Game Theory in Management

One of my favorite movies is Mel Brooks’ Young Frankenstein (1974). I especially liked the scene where Gene Wilders, Marty Feldman, and Terry Garr are sitting down to a meal after having failed (they believe) to bring the monster to life. As they’re eating, the monster, very much alive but confined to the examination table in the cellar laboratory, lets out a grunt that Dr. Frankenstein mistakes for Igor’s vocal appreciation of the food.

“I didn’t make a yummy sound, I just asked you what it is.”

“Well, if you didn’t make a yummy sound, and you didn’t, then who…?”

In a flash the three realize that the monster must have made the sound, and rush to the laboratory to confirm it.

Meanwhile, Back In The Project Management World…

There’s this Project Management transformation (ProjectManagement.com’s theme for May) myth that I would love to overturn, but it’s fairly well entrenched. It goes something like this: the Project Management “expert” is brought in to the organization to transform it from a bunch of people completely bereft of PM techniques or strategies to one where even the lowest-level of management/leadership regularly, even casually discusses things like scope creep or variance analysis. This expert does so by employing one or a combination of the following tactics:

• They use their hierarchical authority to compel PM practice adoption – essentially, they make professional life more difficult for those who refuse to do management their way.
• They leverage other people’s authority to compel PM practice adoption, usually through the writing of procedures that spell out how the expert wants things done, and gets enough executives to sign the thing. Then the experts pretty much expect that everyone will begin to obey, under the threat of being found to be “not in compliance with procedures.”
• If neither of the preceding techniques is available, they may be forced into eat-your-peas-style hectoring mode, where they basically nag everyone about how they ought to be doing Work Packages, Control Accounts, Critical Path schedules, etc., etc. These people become tiresome rather quickly, and can be readily found presenting papers at PM-related seminars.
• Finally, the new expert may appeal to their scholastic authority, constantly reminding everyone of the details of their resumes. These also become tiresome quickly.

The myth to be overturned is that these tactics work. They don’t, particularly and especially if we’re talking about organizational transformation on a scale analogous to bringing an assembly of human parts to life a project team from complete ignorance or rejection of PM techniques to sufficiency, or even proficiency.

So, What Does Work?

The most transformational strategy that I’ve encountered that works on a consistent basis has to do with getting really simple. An exec who had been transferred to head an organization that had dozens of small projects – in the $80K to $250K (USD) range – had no idea how all of these small projects were performing, as their Project Leaders had escaped any accountability or reporting responsibilities because their projects were “too small for Project Management.” He called me in to see if I could help. I told him I thought I could, but first I had to abandon virtually all of the recommendations from the conventional wisdom. A junior project controls specialist was supposed to support me, but he ended up instead arguing with virtually every decision I made.

My first step was to ascertain exactly what kind of cost/schedule reporting would make this exec confident that he had a handle on all of these projects. He selected an XY chart format, with the Cost Performance Index (CPI) tracked on the X axis, and the Schedule Performance Index shown on the Y axis, with the size of the projects’ bubbles indicating total budget. It’s a neat little report, really -- at a glance, anyone can tell if the status of the projects reporting, so:

• If they are in positive-positive space (upper right-hand quadrant), it’s all good.
• If they have a negative schedule variance and a positive cost variance (upper left-hand quadrant), they need to accelerate project work, i.e., get more done.
• If they have a positive schedule variance and a negative cost variance (lower right-hand quadrant), then they’re running too hot, and need to throttle back a bit.
• Finally, if they’re negative-negative (lower left-hand quadrant), they’re in trouble.

The beautiful thing about this report is that it only needed, technically, three pieces of data, two of which were already available via the General Ledger:

1. The time-phased budget. The total budget was already available in the General Ledger. If I could get the Project Lead to time-phase it, cool. If not, I simply level-loaded it across the period of performance.
2. The projects’ cumulative actual costs, available directly from the GL.
3. An estimate of the project’s completion percentage, since cumulative Earned Value equals the percent complete multiplied by the total budget. This was the only piece of data that wasn’t already available, and could be gleaned from friendly reminder e-mails once per month.

