.

I’ll select Luke Skywalker, Jedi Knight, as the PMO representative. After all, Luke is young, talented, honest, and has a clarity of vision about who the good guys are, and who aren’t, that Jean-Luc never seems to attain. His area of expertise is not widely-held in the galaxy, and he readily acknowledges that he has a lot to learn before he sits on any ship’s bridge and starts ordering people around in-between pursuing prissy hobbies like archaeology.

If you are looking for someone to add to your Strategic Management Team, you could do a whole lot worse than a person with a résumé like Harry Potter’s. Like all good Strategic Managers, Potter has no doubts about who the bad guys are: if your organization’s competitors win the battle of market share, all that organization is will cease to exist, just as, if Voldemort isn’t stopped from seizing control of the Ministry of Magic, all of the non-dreadful aspects of the dimension occupied by the magic folk will die off. And – let’s face it – everything the Strategic Managers do strikes us mugbloods as magical. They use opaque methods of influencing customers to part with their money in order to give work to our companies! How wizard is that?

So, now you’re a portfolio manager, and you see in the reports that Luke and Harry have provided that your project backlog will cover your organization’s expenses for another six months. You convene a meeting with Jean-Luc, Luke, and Harry, present them with this little factoid that’s causing you to lose sleep at night, and ask them to advise you on how to approach the problem.

“The first thing we need to do is to replace that contract backlog” begins Harry. “The way to do that is to analyze the existing proposal backlog, and capture upcoming Requests for Proposal, evaluate which ones we should pursue, and get to writing. The exact incantation is ‘Capturo ProposalWinRate-ica’!”

“I can add to that” Luke interjects. “By deriving cost and schedule performance information from our project controls staff, I can determine which customers, as well as which types of work, we perform best. I can also tell you, based on our current rates of performance, which projects will come in on-time, on-budget, and which ones we need to worry about. For those PMs who have been telling you that everything with their project is perfectly fine, when it isn’t, well, I can hold up my hand with my thumb and forefinger about an inch apart, and suddenly they have trouble speaking, or lying on their Variance Analysis Reports.”

Jean-Luc is looking at his shoes.

“Captain Picard – do you have anything to add?”

“My analysis shows that your current rate of return on your assets is comfortably above industry standard. I don’t know why we’re even having this meeting, so --- dismiss this meeting! Make it so!”

As you return to your House’s Commons/Degobah Bigelow/Admiral’s Quarters, turning the issue over in your mind, tell me: whose advice will you use?

An unhappy Project Management Office is an underperforming Project Management Office, so it’s up to you, the PMO Director, to take positive steps to maintain a high level of morale among the staff, even in light of low salaries, lack of respect from the rest of the organization, and the sharp elbows of the management information system advocates who are racing you to the role of most-important-executive-advisor team. A way of letting your PMO staff blow off some steam simply must be found. Sooo…how is this to be accomplished, exactly?

Well, there are several options, but if you are bereft of company money in any kind of a morale fund, you may well have to host a soiree at your home. If you do this, though, there’s a possibility that it will come off as somewhat lame, unless you partake of some of the following party activities – for amusement only, you understand.

·         Supply your PMO team with Nerf® guns. Invite over the members of the Chief Financial Officer’s team (read: CPAs) who believe that estimates at completion can be derived by performing regression analysis on the project’s cumulative actual costs, but tell them the start time of the party is 15 minutes after it actually starts. To be on the safe side, have the accountant sign an agreement that insulates you from liability for any light-hearted attacks they may or may not be subject to at your home. Every Nerf hit is good for 15 points towards one of the door prizes.

·         Host a little “casino night,” with the winnings being points or coupons towards door prizes. Invite the risk management team. If they play, ask them how they justify participating at all, given that, in light of the fact that, of all casino games, blackjack gives the player the best odds, and even then they favor the house by 0.5%. If they state that they “feel lucky,” they are either not genuine risk management types, or else they have found a way to cheat.

·         Equip your team members with slightly more effective (but still, of course, [relatively] safe) equipment, such as AirSoft® BB-guns, and invite the members of the CFO team (again: accountants) who believe that a cost variance is the difference between budget and actual costs, but have them show up 15 minutes after the previous batch of accountants.  Any hits count for 100 points towards the door prizes.

·         Set up a game of “PMO Jeapordy!” The topics are:

o   IT Projects and Automatic Scope Creep

o   Reasons why performing statistical analysis on Critical Path schedule-data is a waste of time

o   Canned Variance Analysis Reports that work

o   Agile, Scrum, and Cheating the BCP Process

o   The Most Boring Seminar Topics

o   Certification Initials – What They Stand For

·         Equip your team members with paint ball guns, and invite still more members of the CFO team (do I really need to remind you whom I’m referring to here?) who insist that all management information that deals with budgets or costs must be derived from the General Ledger. Arrange for them to arrive 15 minutes after the previous bunch. Any hits are good for – ahhh, just hand over the door prizes.

·         Print out some versions of this blog, get a life-sized stand-up cutout of your organization’s Chief Information Officer, and initiate a game of “Pin the Clue on the CIO.”

·         Invite over still other members of the CFO team (y’all still know who I’m talking about, right?), and have them arrive 15 minutes after the previous batch. Find ones who flat out refuse to align the projects’ chart of accounts with your Work Breakdown Structure at the reporting level, instead insisting on tracking actuals by the Organizational Breakdown Structure. Procure a delay timer and a electronically-opened cage full of tarantulas…

Ha, ha! Just kidding all along. It would, after all, be a pain to clean up after any aberrant paint-ball shots…