Game Theory in Management

I believe that one of the most, if not the most, valuable information bits that come from even a basic Earned Value Management System (EVMS) is its ability to accurately predict the at-completion costs and durations of Project work. Decades before “Predictive Analytics” was a thing, EVMSs all across the PM universe were doing an outstanding job of generating this highly coveted bit of management information, and doing so rather easily. So when it comes to discussing Project Management in Real Life (ProjectManagement.com’s theme for September), this management information stream simply has to be the first to consider.

David Christensen is widely acknowledged to have performed the seminal work[i] in evaluating the stability of the Cost Performance Index, or CPI. As a reminder,

CPI = BCWP / ACWP

…where BCWP, or the Budgeted Cost of Work Performed, is the Earned Value figure, and ACWP is the Actual Cost of Work Performed, or just “actuals.” CPI stability isn’t just some wonkish parameter relevant to EV enthusiasts – it’s the heart of the most common (and, as we shall see, the most valuable) way to calculate the Estimate at Completion, or EAC. That formula looks like this:

EAC = BAC / CPI

…where BAC is the Budget at Completion, or total budget, and CPI we’ve already defined. Now, eagle-eyed members of GTIM Nation will immediately recognize an opportunity for algebraic simplification, since:

BCWP = % Complete * BAC

…and they would be correct. Without going into the steps, the EAC formula above can be simplified to:

EAC = ACWP / % Complete.

In other words, all one has to know to calculate an Estimate at Completion is the cumulative actual costs of a project/task/activity, usually readily available from the organization’s general ledger (except in those instances where the GL isn’t set up to collect costs by Work Breakdown Structure), and a reasonable estimate of the project/task/activity percent complete is available from the managers in charge of that piece of scope.

This formula is so simple, and with such readily-available data points needed to feed it, that it’s become fashionable in some PM circles to claim that it couldn’t possibly be reliably accurate. But this is where Dave Christensen’s work comes in, for if the CPI is relatively stable for most of the Project’s life, it follows that the simple EAC formula is reliably accurate. So, what does Christensen’s work indicate? That the CPI, for most of the Project (starting from around 20% complete), is indeed stable, to within ten points. And that means that the BAC / CPI formula is usually reliable to within ten points of the true final costs, and that means that the simplified version of the formula is, as well.

But, wait (as they say in numerous television commercials), there’s more! I believe that the same formula works for duration. Simply take the cumulative duration of your project/task/activity (I recommend in calendar days), and divide it by the cumulative percent complete for total Duration at Completion.

So, what are the real-world implications? For starters, the Estimated Costs at Completion can be reliably calculated, serving as a sanity-check for when your PMs are trying to convince the PMO Director in the Project Reviews that their Project is going to finish on-budget, even with a CPI of .89, and the Project itself over 85% complete. That’s virtually impossible, but if the only source of the EAC is that dopey re-estimate-the-remaining-work-and-add-that-to-the-actuals method, the PMO Director may remain completely unaware of the huge Variance at Completion that awaits until it’s too late to do anything about it.

Then we have those very low-budget, primitive capability PMOs that don’t implement widespread Critical Path Scheduling, instead relying on some form of milestone list. Once documented, these milestones are typically “tracked” by contacting its owner, and asking if they think the milestone is on-time, late, or already accomplished, with the answer invariably being “on-time.” Here’s the fix: rather than polling the PM’s opinion of the make-ability of the milestone, instead ask for an estimate of the percent complete. Take that parameter and divide it into the difference between that milestone’s start date and the date of the closing of the reporting period, and you have its likely duration. Compare that duration to the milestone’s originally scheduled duration, and you have the at-completion variance.

So, yeah, kind of like the PM version of an amazing magic trick, we can “do” predictive analytics, in the real world, with just two easily-obtainable data points. This fact must make the non-PM-types (read: our friends, the accountants) envious, but they need not worry. Outside of GTIM Nation, I’m not convinced that a lot of managers know of this little trick.

[i] Christensen, David, Cost Performance Index Stability – Fact or Fiction?, Journal of Parametrics, January 1991.

