Game Theory in Management

GTIM Nation is aware that one of my favorite targets for (wholly deserved, of course) criticism is the Asset Managers. It’s not personal, and I don’t do it out of spite. It’s just that what we know as double-entry bookkeeping can trace its origins back to the late 1400s Italy, and has largely become the basis for much of what passes for accepted management science today. Quick question: what other field of science is still predicated on 600-year-old theories? In a very real sense, the whole of Project Management can be seen as a revolutionary concept, and a direct challenge to the Asset Management paradigm. We PM-types disagree that the point of all management is to “maximize shareholder wealth,” preferring to focus on accomplishing set scope within pre-defined parameters of cost and schedule. We use different tools and methods to accomplish our aims, often to the chagrin of the nice folks in Finance and Accounting. In almost every single organization I’ve worked, there’s a kind of rivalry (if not out-and-out hostility) between the accountants and the Program Management Office, much of it stemming from this very divergency of management science world views.

In previous blogs I have taken the Asset Managers’ approach to resolving business problems to task on the grounds that their approaches aren't always valid. This lack of validity stems from a derivative of the old expression “When all you’ve got is a hammer, everything starts to look like a nail.” I would paraphrase that to say “If you believe that the source and residence of all management information involving costs is the general ledger, then every problem that comes your way is going to present as needing a solution centered on ‘maximizing shareholder wealth.’” All of which serves to deliver us to the specific subject of this week’s blog, that of how this particular approach to management can influence organizational culture (ProjectManagement.com’s theme for July). I’ll start with a personal experience.

I was providing PM support to a certain department. This department had around two dozen people, and they were trying to implement a new software platform to handle the information streams they needed to do their jobs. I had come up with a schedule for all of the activities from their Work Breakdown Structure, including durations and schedule logic, and it became apparent that the overall project was going to experience a delay due to one particular activity on the critical path. This activity was being performed by a team of four people. I pointed out the likely delay and the responsible activity/team to the head of the department. It just happened to be on a Friday.

“Have the entire department work this weekend!” was his snap decision.

“Wait a second – your whole department doesn’t need to come in for the weekend. If you can just get this one team to put in the time it takes to wrap up this specific task…” I began.

“No, I want the entire department to come in. I can’t have this project come in late.”

And that was that.

I have often wondered since then what all of the non-critical-path activities’ team members did when they came in over that weekend, and if they had to cancel anything important to do so. Outside the four people on that one team, the others were very likely unable to do anything to help ensure speedier scope delivery, but the director was probably expecting them to at least look like they were doing so.

And what of the director himself? He was, no doubt, taught that the remedy to almost any managerial problem is to get more out of the existing assets, to maximize their “return.” Since these professionals were all on salary, the demand for more of their time carried with it no direct monetary costs. Sure, morale would take a hit, particularly when these professionals realized that their ruined weekends didn’t do a darn thing to help attain on-time milestone delivery. But so entrenched in this director’s mind that greater asset performance was the answer to this particular problem that, even when shown that his was the wrong response, he would not abandon it. This inflexible, highly formulaic approach is common fare among most University’s business schools, and I think it’s a shame.

And yet this is a rather common way that the mindset that the general ledger is the ultimate yardstick for evaluating various management strategies or problem-solving tactics manifests in organizational cultures everywhere. Do you have it in your organization, or are you even an initiator of it? A simple mental exercise can answer that question.

Imagine coming across a singularly difficult problem in the middle of a project. I’ll use the analogy of the Pied Piper of Hamelin. You and your team have done everything you can think of to overcome this problem, but have not succeeded. Suddenly a consultant arrives, and proposes that she can overcome the difficulty – guaranteed – and you propose a price. She solves the problem, but does so in a way that requires minimum effort and time. Essentially, she makes the solution look exceptionally easy, especially in light of your teams’ failed efforts. Here’s the question:  Are you resentful that it was so easy for her, or are you completely okay with it, and happy to pay her the agreed price?

The Asset Manager is more likely, by training, to take the earlier stance, the PM to take the latter. We have Grimm’s fairy tales telling us of the potentially bad consequences of the former, but none on the latter. I don’t think that’s a coincidence. I think it’s an illustration of the mindset that dramatically increased efforts are always needed for improved performance, and the undesirable consequences of that mindset.

If you are in an organizational culture beset by this mindset, you have probably already observed some of the following manifestations:

• Your value as an employee is at least somewhat predicated on how much time you are actually at work, and at your desk,
• …but not on how much you actually accomplish. In fact, if you accomplish a significant amount, but appear to do so easily, it’s often counted against your perceived worth.
• Cheerfulness at work is also considered a negative, since it indicates a cavalier attitude towards shouldering your part of the team’s burden.