As my project controls “support” person constantly nagged reminded me, I wasn’t calling for formal scope, cost, or schedule baselines, and I certainly wasn’t bringing up risk registers. I didn’t care about Baseline Change Control Boards, or variance analysis thresholds, or schedule logic. Nevertheless, an astounding transformation began to take place.

At the first project review, the XY/Bubble charts, nicknamed “Bullseye Charts,” were projected up on the conference room’s screen. Each Project Lead was asked about their status, particularly the ones in the lower left-hand quadrant. Those who failed to respond to the percent-complete data call were admonished by the executive, and never did so again (“It’s a simple data point! How hard can it be?”). After a few explanations about how the data was being processed into this performance information, the PLs understood what was happening, and why.

At the second project review, none of the PLs failed to send in a percent complete estimate. Some had clearly attempted to game the system, as their bubbles hugged the Cost Performance Index axis. These were told to knock it off, as their attempts to game the new performance measurement system were plain for all to see (“I said it would be simple – I didn’t say it would be stupid.”). Those in cost performance difficulties would discuss possible sources of informal changes to the scope – classic scope creep – and their attempts to reduce or eliminate it. Others would engage it what can only be described as variance analysis, and at a fairly sophisticated level. Again, none – none of these people had ever had formal PM training. They simply began to adopt its lingo when intelligently addressing project performance issues.

By the third project review, discussions easily transitioned to venues for modifying the baselines, tapping available reserves, and using demonstrated superior performance to attract similar work. They had actually transformed into a fairly sophisticated bunch of PMs, almost by accident, and within three months’ time.

Hearing their suddenly PM-focused discussions was the yummiest sound I’d ever heard, and I didn’t even have to rush to the laboratory to confirm that the transformation had taken place.

As I’m sure anyone who’s ever launched, headed up, or even participated in a Program or Project Management Office knows, there are hundreds of things that can derail your efforts, and bring your PMO crashing down in ignominious defeat. Elements that are outside your organization, inside your organization but outside the PMO team itself, or even within the PMO represent existential threats that can spell ruination, and dealing with them, or even recognizing them in time to attempt a counter-strategy is extremely tricky. If only there were a proven technique, something that, on its face, utterly and graphically contradicts the majority of the anti-PMO narratives that are constantly popping up and needing to be refuted, then the typical PMO would at least have a fighting chance of establishing the value of its generated information streams.

Well, good news, my fellow PMO aficionados!

This technique exists, it’s extremely simple to implement, and it absolutely drives a goodly share of your opponents to a place where their ignorant, nefarious motives in opposing you can be easily laid bare. I’ve seen this technique rescue failing PMOs, and secure needed status for upstart ones. It is singularly effective, and in such a dramatic manner as to be analogous to the one weapon that can kill various monsters, such as werewolves or vampires, the Silver Bullet.

“Enough already!” I can hear Game Theory In Management nation yelling. “What’s the technique?”

Why, it’s a lowly histogram.

With the same ears with which I heard the “What’s the technique?” question I just heard a collective groan. How can a simple histogram overcome these anti-PMO monsters? I’m glad you asked.

You don’t actually need to use a histogram for this particular information stream, but I’ve found it the most easily understood by execs who are either (a) not very good at interpreting complex management information products, or else (b) have the attention span of a typical executive, which is about 10 seconds. If you don’t make your case inside of ten seconds, your odds of having your version of the story resound in the board room are quickly reduced to nil. So, make your case effective, and to do this often requires a hard-to-ignore graphic, like a histogram.

Our magic histogram will be divided into months along the X axis, and will have three bars per month:

• The target projects’ Budget at Completion (BAC)
• Its “bottoms-up” Estimate At Completion (EAC)
• …and its calculated Estimate At Completion[i].

Generally speaking, these three bars may very well track within 5% of each other for the majority of projects’ life spans. But, when they do vary, it’s invariably in such a way as to demonstrate the value of the PMO in blatantly unequivocal terms.

This is because the projects that turn into disasters will have the following characteristics:

• Their managers will never own up to the unfolding catastrophe, instead convincing themselves that they will be able to overcome the difficulties afflicting their project. Hence, the so-called “bottoms-up” EAC will be influenced downward to match the total budget.
• The way that asset managers (i.e., accountants) predict at-completion costs is by trying to derive a pattern from spending rates. This technique is comically ineffective. It also has the advantage of being propagated by one of the PMO’s most entrenched enemies, which I’ll return to here in a minute.
• Conversely, you can count on the troubled projects manifesting performance issues early on in their life-cycles; it follows, therefore, that the one performance indicator that recognizes this (bias-free) will be the first to raise the sorely-needed red flag.