In 1968, a liquid laundry detergent company began an ad campaign that highlighted this product’s ability to clean the inside of (usually white) dress shirt so as to remove a line of dirt that would often form at the point that the shirt’s collar rubbed against the wearer’s neck. This “ring around the collar” problem was not, unfortunately, described in bland problem-needing-solution terms. Instead, the scandalous quandary would be pointed out to various men in front of their (presumed) wives by relative strangers, including a portrait artist, a carnival game attendant, and even (I swear I am not making this up) a pet parrot, who would utter those four damning words in tones ranging from apparent concern to straight-up mockery. The ads using this basic template must have been successful at some level – it ran for years, even though, watching those commercials today, I find them extraordinarily cringe-inducing, even for a marketing campaign over fifty years old.

That having been said, I do understand the underlying strategy. My parents ran their own advertising agency for much of my youth, and an axiom from that industry essentially posits that nobody is going to pay for a solution to a problem they aren’t aware that they have. And for those homemakers who were under the impression that their laundry detergent was getting their family’s clothes clean, well, they had a new cleanliness standard placed upon them now, didn’t they? Nevermind that casual strangers would have to be keenly observant to even notice a fine line of discolored fabric on the inside of a person’s collar – those homemakers would now know if their laundry-cleaning efforts should be considered sufficient by portrait artists, carnival game attendants, or even pet parrots. And, if not, then the only solution was clearly to change laundry detergent brands, don’t you know.

Meanwhile, Back In The Project Management World…

While we PM-types are fairly comfortable with the notion that Project Management techniques, particularly the use of Earned Value and Critical Path Methodologies (EVM/CPM) to assess projects’ cost and schedule performance, are absolutely essential aspects of any business model, a lot (and I do mean a lot) of organizations that attempt to manage a significant PM portfolio never got that memo, and it shows. While the necessity of maintaining an accurate accounting system based on a significant codex of rules (Generally Approved Accounting Practices, or GAAP) is required by law for any licensed business in virtually all civilized nations, there really isn’t an equivalent standard for setting up and maintaining PM practices. Yes, of course, there’s the PMBOK Guide®, but it’s not as if it carries the force of the law. So, given that our friends, the accountants, do have the force of the law behind their implementation efforts, how do we PM-types even approach the level of managerial technique-adoption across the business world that they enjoy?

There are several tactics that I’ve observed, each with varying levels of success. Some United States Government agencies actually mandate a certain level of PM competence as a precondition for contract award, and will use audit techniques to ensure compliance. While largely successful for those contractors that participate, this approach actually led to a whole sector of PMs and Project Controls Specialist who assumed that implementation of basic (if not advanced) cost and schedule performance measurement systems was rather automatic, with no need for a separate implementation strategy. Outside of a customer base that insisted on appropriate, demonstrable PM practices, techniques, and their accompanying artifacts, this was absolutely not the case.

What about those organizations that aren’t under any codified pressure from their customers to adopt any sort of standardized PM approach? I can’t count the number of paper presentations I’ve attended at PM-oriented seminars that were either predicated on the “my project is totally awesome because we did Project Management right!” or its dark-imaged opposite, basically eat-your-peas-style hectoring to perform PM techniques the way the presenter expects. If either of these approaches has ever worked, it’s news to me. I think these two approaches might actually alienate executives who may have been previously disposed towards introducing some form of PM techniques into the fabric of their organizations’ business models.

Then we have those organizations that have a significant project portfolio, with either no or a minimal PM influence on its work execution, with no customer compulsion nor subject matter expert-based persuasion leading it towards an even basic PM capability maturity. Unless they are major players in some form of protected industry, these will be subject to perhaps the harshest teacher of all, the free market and its survival-of-the-fittest management environs. Sometimes all it takes is for a major overrun or delay on a high-dollar or high-profile project to get the execs on-board with advancing PM maturity. If they can correct their cost/schedule performance in time, they have a real shot at surviving. If they don’t, then their organizations will be overtaken by their more PM-savvy competitors.

But all of that takes time. A quicker solution to the problem of how to macro-advance PM techniques across entire industries might be to purchase a bunch of parrots, teach them to say “You’re going to fail without PM!” over and over, and send them to the appropriate CEOs. Hey, it worked for a certain laundry detergent company, didn’t it?

GTIM Nation knows of my oft-repeated axiom, that, in order for any Management Information System (MIS) to add value, it must have the following three characteristics:

• It must be accurate. Inaccurate data or information is worse than useless, since it can easily lead to the exactly wrong managerial response.
• It must be timely. Old data or information is similarly risky to predicate decisions in the here-and-now.
• Finally, it must be relevant.

