Game Theory in Management

There can really be little doubt that customer relations management (or CRM, ProjectManagement.com’s February theme) was given a huge boost in recognition and acceptance with the publishing of In Search of Excellence, in 1982. In it, Tom Peters and Robert Waterman Jr. took the refreshingly novel and more scientific approach of seeking out organizations that were successful in their fields, and evaluate which business model aspects they had in common. The notion that, in order to be successful, companies had to focus on their customers to a greater extent than was common at the time was by no means new. Indeed, I would argue that the Project Management Institute did the seminal work here, since PM is focused on the customers’ parameters of scope, cost, and schedule. But, while much of the early work focused on first identifying optimal management approaches and then asserting that greater customer focus was essential, Peters and Waterman took the opposite approach, and found that a significant common thread among the high-performers was an escalated – if not maniacal – orientation towards customer service and satisfaction.

But It Wasn’t All Unicorns and Glitter

However, (there’s always an “however,” isn’t there?) in some aspects Peters and Waterman went too far, and in other ways they did not go far enough. Where I would argue they did not go far enough lies in the fact that there does not seem to be any limiting boundary to how far the manager that wishes to follow their advice should go when seeking to enhance customer relations. In a PMNetwork column (“The Business Wisdom of Bob Skeeters,”) I actually mocked this lack of a limit by condensing In Search of Excellence’s advice down to (paraphrase) “enthusiastically hand over all of your company’s assets to anyone who identifies as a customer.” While Peters and Waterman were certainly insightful in pointing out that the corporate zeitgeist at the time didn’t emphasize customer satisfaction sufficiently, they failed to provide any kind of an analysis that would indicate that a business model had moved too far in the customer-satisfaction direction, or if such an excessive move was even possible.

Still, I owe their work a debt of gratitude. It was only after reading In Search of Excellence that I began to realize that project management and asset management were different critters altogether, with different goals, methods, and information streams needed to make informed decisions. It was along these lines that subsequent lectures from Tom Peters would point to how the pursuit of greater efficiency or higher return on investment aspects of common business models were actually working against those organizations becoming (or staying) successful. So, what is the nominal limit to devoting resources towards customer relations, as opposed to, say, training personnel, or purchasing advertising?

And The Solution Is…

This is where the Corner Cube model comes in. As I have referenced previously, it’s based on the notion that asset, project, and strategic management are all different by type, not degree, having different goals, techniques, and information streams. The asset managers’ narrative had so permeated virtually all aspects of management science that to challenge its basic precepts was considered ipso facto evidence of ignorance. My favorite such narrative to ridicule, that the nature of all management is to maximize shareholder wealth, was only tangentially contradicted by In Search of Excellence, even that particular notion is both (a) widespread and (b) self-evidently false.

In the Corner Cube model, a single metric for asset management (e.g., return on investment), project management (e.g., Cost Performance Index, or CPI) and strategic management (market share) would be placed on a line-scale, with the target at the center, evidence of significant success towards the right, and the level considered failure to the left extreme. Assemble these three lines into a three-dimensional model, and you have a cube, with eight subdivisions representing the performance of all three management types. The typical path to success through the model does indeed begin with project management, i.e. performing well for the organizations’ customers, to the exclusion of asset or strategic performance. After a client base is established, the organization still doesn’t “maximize shareholder wealth,” since this stage indicates a strategy to acquire more market share. Only after the happy customer base is established AND a satisfactory amount of market share has been captured does the savvy portfolio manager seek efficiencies, or greater return on investment. The Corner Cube model is completely scalable and adaptable, meaning that some specific parameters would need to be plugged in before an analysis of the precise point that customer relations management can be safely throttled back can be performed.

In short, Peters and Waterman’s work was good, but the Corner Cube theory made it better. I elaborate on this (and other) concepts in my second book, just by the way.

To wrap up January’s theme of Project Management Office stuff, I want to discuss the third category of enemies who can (and often will) retard your PMO’s implementation progress, if not derail it altogether. The first two blogs this month dealt with opponents within the PMO itself, and last week took a look at adversaries outside the PMO team, but still within the organization. Now I wish to direct my hypercritical gaze upon belligerents outside your organization – and, like all the others, they are not going to offer up any outward signs that they oppose you and your mission.

Remember The Character Wormtounge, From Lord Of The Rings?

Indeed, these will almost always present as desirous of helping you, which makes them all the more dangerous. I’m talking about the various Project Management organizations that push agendas or narratives that recommend – or even mandate – certain practices or techniques that really have little to do with bringing in a project on-time, on-budget. I’ve previously made the distinction between those I call “performers,” whose main objective is to bring in projects on-time, on-budget, and “processors,” or those who think that optimal project management is a matter of following the processes they deem a legitimate part of PM.