The calculated EAC is a uniquely Earned Value-ish concept, and tends to be exclusively within the PMO’s domain. The Cost Performance Index (CPI) is the amount earned (BCWP) divided by the amount spent (ACWP). Divide this number into the budget at completion, and you have an EAC that’s accurate to within 10 points (once the project has cleared the 15% complete mark). In other words, this simple technique will notify upper management of pending project management train wrecks far sooner than any other method.

If the PMO’s got it, it needs to flaunt it.

By plotting this calculated number and showing it in a histogram that also shows the projects’ budget and “official” EAC, an unmistakable pattern emerges. The budget bar remains fairly steady (unless an approved Baseline Change Request is processed), and both or either of the “bottoms up” estimate or the accountants’ estimate will tend to mirror the total budget. It’s basic human nature for the former, and the utter lack of reliability of the technique for the latter.  But, for those projects that are headed for difficulty, the calculated EAC bar will jump higher than the other two bars, and will tend to stay noticeably above them for reporting cycle after reporting cycle. By the time the troubled project’s troubles are so obvious that they can’t be explained away any longer, the calculated EAC will have been not only flagging the overrun, but demonstrably quantifying it rather precisely. This is at the same time as all of the other “information” streams have been saying, essentially, “nothing’s wrong here – we’re doing fine!” The only time the bottoms-up or accountants’ version of the EAC even begins to report accurately is when the overrun can no longer be hidden, and by then it’s too late for executive action that maybe, just maybe could have averted the disaster, if only they had been notified earlier.

I’ve employed this technique on a few projects (!) that accurately predicted multi-million-dollar overruns, and the response was always the same. Early on the members of the failing project team would vehemently denounce the technique, claiming (absurdly) that their “bottoms-up” EAC must be considered authoritative. The upper-level managers would receive the histogram with alarm, but actually be mollified by the troubled projects’ managers into disbelieving the calculated EAC. After a few reporting cycles with the delta between the “bottoms-up” EAC and the calculated version remaining significant (or even growing), the PMs would employ some desperation tactic, like filing a get-well Baseline Change Proposal (BCP), or tapping project reserves, but the inevitable conclusion would become plain for all to see: the calculated EAC had the story right, all along, and everyone else had it wrong.

And now, for the piece de resistance…

If the first Silver Bullet didn’t kill the monster, try this one: it’s another histogram, except this time each month has a single bar, the calculated Variance at Completion (VAC) amount. Take all of the projects in the portfolio, and calculate their EACs. Subtract this figure from the total budget (BAC), and then sort them from lowest number to highest. The result is a chart that ranks the projects, in order, from most troubled/highest projected overrun to healthiest/highest underrun. For good measure, color the overrun bars bright red, and the underrun bars green. This report will drive the managers of the troubled projects bonkers, but it’s pure gold to your organization’s executives.

Did I say pure gold? No, rather, pure silver, as in Silver Bullet.

[i] Make sure the colors of the histogram’s bars have high contrast. I like to use gray for the total budget, orange for the bottoms-up EAC, and either bright green or blue for the calculated EAC.

*…with apologies to (the real) Ira Levin.

It was another dark and stormy night. I was staring at the stenciled letters on my frosted window office door, ylnatS yrrebpsaR, etavirP eyE, when my secretary called out “Goodnight, Stanly. I had better get paid tomorrow, or else!” I pulled a whiskey bottle and shot glass out of my lower desk drawer, when the phone rang. It was Charlie Gumshoe, from the PM police department.

“Stanly! I need you to get over to the Stepford Robotics Corporation first thing tomorrow morning.”

“Why? What’s going on?”

“We’re not sure. They’ve got some weird connection with Monolithic Corporation. We think Monolithic is supplying them Project Management Office personnel, in exchange for some robotic welding machines.”

“What’s wrong with that?”

“Nothing on its face, but we believe that Monolithic is attempting to flood the marketplace of PM ideas with their own cliched approaches, which would inject a whole range of irrelevancies into the discussion. If they get new tech companies like Stepford parroting their particular version of Project Management…”

“I hear you. How will I get in?”