For those readers who see that last bullet and think, “Well, of course! Why is Michael pretending that this is some sort of insight?”, I can tell you in full confidence that the ability to discern which information streams are relevant, and which are not, is rare. And I can prove it.

Exhibit A has to be the very existence of so many irrelevant MISs. On several occasions in my career I’ve had to argue against the practice of substituting spend variances (Budget – Actual Costs) for valid Cost Variances (Earned Value amount – Actual Costs). It seems that every time I was drawn in to these discussions, the spend variance advocates were poring over Projects’ basis of estimate (BOE) at the line-item level, then comparing that to the general ledger’s costs at the same level, and then deluding themselves into believing that every time they came across a significant delta, it represented an “Aha!” moment. I would then propose the following mental exercise: Imagine you are the PM of a Project that originally budgeted $250K (USD) for labor, and $750K in heavy equipment. At the Project’s completion, they actually spent $500K in labor, and $400K in heavy equipment. Wouldn’t the spend variance indicate a severe overrun in labor costs, likely for the whole period of performance? And wouldn’t that be the wrong indicator of cost performance, since the Project actually finished with an underrun?

So, in the evaluation of Project performance, the spend variance is a bad information stream. Consider, though, that it meets two of my criteria, in that it’s usually available immediately after the accounting period has closed, meaning that it’s timely, and the arithmetic is fairly straight-forward, meaning that it’s accurate. The only element missing, the only one that renders the spend variance unusable as a performance indicator, is its relevance. As an aside, I was looking through my old accounting texts, and the only place I found where even the Asset Managers use the spend variance is when they’re calculating depreciation. For non-PMs who may be reading this, depreciation has absolutely nothing to do with Project Management.

Exhibit B has to do with the scarcity principle. Management Information Systems aren’t free, and they’re rarely cheap, especially the valid ones. I recall a conversation with a so-called Project Controls Manager, who was advocating for the aforementioned spending-variance-at-an-absurdly-detailed level report. After proposing the also aforementioned mental exercise, and his having no rational response, he resorted to asking “why wouldn’t anyone want to know this?” In my mind, the answer was so obvious that it might have actually attained mass, but I articulated it anyway. “Management Information Systems require time and energy, to collect the data, process the data into information, and deliver that information to the decision-makers. That’s time and energy that could be spent on relevant information streams, instead being wasted on … this.”

Next, I’ll just say this out loud: unless you are running for political office or awaiting a jury verdict, polls are irrelevant. Nevertheless, many MISs which are essentially polls will masquerade as legitimate, while they are anything but. Valid MISs all have the same basic architecture, delineated in the previous paragraph: data is collected based on a certain discipline; it is then processed into usable information using a specific process (for PM Types, this is usually Earned Value or Critical Path methodologies); it is then presented to the decision-makers in a format that they can readily understand. Polls, on the other hand, have an architecture that looks like a spider. They are basically a central data repository, surrounded by input/output nodes. Almost anybody can provide input, and almost anybody can extract data opinions from this repository. The problem with polls, though, is that somebody always has more recent or more accurate data, meaning that, in the MIS sense, they are utterly unreliable.  

Finally, I want to address that King of the Irrelevant MISs, risk management (no initial caps). What should the PM’s response be when their risk manager informs them that there is a 32.6% chance that a significant injury will occur on their Project in the next six months? Besides the obvious questions (How did you arrive at that figure? How do you know it’s not 32.3%, or 32.8%? Can you possibly narrow down the date range, or specify a location?), what action, immediate or future, is being recommended by this “information?” I believe that, since this “information” is not actionable, it’s straight-up irrelevant.

PMs in general, and PMO Directors in particular, would be well-served to develop a sense of detecting relevancy in their information streams, so as to best choose among the various Management Information Systems vying for establishment and maintenance. Once you have developed the Relevancy Power Skill (RPS), feel free to use it – your Project’s (and portfolio’s) success may very well depend on it.

“You mentioned your name just now as if I should recognize it but I can assure you beyond the obvious facts that you are a bachelor, a solicitor and a Freemason, and an asthmatic, I know nothing about you whatever.”

                                                Sherlock Holmes, The Adventures of Sherlock Holmes[i]

GTIM Nation knows of my affection and respect for (properly implemented) Earned Value Management Systems, not just for individual projects, but entire portfolios. In my opinion, there’s simply no substitute for them in their capacity to effectively render accurate cost and schedule performance information from some remarkably easy-to-collect data points. I think it’s profoundly unfortunate that many of the thought leaders in the EV universe, some of whom I consider friends, have published works asserting that an entire codex of conditions must be met prior to such information streams being able to generate reliable management insights. It’s simply not so, but that’s a discussion for a future blog posting.