One of the earliest battlegrounds between these two camps happened when the software project management techniques of Agile and Scrum came about. Software projects were (and are) notorious for coming in late and over-budget at a higher rate than, say, capital projects, and seemed to be the perfect candidates for more rigorous project management. More rigorous, yes – more formal, absolutely not. Software development is so dynamic and fluid that the original scope is rarely the exact eventual outcome. New techniques and technology are constantly arriving, and to ignore them is to condemn the project to putting out an obsolete product on the day it becomes available. To compensate, some way needed to be developed to adjust the scope on-the-fly, while still being able to capture the fast-changing circumstances in a cost/schedule performance system.

Are We Cheating, Or Not?

Ah, but there was the rub. If the scope baseline was fast-changing, and a formal change control process was impossible to accommodate, didn’t that mean that the mirror cost and schedule baselines would quickly become either irrelevant, or rubber? The solution was refreshingly revolutionary: do away with formal change control. In its place, schedule meetings where certain project team members were to participate in very specific roles as the day’s modular scheduling was addressed and modified (or not).  How was cost performance to be done?  I actually did a webinar on this very subject, entitled “Stop Those Divorce Proceedings! How Agile/Scrum and Earned Value Can Co-Exist In IT Projects.” The short answer here is: due to necessity, Agile/Scrum did away with the cumbersome, delay-inducing practice of setting up Baseline Change Control Boards, and having them evaluate every single change to the project, and approving or disapproving, and then having approved changes formally entered into the baseline documents…

It Depends On Whom You Ask

Enough! It was a waste of time and energy, time and energy these projects didn’t have in reserve. So they did away with it. I can almost still here the grinding of the teeth of the advocates of formal change control. It must have caused them fits. But this is just one example. The numbers of procedure-generating organizations that insist on inflicting their versions of “proper” PM behavior on the rest of the globe are vast, as vast as their ideas are insipid. From insinuating that comparing budgets to actual costs at the line-item level of the basis of estimate has something to do with Earned Value, to insisting on an “80% confidence interval” from the risk register, these external enemies slather on the irrelevancies, larding down legitimate project management in a naked attempt to not improve project performance, but to force a certain pattern of behavior in practitioners. And these, dear reader, comprise an entire category of external enemies to your PMO.

Lagniappe

It’s official! ProjectManagement.com is sponsoring a webinar for me, to be transmitted on March 16. The title is “Getting Ahead With Practical Game Theory: Modelling The Paths Of Career Advancement,” and I’ll be covering material from books two and three. Hope a lot of y’all can tune in.

In my previous PMO-themed blogs for January, I focused on common problems in setting up and staffing the Project Management Office. While taking the wrong approach in addressing these problems will certainly lower the chances of the PMO being successful, doing all of them right by no means guarantees success. There’s still more enemies out there, and young PMOs will often make mistakes in dealing with them.

For the sake of this discussion, I would like to make some classifications. The previous blogs’ points concerned issues internal to the PMO. There are two other types of problems – (1) those that are external to the PMO itself, but internal to the organization, and (2) those that are external to the organization. This week I’ll address problem type #1.

Keep Your Head On A Swivel

“Just a minute on those classifications, Michael!” I can hear my readers say. “Are you implying that there are people within my organization – my very company – who represent an existential threat to the attainment of the PMO’s objectives?” My answer: no, I’m not implying it. I’m stating it out loud, directly, even screaming it from the rooftops. In an organization of, say, 100 people, there will be at least five who are happy, if not eager, to see your PMO fail, and be replaced with their pet management information stream.

It’s not (necessarily) personal. From The Godfather movies, if you will recall, two axioms make multiple appearances: “Keep your friends close, and your enemies closer,” and “It’s business, not personal!” As for the first quote, it has a certain intuitive value to it. But consider: why would anyone want to keep their enemies “close”? Certainly one reason is that, if your enemy does not consider you to be a threat, you will be in a much better position to harm him or his agenda when the time comes to do so.