“We’ve arranged for you to assume an alias and join an Independent Cost Evaluation team on a State contract that shouldn’t have anything to do with Monolithic. Your new name is Ira Levin.”

“You mean like the author?”

“Whoa, that didn’t occur to me until just now, but that’s kind of funny, isn’t it? Just in case a Monolithic employee is there, do you have some kind of a disguise?”

“Sure.”

* *  *  *  *

As I took my visitor’s badge from the receptionist at Stepford Robotics, I saw that the rest of the team had assembled in the foyer. We headed off together to the large conference room where the review materials were waiting for us in binders. As we opened our binders, the male project team member began presenting the basics of the scope, cost, and schedule baselines, short bios of the project team, etc. Another oddity: every single member of the project team was born in 1990 but hailed from all over the globe. Along about the beginning of the third hour, they began to discuss their risk management plan.

“Are you kidding me? You guys actually spent time on a risk management plan?”

“Risk management is integral to successful Project Management!” they all said, in unison.

“Says who?”

Again the project team stared back and forth at each other, their eyes darting about, their heads going through small but jerky motions. The lone male spoke up again, his voice creepily even.

“There are many sources for this assertion, most of them respected professional associations and scholastic venues. Would you like a precise listing?”

“No, thanks. I know the academic world loves this stuff. I’m just surprised that a high-tech outfit would engage in it. Just spare me the whole business about how ‘risk management’ also involves ‘opportunity management,’ because of ‘upside risk.’”

“But that is so!” they all exclaimed, again in unison.

One of the project team who, it seemed, had been staring at a point approximately three feet in front of her face, suddenly spoke up.

“You do not look like Ira Levin.” Thanks, Charlie, I grumbled.

“The author?” I replied. “No, I don’t, but I never claimed to be him.”

She turned her head back to looking straight in front of her. The male project team member continued.

“We have a complete list of the project’s stakeholders, and will be communicating with them thoroughly throughout the project.”

“Do any of these stakeholders have connections to your competitors?”

The entire project team turned to glare at me as the presenter spoke up.

“Engaging stakeholders is integral to successful Project Management!” he asserted.

“Yeah, so is keeping tech advances out of the hands of your rivals. You can bet that they will be attempting to gain such knowledge, by secondary or tertiary means, if necessary. So I’ll repeat my question: have you vetted these ‘stakeholders’ to see if they have any connections to your competitors?”

The brunette who had been staring at a point three feet in front of her replied.

“Two on the list of stakeholders are related by marriage to one of our main competitors. Another is a second cousin to a common supplier.”

“How did you know that?”

She slowly turned her head to look at me.

“Facebook.”

“Oh.”

The presentation continued.

“We will be updating the resource dictionary used for creating the cost baseline every twelve hours.”

I interjected. “What good does that do you? I mean, after the cost baseline is approved, why do you need twice-daily updates to the resource dictionary?”

“Accurate original estimates are integral to successful Project Management!” they all said, again in unison.

“That’s the third time you all have used that specific construction, that something is ‘integral to successful Project Management.’ Who told you that?”

“Our Monolithic Corporation programmers … we mean, mentors!”

The cat was out of the proverbial bag. Monolithic and Stepford had collaborated to create a PMO staffed entirely of androids, programmed with the unsupported conventional hokum that often masquerades as legit PM. At this point the brunette spoke up again.

“Without the goatee, Mr. Levin looks just like Stanly Raspberry, the famed Project Management detective.”

The androids were slow to move, but the members of the review team who worked for Monolithic tried to grab me before I could get out the door.

“Raspberry!” they cried. “Get back here!”

“Escaping is integral to successful life-living!” I shouted over my shoulder as I raced my convertible out of the parking lot.

My long-time readers will recognize the title of this blog as a derivative of my first book, Things Your PMO Is Doing Wrong (PMI Publishing, 2008). It’s easy to stand astride the struggling Project Management Office team members and kvetch about what they could be doing better, but that’s not how Peters and Waterman created their best-seller In Search of Excellence. Instead, they sought out successful organizations and queried what they thought they were doing right. In that vein, I had an opportunity to direct an extremely successful PMO, but it was successful because of the deviations I took from the nominal, staid approaches that my predecessors had taken. I’ve repeated this strategy on several occasions, and have never seen it fail. The following is a partial listing of the unusual tactics that went into it.