Don’t misunderstand – by no means am I asserting that all organizations headed by Asset Managers are poorly led, or prone to less-than-optimal, formulaic solutions. After all, many of these managers went on to get their PMP®s…

As most of GTIM nation knows, my third book as well as the webinar I did with the help of ProjectManagement.com involves significant research in the area of ProjectManagement.com’s July theme of Organizational Culture (and, no, I did not bribe Cameron to set this particular theme). In going back over my notes, a couple of things popped that I hold to be rather fascinating about this topic, so I’d like to pass them along.

First off, I’d like to give a call-out to Michael Maccoby’s book The Gamesman (Simon and Schuster, 1977), which I’ve referenced often and will, no doubt, refer to in the future. To take a hydraulic press and metaphorically condense his main point, Dr. Maccoby asserted that there are four types of workers in a given organization:

• The Craftsman doesn’t really care for whom he works, but cares deeply about the output.
• The Company Man tends to take on the persona of the group or team around him.
• The Jungle Fighter gets ahead through calumny and deceit.
• The Gamesman doesn’t see his salary as a roof over his head or food on the table. Rather, he sees it (and other perks) as tokens in some immense game he’s playing. Because of this approach, the Gamesman is both far more likely to master the finer points of the industry he’s participating in, and is more willing to take risks. Generally speaking, this combination tends to make this archetype more successful than the others.

Interestingly enough, psychologist Richard Bartle performed an analysis of people who play massive multi-player online role-playing games (MMORPG), and also proposed (wouldn’t you just know it?) a four-tier archetypal pattern of those players. Bartle named his categories after the suits in a deck of cards, so:

• Hearts are those people who play in order to socialize and interact with other players.
• Spades are the explorers of the virtual worlds, digging around to find things of interest or value.
• Diamonds tend to perform the game’s stated objectives or scripted adventures, and reap the rewards for doing so.
• Clubs are there to fight.

And, of course, for those of my readers who have had their Meyers-Briggs type assessed, you are aware that they also use a four-axis evaluation method to determine your type. With all of these people who are way smarter than I am using structures based on four archetypes, who am I to differ?

In order to even address the topic of organizational culture intelligently, we must come up with some sort of basis to actually quantify it. Recall the axiom that that which cannot be measured cannot be managed. I’m going to base my four-tiered architecture on Dr. Maccoby’s assertions, and simply expand them. Here’s my thinking: if Dr. Maccoby is largely right (and I think he is), it stands to reason that organizations comprised of Craftsmen, Jungle Fighters, Company Men, and Gamesmen will tend to take on the aspects of which category holds the most personnel. For example,

• If the organization is dominated by Craftsmen, it will tend to turn out high-quality goods and services, but is vulnerable to being outperformed in market share to organizations that use newer technology to approach such Craftsmen’s quality but at lower prices.
• The organization with a plurality of Jungle Fighters will expend more energy than others harming their competition, the most obvious example being those companies that spend money on politicians willing to pass laws or regulations that raise barriers to entry in a given industry. Another sure-fire tell that you’re working for a bunch of Jungle Fighters is that the organization values loyalty above competence or even success. Craftsmen or Gamesmen trapped in such a situation will see their insightful, sincerely advanced recommendations that just happen to have even the mildest of contradicting-the-status-quo aspects viewed as treachery, or rebellion.
• Gamesmen-dominated companies are extremely dynamic and versatile, and are probably more likely to succeed, especially in newer industries. They are also more likely to fail spectacularly.

“Wait!” I can hear GTIM Nation say, “What about organizations controlled by …”  Then I hear the voices trail off as everybody realizes that Company Men can’t, by definition, dominate an organization, as they tend to assume the persona of the team around them. If you believe that your company’s CEO is, in fact, a Company Man, it simply means that there is a power behind that throne, another person (or persons) making the key decisions that are passed through such a one. And those people are absolutely not Company Men.

So, now that we have a guide to types of Organizational Cultures, what are the major implications? For starters, keep in mind that it’s entirely possible that a plurality (or even majority) of the organizations within a given industry can exhibit the same macro-culture. Easy examples include technology and dot.com orgs, which are notorious for being headed by unconventional, innovative thinkers, i.e., Gamesmen. Commodities-based companies, such as grocery stores or automobile service stations, are notable for quickly eliminating non-Craftsmen, since low quality goods or services for a given cost can’t survive much competition. Jungle Fighter-led organizations can only flourish in areas where performance is subjective, even speculative, such as media companies and political action committees.