Not All Your Opponents Lurk In Shadows

Now back to your organization. Very few business schools teach Corner Cube Theory, which holds that Asset Management, Project Management, and Strategic Management are different by type, and not by degree. They use different methods to attain different goals, and make use of very different information streams to do so. Rather, most business schools teach that the point of ALL management is to “maximize shareholder wealth,” with the main (if not exclusive) information stream to be utilized originating in the general ledger. There are even project management advocates who believe this tripe, and it’s a forgone conclusion that most “educated” business-types believe it uncritically. Then along comes your little PMO, generating schedule and cost (gasp!) performance information, steering decisions and influencing executives, and the only thing they need from the general ledger is the monthly actual costs. That’s it?! What about depreciation? What about return on investment? What about the make-or-buy formulae? What about…

All useless to the PMO. Well, that’s not what their business professors told them the real managerial world would be like. Going through business school they may have never even heard of the utility of Earned Value or Critical Path Methodologies, and now these PM-types are on the brink of an epistemological take-over? Not on their watch! So, they’re going to be opposed to your agenda, but they really can’t come right out and articulate that fact. Instead, they will make the following assertions as you roll out your implementation plan:

• “Doing” PM is too difficult and onerous (if these critics have a point here, go back and re-read my previous two posts). Done right, of course, PM is neither. Indeed, the formula of dividing the estimated percent complete into the cumulative actual costs delivers an Estimate at Completion figure with an accuracy level the accountants can only dream of, and that formula is about as simple as it gets.
• If you get past the “It’s too hard” argument, next comes the “If it’s as easy as you say, it can’t possibly be valid, or valuable.” This argument has some on our side to blame for it, since the risk managers will insist on a rigorous risk analysis (difficult and irrelevant), the communications specialist will insist on “engaging all stakeholders” (difficult and dangerous), the quality engineers will want to do fishbone diagrams (difficult and subjective), and even the cost estimators themselves will babble on about master resource dictionaries and confidence intervals (difficult and just plain dopey, respectively). Once your PMO begins to generate usable Variance at Completion (VAC) information for both cost and schedule, and it’s proved to be accurate, these arguments will fade.

And This Is Just The Beginning

Unfortunately, it doesn’t end here. However, if your PMO continues to feed its client PMs and other key decision-makers the vital information they need to make the best decisions, your organizational enemies will need to go further and further out on that management theory limb in order to discredit you.  So far, in fact, that they may well simply do themselves in by exposing their needlessly adversarial agenda.

Then, the next enemy steps up, and we start all over again.

Lagniappe

I’ll be doing a webinar for ProjectManagement.com, on the topic of Game Theory (one of the comments on a previous blog suggested it, and I’ve been trading communications with ProjectManagement.com about getting on the webinar calendar). It’s currently scheduled for March 16. Keep visiting the website for details.

For those of you who are contemplating getting into the columnist/blogger business, I have a little bit of advice. Writers who address consistent themes – Project Management, for example – will often start out writing pieces while being motivated by the desire to communicate something. Whether because they have come across some valuable insight that they’ve never encountered in the literature previously, or are grappling with a blatant example of business model pathologies interfering in the way things “ought” to be run, or even for pure catharsis, entry-level technical authors will often write as if they need to get something off of their chests. It’s not necessarily a bad thing, but the more seasoned writers are usually motivated by something else.

It’s All In The Motive

That something else is a sense of what their target audience wants to read. Back in 1997, when I first started writing my column for PMNetwork, the Variance Threshold, I began by poking fun at accountants and protestors, people who often made the typical PM’s job more difficult. I had never seen an article or column in a PM trade journal that dared to satirize these professions, and thought it was long overdue. Based on reader response, I was correct.

Meanwhile, Back In 19^th Century Italy…

Vilfredo Pareto (1848 – 1923), the great Italian engineer and philosopher, is famous for the “80-20 rule,” or the principle that 80% of observable results tend to be attributable to 20% of causal agents (e.g., 80% of the foot traffic in your house tends to be on just 20% of the carpeted area; 80% of a company’s revenue will often be from just 20% of its customers). But he also theorized that people tend to arrive at their conclusions and beliefs through emotional or prejudicial means, and then, only later, assemble the verifiable facts that support these conclusions in order to give the semblance of having arrived at their beliefs logically.

Okay, my readers may well be asking, all this about writer epiphanies and Italian philosophers is very (yawn) interesting. What does it have to do with Project Management? Well, I’ll tell you.

Why Is Your PMO Here?

Rookie Project Managers can be under the delusion that they’ve been hired for their level of expertise, gained through education, certifications, or experience (what there is of it). This is not so. PMs are hired to deliver a specific scope on-time, on-budget. Your education, certifications, and experience are only signals to your employer that you have a better chance of delivering than candidate PMs who do not have such things, or at least these things in the quantity or quality you have. To be blunt, you are not being paid for your opinions per se; you are being paid to deliver your project on-time, on-budget. If you fail in this regard, having the most erudite opinions, articulated at John Milton-levels of fluency, and including quotes from Vilfredo Pareto, will mean exactly nothing. Conversely, if you do consistently deliver projects on-time, on-budget, then you could have no notion of who John Milton or Vilfredo Pareto were, spend a significant amount of time quoting Homer Simpson (“D’oh! D’oh!”) and you will be hailed as a managerial genius. It’s just the way our PM world works in the free, competitive marketplace.