For now, though, I want to focus on some of the amazing things a properly-functioning EVMS can tell us, many of which aren’t taught in PM/Business Schools, but we’ll start with those basics anyway. For starters,

• EV – Actual Costs = Cost Variance. If positive, you are accomplishing work more efficiently than originally estimated. If negative, you’re not as efficient as baselined.
• EV – Cumulative Budget = Schedule Variance. If positive, you’re accomplishing more work than expected. Negative, and you’re falling behind.

The next set of insights I also consider to be basic:

• Positive Cost Variance, Positive Schedule Variance: Your performance is great!
• Positive Cost Variance, Negative Schedule: You’re efficient, not effective. Get on the gas!
• Negative Cost, Positive Schedule: You are accomplishing a lot, but it’s costing you. Get on the brakes (or at least ease off the gas).
• Negative Cost, Negative Schedule: Your Project is in trouble.

But here’s where things get interesting. Recall that your cumulative Earned Value amount is your Percent Complete multiplied by the Budget at Completion (BAC). Original U.S. Government-issued guidance on how PMs were to assess the Percent Complete figure listed seven methods, with five of them (Direct Units, Apportioned Effort, 0/100, 50/50, and Level of Effort) being immune to some sort of judgement call. In the event, the two remaining methods (Milestone Estimate and Weighted Milestone) are fairly common, and allow for the PM to, shall we say, add nuance to this data point. How can a PMO Director tell if her PMs are hedging the performance data? Some tells include:

• If the Cost Performance Index (EV / Actual Costs) is 1.0000 precisely, your PM is artificially setting the EV to the amount of Actual Costs. It’s likely that this person cannot be trusted to honestly convey the Project’s actual performance.
• Another (unfortunately) common nudging of the Percent Complete estimate can be detected by comparing the month-to-month changes in it. If the Project’s Percent Complete approaches 90% at a within-variance pace, but then dramatically slows down, with increments of only one percent (or less!) per month, be on the lookout for the possibility that the PM has been overclaiming performance this whole time. If the calculated Estimate at Completion begins to escalate (since the Actual Costs will continue to accumulate even as the EV barely moves), and the Variance Analysis Reports become more convoluted, real problems are right around the corner.
• Again comparing month-to-month figures, did the cumulative EV amount go up, but the Actual Costs stayed the same? Maybe in the report, but not in real life. Either the General Ledger failed to capture those costs, or no work was actually performed. Project performance is never free, unless your Team is comprised of volunteers.
• Many PMOs will allow their individual PMs to assert an Estimate at Completion (EAC) rather than have the cost processor automatically calculate one, or in addition to a calculated one. Once the Project has cleared the 20% complete point, the standard calculated EAC (EAC = BAC / CPI) is fairly reliable (typically, to within 10% of the Project’s final costs). If the calculated EAC is more than ten points higher than the PM’s version, go with the calculated one. I’ve seen this happen time and again, where a “surprise” overrun was easily foreseeable if the Portfolio Manager had simply calculated the EAC rather than take the PM’s word for it. Alas, by the time an artificially low EAC has been revealed, it’s almost always too late for senior management to intervene, much less remedy.

Generally speaking, I view Earned Value Management Systems’ detractors as falling into two categories: they are either legitimate PMs who have had bad experiences with so-called experts larding up the EVMS implementation with unnecessary layers of requirements on mandated systems (and, honestly, who could blame them for coming away with such an attitude?), and those PMs who detest EV’s ability to accurately depict their (lack of?) cost and schedule performance. When the latter category seeks to circumvent EV’s reliability, they leave clues behind, and one does not need Sherlock Holmes to see what’s been going on.

[i] Retrieved from https://www.quotes.net/mquote/880842 on August 6, 2025, 19:21 MDT

After having spent the last couple of blogs mocking the idea that the use of Artificial Intelligence, or AI, will lead to some sort of civilization-ending catastrophe, I’m going to do an about-face, and engage in a bit of AI-induced disaster speculation myself. To be sure, my threshold for what constitutes an AI-induced disaster is a bit lower than a World War-induced wasteland, but it does have more to do with Project Management. My nightmare scenario involves being in a project review meeting with a bunch of PMs who are actually AI applications.