I believe that most project-oriented orgs can and do allow for widely varied mixes of the four archetypes, making generalizations about them difficult. However, I think it’s fairly safe to say that

• Gamesmen get the projects in the door,
• Craftsmen deliver the scope on-time, on-budget (implication: most PMs will gravitate towards this archetype),
• Company Men will mirror the behavior of whichever of the above two types are most prevalent or influential, and
• Jungle Fighters will attempt to take credit for others’ successes, and deflect responsibility for their own failures. To whatever extent the said organization adheres to a meritocratic structure will directly influence how successful and common this type becomes. (Proof: the United States Chess Federation is virtually pure meritocracy, and Jungle Fighter tactics are utterly useless there.)

As for useful tactics in surviving in these environs, I can provide, with a high level of confidence, the following guidance…

Oooops! I ran out of blog pixel ink. Tune in next week, to further the discussion on My Organization Has A Culture. Now What?

Continuing with ProjectManagement.com’s June theme of technology, I feel the need to stick with my contrarian position, since most of the time advances in technology, be it in materials science, construction methods, or information systems are met with enthusiastic acceptance. However, if the large volume of horror-laced science fiction films and novels have taught us anything, it’s that carelessly or recklessly advanced technology can have terrifying outcomes. While careless or reckless advances in Project Management technology probably won’t threaten mass extinctions or the entire population of the Earth becoming enslaved to supercomputers and their robot minions, PM advances do carry the threat of being soul-crushingly boring and terrifyingly irksome. To paraphrase Kyle Reese, “Listen. Understand. Those technology-enhanced PM experts are out there. They can't be reasoned with, they can't be bargained with...they don't feel pity or remorse or fear...and they absolutely will not stop. Ever. Until you do PM the way they want.”

Meanwhile, Back In The Project Management World…

“But Michael!” I can hear GTIM Nation exclaim, “What possible nightmare scenarios can come about from advances in PM technology?” Well, I can imagine a few, including:

• Absurdly tight and mis-applied Variance Analysis Thresholds.  As commercial off-the-shelf Critical Path and Earned Value Methodology software platforms become more capable of sharing data with other systems such as the general ledger, the dopey analysis of comparing budgets to actual costs at the line-item level will become easier to do. The whole point of a Variance Analysis Threshold (VAT) is to acknowledge that some noise exists in the raw project performance data, and to avoid raising an alarm when, in fact, no performance issue is occurring. For example, a typical research Work Package (WP) will have the following weighted milestones:
  • 15% done when the initial investigation/data pull is complete.
  • 40% of the budget is claimed when the first draft of the findings report is done.
  • 65% has been attained when the second draft of the findings report is complete.
  • 85% claimed when the report is shipped off to the customer, and
  • 100% of the budget is claimed as earned when the customer approves the report.

How did I know that the completion of the second draft was worth precisely 65%? I didn’t. It’s just an approximation that tends to reflect actual performance on these kinds of WPs. What if the exact percentage were to be 59.4, in this specific instance? Well, it’s okay, since there are no VATs set as low as 5.4% (not by adults, anyway). The system is set up to acknowledge a certain amount of imprecision in EVM and CPM performance assessment claims, and compensates for them. But not if this compare-actuals-to-budget business keeps going, no siree! The technology will allow for immediate and accurate appraisals of each and every instance, not of a Cost Variance, but of a spend variance, which is very different and very irrelevant. Before you know it, the PMs will have to fill out Variance Analysis Reports on why they bought a bottle of Dr. Pepper when the spend plan clearly called for a can of Coca-Cola. For those who think I’m exaggerating, keep your ears open during your next project review. Yeah, I’m exaggerating, but not by much.