It’s Your Motivation, Writ Large

Which brings us back to my previous two blogs, about fake experts and setting up your PMO. PMO directors are not paid to remind everyone else in the organization what a swell idea PM is, and how everyone needs to do it. Rather, PMOs exist in order to supply PMs with the information streams that provide timely, accurate, and (most importantly) relevant information they need in order to make informed decisions that lead to delivering their projects on-time, on-budget. It’s not about what you want to impart – it’s all about what your customers want to hear. Besides, what you want to impart may very well be based on your feelings, or prejudices. Indeed, I would go so far as to say that those PMOs that indulge in eat-your-peas-style hectoring about the need to engage in certain irrelevant or marginally informative processes and practices will usually fail, while those who enthusiastically pursue the mission of providing timely, accurate, and relevant information in the most economic way available will dramatically increase their PMO’s chances of success.

Don’t take it personally – I’m sure people’s opinions matter a great deal to others in a wide variety of venues. It’s just that Project Management isn’t one of them.

As I discussed in last week’s blog, fake experts are a definite problem, but they’re not the most difficult barrier in front of successful Project Management Office (PMO) implementation. I asserted that the most difficult issue before the PMO director is obtaining the support of the people from whom you need regular data feeds in order to create and maintain your portfolio management information system. In getting this participation, several common mistakes are made by the average PMO – it’s your job to avoid these mistakes. But first, you must avoid self-inflicted errors. Here are a few of those.

Another Quick Elimination Round

The Management Information System (MIS) experts have an expression: begin with the end in mind. If you, as a newly minted PMO director believe that your end-game is to have many (if not most, or even all) of the people in your organization convinced of the benefits of “doing” project management, and simply await your insight as to how best perform PM, then you have lost already. It’s pointless to examine how you came to believe this myth – the fact that you have arrived in such a position is ipso facto evidence of your inadequacy. Do yourself and those around you a favor, and resign. Get a job as an entry-level scheduler, and begin your education anew.

For the rest of us, who are unimpressed by process per se but do know how to deliver results, there’s hope. Going back to the “begin with the end in mind” motif, what are the legitimate ends we seek? Well, we don’t debate the efficacy of project management theory. It’s pointless to do so. Rather, we seek to demonstrate its utility in the starkest fashion available. Those who already appreciate PM will outperform those who don’t, if given the opportunity. So, let’s give them the opportunity.

“Iceberg, Right Ahead!”

The PMO director is best served by asking the people who need to know the cost and schedule performance information of the projects within their portfolios what it is that they need to know in order to make informed decisions. I worked for a rather large organization that did a lot of project work, and a newly-installed CEO had the foresight to ask his program and project managers to tell him what is was that kept them awake at night. The majority of respondents replied that it was the fear that they were sitting atop a project or program that was getting into real cost/schedule performance trouble, and no one would tell them about it. Either because the information streams that would raise flags didn’t exist; or, if they did, the lower-level PMs had convinced themselves that they could manage their way out before the project neared completion, this was the thing that robbed them of their peace of managerial mind.

Offer your program/project managers a suite of report formats, and let them choose what they want to see in order to make them confident that the disasters-in-the-making are being identified early and accurately. Some of them may select traditional formats, such as Gantt Charts or Cost Performance Reports (CPR) in Format I. Others may opt for something more intuitive, such as a histogram that compares the calculated Estimate at Completion (EAC) with that project’s budget at completion, revealing those projects most likely to overrun, come in on-budget, or underrun.

It’s Really Not That Hard

Once the formats have been selected, boil down the data requirements to their bare minimum. Getting all huffy about how the project teams MUST provide a long list of items proving they are obeying procedure is a sure symptom of PMO failure. For many reports – even the traditional ones – much valuable information can be gleaned from nothing more than a time-phased budget (based on the Work Breakdown Structure), the monthly cumulative actual costs, and an estimate of the percent complete as of the end of the reporting period. This drives many process-oriented PM “experts” crazy, but it’s true. And, most importantly, such an approach will establish that basic PM techniques in cost and schedule performance information stream creation will alleviate that which keeps the key decision-makers up at night (literally). It’s those times that the information streams that the new PMO needs to establish get larded down with unnecessary requirements that participation from your key data feeds dries up, and rarely returns.

And yet, many PMOs make this exact error. I wonder if their leaders failed to read my blog from last week, and have too many fake experts on board.