First off, the successful PMO Director will recognize that their main task is not to change behavior, or compel compliance with modern PM theory or practice. Without exception, every single failed (or failing) PMO Director thinks to the contrary, and will spend/has spent a great deal of energy towards those ends. This energy has been completely wasted. Even in those instances where the people involved tell you to your face that they recognize the value of what you are trying to do, and promise to support it, the pursuit of changing people’s behavior to any significant degree is a waste of time.

No, the successful PMO Director will realize from the get-go that their job is simply to put into the hands of the decision-makers the information they need to optimize their decisions in the project/program management realm. This job is simple, but it’s not easy, and it absolutely does not include eat-your-peas-style hectoring of the other members of the organization. They have their jobs to do already, and really don’t need any lectures about how they should be doing better.

Unfortunately, the ability to collect PM data, process that data into usable information, and deliver that information in a format that its consumers can readily understand has been turned, via formality of operations, from a relatively straight-forward task into a labyrinth of irreconcilable diktats, fraught with double-binds. The successful PMO Director recognizes this, and is able to jettison the superfluous elements that the “experts” expect of the PMO.

In order to advance this capability, the successful PMO Director will employ the following three tactics to any change in the business model:

• The new capability must be falling-off-a-log easy for the participants. Any capability advancement that depends on extensive training, re-training, or behavior modification on the part of the organization is doomed.
• In almost all instances, the actual systems being introduced will require the direct participation of only a subset of the target organization. For most PM applications, for example, beyond the PMO’s personnel there’s really only a need for Control Account Managers (CAMs) and/or Work Package Managers to help set up the baselines, and provide status once per month. However, if one of these people from whom you need participation opts out, you must respond immediately. Their non-participation cannot stand unchallenged, or else you may as well accept defeat in the here-and-now, rather than watch a slow, agonizing decline.
• When those from whom you require participation are actually participating, they’re golden, even if their data is marginal, or clearly contrived. Data can be improved – participation can’t.

I know, I know – these ideas are absolutely outside the mainstream. And yet, I’ve seen them work on multiple occasions, despite some highly formulaic and hackneyed objections, including:

• If you’re not “doing” (insert some aspect of PM here, such as risk management, quality, communications, whatever), then you’re not authentic.
• On the opposite side of the assertion in the previous bullet, anything you want changed from the existing status quo will be portrayed as an unacceptably onerous demand.
• Those managers who have gotten ahead based in some part on a lack of accountability for their actual cost or schedule performance will attempt to ruin you personally. How they go about this will vary from organization to organization – you just need to know they are out there, and will destroy you and your PMO as soon as they are able.

The successful PMO Director will navigate these difficulties, typically with these strategies:

• If you can’t out-and-out dismiss the element of PM that’s being held out as the missing piece of “authenticity,” then imply (don’t state) that that piece will be addressed once the basics are in-place. In most instances, once the basic cost/schedule information is made available and working, interest in the “missing” piece(s) will dissipate.
• As for the accusation that any change being wrought is onerous, refer back to the very first bullet in the first list. If you’ve included the falling-off-a-log-easy aspect to your implementation approach, this charge will be recognized as self-evidently absurd.
• The political assassination attempts do not readily lend themselves to a simply articulatable counter-strategy. However, there is hope. I actually addressed this prickly subject at length in my third book, a copy of which I’ve promised to the first person who uploads to the comment section a selfie of my checklist for seminar attendees from my April 2 blog while attending an actual PM seminar.

As for those who would say that, absent a notable change in the behavior of the organization, any claim from the PMO that it has advanced Project Management capability is specious, there’s a real irony at hand. As the basic, readily available cost and schedule performance information gets disseminated, even those project team members who have zero formal training in PM will start to discuss things like how to identify the causal factors behind their negative schedule variances, and the most appropriate uses of resources on tasks not on the critical path. They’ll start thinking about Project Management as they realize its capacity for improving their odds of project success, and in a way that force-feeding them the same precepts would have never accomplished.

And that, in my opinion, is how Project Management is done right.