• The Time-Phased Estimate to Complete.  This particular piece of analytical technology is truly pushing the envelope of management science irrelevance. As I’ve often noted in previous blogs, the Estimate at Completion (EAC) is an extremely valuable piece of project performance information, but it’s easy to accurately calculate. Unable to accept this information gem at face value, many self-identified experts call for a bottoms-up estimate of the remaining project work, an Estimate to Complete, to be created, and performance measured against it. This turns the original baseline to rubber, and had been previously considered a practice pathology to be avoided. What happens to the original baseline once a bottoms-up ETC has been produced? Surely the ETC has incorporated more recent data and circumstances that could not have been foreseen at the project’s start, so we should go with the ETC, right? But if the original baseline ought not to be turned to rubber, why do the ETC in the first place? Simply because advances in PM information system technology allows for the generation of these time-phased ETCs? If that’s the case, then what happens next month, when the system delivers another time-phased ETC? Will it be used instead of last month’s ETC, or even the original baseline? What about the ETC after that? Before you know it, the Project Office will be hip-deep in rubber baselines, with their adherents bickering about whose should be considered more accurate or authoritative.
• Broader Risk Management Plans. As the technology allows more excessive cross-hatching of basic project budget, earned, and actual costs data, risk management software will have a field day with its enhanced ability to slather irrelevant Gaussian curve-based comparisons onto the real performance data. The most insipid weapon here is the “I told you so” bomb, which works like this: the risk analysis delivers a stochastic range of bad things that might happen to which activities within the baseline. If any of those things actually happen, the risk managers will be in a position to say “See, I told you so!”, providing a veneer of legitimacy to their entirely irksome approach. Those impacted by the blast, heat, and shock of the I Told You So Bomb won’t even know it until after the unfortunate occurrence risk event actually happened, and the risk managers come along afterwards and say … (you know).

Yes, science fiction is full of horror stories of technology gone wrong, and the fields of robotics and artificial intelligence make it easy to imagine terrifying outcomes. But PM isn’t all that different. Imagine a younger Arnold Schwarzenegger coming to your project review, his glowing red killer robot eyes obscured behind sunglasses, saying in his German accent and droll delivery style “You spent $105.40 on a part that appears in your basis of estimate as costing $100. Hasta la vista, baby!”

Also, just by the way, The Terminator came back in time from 2029, which is only 10 ½ years away.

Since most (if not all) of the takes on technology in the PM universe are that it’s by and large a good thing, it falls to me (of course) to take the contrarian position. Consider the famous study that showed that, when time-saving devices and appliances were introduced into homes with electricity to run them, the amount of time housewives spent doing housework did not actually decrease. Instead, two influences kept them working at about the same pace: since cleaning rugs and clothes became easier, the expectation became that people’s rugs and clothes would be clean all the time, hence the act of cleaning carpets and clothes was more frequent. Also, since more coffee brewing, ironing, and cooking could be done within the same amount of time as before, more of that starting happening. The amount of work didn’t change, just the level of cleanliness and ready availability of unwrinkled shirts and full cups of coffee (prior to the establishment of specialty coffee shops on every city corner) did.

Meanwhile, Back In The Project Management World…

I’ve spent a lot of ink pixels grousing about irrelevant information streams that are being pushed by supposed expert-level PM associations and organizations, so I’ll give that theme a rest (for this week, anyway). But I will say that many of these “must-have” analyses would be more difficult if not for the ability of modern Critical Path Methodology (CPM) and Earned Value Methodology (EVM) software packages to share data with other systems, such as the organization’s general ledger (a rather valuable utility), and the risk management system (utterly useless). So, some of these technology advances are really useful, but not all of them. But what if the PM finds herself in a situation where such advanced CPM and EVM packages are not available, or in use, or even in a situation where (horrors!) there are no personal computers or tablets? Alternately, what if our PM is in a situation where these packages are available and in-use, but she suspects their information isn’t accurate? Like Montgomery Scott says in Star Trek III, “The more you overtake the plumbing, the easier it is to stop up the drain.” In addition to warp drive technology and, well, plumbing, the same effect can be seen in certain overly-teched Project Management Information Systems. What’s the PM to do in these circumstances?

Hack Number One: The Reliable Estimate at Completion

One of the most, if not THE most, valuable pieces of PM information that can be generated by an EVM system is the accurate answer to the question “At the present rate of performance, how much will this activity, task, or project cost when it’s done?” Springboarding off of Dave Christensen’s work on Cost Performance Index (CPI) stability[i], the fact of the matter is that an EAC that’s accurate to within ten points can be calculated (once the activity/task/project has cleared the 20% complete point) by dividing the Budget at Completion (BAC) by the CPI. The fascinating aspect of this (besides its underestimation by Establishment PMs) is the fact that the formula

EAC = (BAC / CPI)

can be algebraically reduced to

EAC = Cumulative Actual Costs / % complete.

Crazy, right? But it works, and reliably so. All you need is the cumulative actual costs from the general ledger, and a reasonable estimate of the activity’s/task’s/project’s percent complete, and you’re there. Not only is it gobsmackingly easier than all that bottoms-up nonsense, it’s also provably more accurate on a consistent basis.