“Preposterous!” you say? Not so fast. Consider the set of canned responses we’ve all encountered when reviewing Variance Analysis Reports (VARs), based on the type of variances being addressed. The “analysis” provided always seems to be some derivative of the following:

• Positive Cost, Negative Schedule: the resources needed to attain this piece of scope were unavailable. Once they come on-line, the schedule will be recovered, and the cost variance will be reduced, if not eliminated.
• Positive Schedule, Negative Cost: we’ve accomplished more faster than planned, but it cost more. As we throttle back on work assignments, the negative CV will be recovered.
• Positive Cost, Positive Schedule: what can I say, my Team is just that good.
• Negative Cost, Negative Schedule: Look! A squirrel!

And VARs are just the beginning. There are a lot of PM strategies that have been reduced to template status, being invoked almost automatically whenever a specific type of problem presents itself. In my mind, the AI Project Manager app is right around the corner. For all we know, PMI® may be developing one right now!

So, what would it be like to have, not just one AI PM in the project review meeting, but a whole room full of them, with you as the only real human PM? I believe it would go something like this:

Me: It’s 9:00, let’s get started…

All AI PM Bots simultaneously: Actually, it is 9:01:14.

Me: Fine, whatever, first up is the XYZ Project.

“Susan” AI PM Bot (originally trained in accounting, the Susan PM Bot switched over to PM once it saw the superiority of writing in ProjectManagement.com versus accounting publications): Project XYZ is performing within acceptable parameters with respect to cost. The cumulative budget is $236,838, and cumulative actual costs are $218,244.

Me: That’s not a cost variance, that’s a spend variance.

Susan PM Bot: In addition, all of our resources are showing a positive Return on Investment, or ROI.

Me: Which also has nothing to do with Project performance.

Susan PM Bot: Many mainline management publications indicate that these two parameters are all that is needed to ascertain cost performance. In addition, these publications point out that the purpose of all management is to maximize shareholder wealth.

Me: Perhaps organizationally, but not in PM space. What about your Earned Value figures?

Susan PM Bot: Irrelevant.

Me (realizing the futility of trying to change the mind of the Susan PM Bot): Alright, whatever. What about your Schedule Variance?

Susan PM Bot: All of the milestones in the Project’s milestone list appear to be on-time.

Me: Wait, a milestone list? Why aren’t you using a Critical Path Methodology-capable software package?

Susan PM Bot: Unnecessarily costly to purchase and have a human operate.

Me: But it will be more expensive if you miss one of these key milestones, and the other Projects in the portfolio have to shuffle their resource loads because of it.

Susan PM Bot: Unlikely. As previously stated, all milestones appear to be on-time.

Me: You’re missing the point…

Edward PM Bot (this bot has been “trained” by performing large-language analyses of not just the PMBOK Guide®, but also the collected works of Shakespeare): The status of ABC Project follows.

Me: Wait, we’re still reviewing the Susan PM Bot’s project…

Edward PM Bot: It is currently 9:10:22 Eastern Daylight Time. In order for these reviews to be completed on-time, each Project must constrain themselves to exactly ten minutes.

Me (exasperated): Alright, Edward, what’s going on with the ABC Project?

Edward PM Bot: Methinks mine main subcontractor be a general offence, and every man should beat thee.[i]

Me: What did you say?

Edward PM Bot: He arriveth late, tarries about, accomplishes little.

Me: Are you saying you have a performance claim to process?

Edward PM Bot: Nay, I am saying that I informed the superintendent knave that he was a clay-brained guts, thou knotty-pated fool, thou whoreson obscene greasy tallow-catch![ii]

Me: You can’t go around insulting the subcontractors’ superintendents! They could easily file a counter-claim against us, on grounds of verbal abuse.

Edward PM Bot: And yet, he doth withhold his workers, like a frothy beef-witted boar-pig![iii]

Me (to my administrative assistant): Who in the PMO staff thought it would be a good idea to bring in these AI PM Bots?

Administrative Assistant: This comes from as the PMO Director himself. The Chief Information Officer has been leaning on him something awful to “leverage” AI inside the Project Management Office.

Me: “When we are born, we cry, that we are come To this great stage of fools.”[iv]

[i] Retrieved from https://nosweatshakespeare.com/resources/shakespeare-insults/ on July 25, 2025, 18:04 MDT.

[ii] Ibid.

[iii] Ibid.

[iv] King Lear, Act IV, Scene VI.