When fairly large organizations institute a Project/Program Management Office (PMO), some very strange dynamics are often bubbling just beneath the surface, dynamics that can easily doom the PMO’s ability to attain even a mediocre level of success. Every organization is different, of course, and many, many PMOs start up and enjoy a long, successful run. But of those that fail, the arc towards failure tends to be remarkably consistent. I’ve seen the pattern so many times I can almost recite it in my sleep.

• First, some enlightened Vice President, Director, or other honcho, who recognizes the value of having Project Management practices adopted across the organization’s portfolio, will convince a plurality of the other wizards with whom he hobnobs to provide the funding for a PMO.
• This enlightened one will then either promote a mid-level manager from inside the organization, or do an external hire, and name that person the PMO Director. This person will be either (relatively) young and idealistic, or more experienced and seasoned, having performed the same function for another, similar organization.
• The new PMO Director will also either promote from within (it’s amazing how quickly an Earned Value Management course, followed up with a basic course in driving one of the more popular Critical Path software packages, can turn a lowly administrative assistant into a fully-functional Project Controls specialist), or do a few more external hires, or a mix of each. They will then attempt to codify what the rest of the organization’s project teams “must” do in PM space.
• Those project teams already fluent in PM will either negotiate an exemption from the procedures being churned out by the PMO, or else will insist that one of their members has a hand in directing the requirements.
• Once the first major project’s team has arranged to not have any part of the new procedures apply to them, the floodgates open, and all other projects will seek to carve out exemptions for themselves.
• At some point, a major project will want to set up their own team of project controls specialists, outside the purview of the PMO. These are usually comprised of subcontractors, who are almost always notably more expensive than the organization’s home team version. No matter: some excuse will be offered on why the sub’s people are more appropriate for the specific application, and a “shadow organization” will have been born.
• As the shadow organization grows in influence and expertise, the PMO will attempt to bring them into compliance with the growing number of procedures being generated. These attempts will fail.
• Some project teams will be perfectly happy using the PMO’s personnel and techniques, but others will not. As this list of others grows, the original enlightened VP will become frustrated with the Director of the PMO, further eroding the Director’s influence and ability to stop the proliferation of shadow organizations.
• The PMO loses its funding, unable to justify its budget in light of the highly uneven advance of capability maturity across the entire organization and number of projects not using their personnel or policies.
• Another (or even the same) enlightened VP will convince a plurality of the other wizards with whom he hobnobs to give the PMO idea another shot. The current Director will move on, and the cycle starts anew.

Because of the way that the introduction of shadow organizations within the macro-organization becomes a harbinger of institutional PMO failure, savvy PMO Directors will often attempt to leverage authority or influence to either stop these shadow orgs from coming about in the first place, or, if they already exist, thwart them. In addition to churning out procedures, additional tactics include restricting access to the Critical Path software, or attacking the basis for rogue projects to claim exemptions to the way they “ought” to perform Project Management, based on the PMO’s procedures.

These attempts will also fail.

So, what’s the solution?

The solution is to set up the PMO in such a way that you are clearly offering a service to the project teams. Never – and I do mean NEVER – presume to tell them how to do their Project Management, especially via some sort of codex that you think ought to be binding. In previous week’s blogs I have stressed the main corollary of the Triple Constraint, “Affordable, Available, High Quality: Pick any two.” You must not only make your PMO flexible enough to accommodate any project team’s preference in selecting which two, you need to communicate this flexibility, loud and clear. The subcontractors already have one strike against them: they’re almost always going to be more expensive than the members of the PMO’s team. Exploit that weakness. Offer a level of PM support that’s not as rigorous as the nattering nabob class insists it must be, and make it readily available to any potential customers.

Subs are attractive because the PMs know that they work at the PM’s discretion. They can be let go for any reason, or no reason, meaning that they will never crank out dubious PM procedures, and then demand adherence to them. If you, as the PMO Director, see shadow organizations suddenly taking root, don’t employ any of the previously reviewed tactics to try and stop them. Simply offer whatever it is that makes them attractive to your organization’s project teams.

In short, as disruptive to the PMO’s goals the shadow organizations can be, don’t try to stop them from doing Project Management. It’s futile, and a waste of time and energy. Just do it better than they do.