Hack Number Two: The Reliable Duration at Completion

Earned Value and Critical Path methodologies are more closely related than many people realize. When you place your percent complete amount into the schedule network on your CPM software, it calculates a new forecast date using a formula identical to the one mentioned above, except it uses duration rather than costs. My regular readers know where I’m going with this: to calculate a duration estimate for any activity, task, or project, all you need to do is to divide the percent complete into cumulative duration, and your answer will be accurate to within ten points! In fact, for all those organizations using some form of milestone tracking system as a cheap substitute for a real schedule, stop asking the tasks’ owners for an estimate of when they will be done, and start asking them for their percent complete. Divide that number into the cumulative duration, and compare that date to their original scheduled completion date to tell if they will be early, on time, or late. Your accuracy rate will skyrocket.

Hack Number Three: Testing What You’re Being Told About At-Completion Costs

For those technically-advanced projects where they provide a new “bottoms-up” EAC on a regular basis, these estimates are usually highly optimistic. To test them, compare the Cost Performance Index to the To-Complete Performance Index (TCPI), which will always be available from the technically-advanced cost processors. The TCPI indicates how well the project must perform in cost space in order to come in under a given parameter, usually the Budget at Completion (BAC). However, if you substitute the stupid bottoms-up EAC for the BAC in the formula, and get a number above 1.00, then you probably have a problem. The aforementioned Dr. Christensen’s research found that the CPI virtually never varies more than ten points once the activity/task/project has passed the 20% complete point. Now compare the CPI and the TCPI. If it calls for a 10% improvement in performance, you are probably being fed an optimistic EAC. If a 15% performance improvement will be required to hit the bottoms-up EAC, that’s not going to happen. If the improvement called for is 20 points or more, the people pushing the bottoms-up EAC are not only lying to your face, they think you’ve dumb enough to believe them, which is problematic all by itself.

Can a PM survive a project with just these hacks? It depends on the project, but usually not. However, if your project team is completely stalled for want of readily available cups of coffee, and there are no coffee shops around, and you’re the only person who knows how to make hot coffee and assess project performance without an electronic device, you may just be in a position to rule the world.

[i] https://www.researchgate.net/publication/237574533_Cost_performance_index_stability_fact_or_fiction

In the movie Superman (1978), Lex Luthor (Gene Hackman) has deduced that a fragment of the exploded planet Krypton has arrived on Earth in the form of a meteorite that landed in Addis Ababa. One of his two assistants, Eve Teshmacher (Valerie Perrine), has the following line: “I know I'm gonna get rapped in the mouth for this, but... So what?” Lex goes on to explain that the meteorite must have the same “specific radiation” as the doomed Krypton, and is therefore lethal to Superman, a conclusion which is somewhat unintuitive to those unfamiliar with the Superman canon. Due to the power of movie magic, however, it is both accurate and relevant (and timely, given the super-caper that Lex is planning at the moment).

Meanwhile, Back In The Project Management World…

In this blog I would like to combine two themes I address on something of a regular basis, to wit:

• The PM world can be divided into two camps: Processors, who don’t really care about projects being brought in on-time, on-budget, but care a great deal about people following “proper” procedures; and Performers, who don’t really care about process, but just want to bring their projects in on-time, on-budget.
• Of the thousands and thousands of PM-based software packages out there, the ultimate test of their worth has to do with their ability to deliver information that’s (1) accurate, (2) timely, and (3) relevant. Failure on any of these points renders the whole system invalid, and, therefore, worthless.

Now, there are several organizations/associations that crank out what they perceive as usable insight in documents – procedures, directives, implementation guidance, whatever – but this so-called guidance also must answer to the standards for PM-oriented software. For example, I’m aware of a certain guidance document that demands that an ongoing comparison be made between a project’s Basis of Estimate (BoE) and the actual costs incurred, at the line-item level. This guidance document was produced by a group that claims many supposedly high-level PM professionals in its ranks, and they pretty much expect to be taken seriously. Sadly, I can’t.

One of the very first rules that Project Controls Specialists (and, one would hope, Project Managers) learn is that comparing budgets to actual costs is useless. I would go one step further and say that it’s often misleading. Consider my favorite example, one that I use when teaching basic PM.

You’re the manager of a two-month-long project to produce 2,000 widgets, with a budget of $2000 (USD). You time-phase your budget to $1000 in Month 1, and $1000 in Month 2. At the end of Month 1, your accountant comes to you and says your have spent $1100. How are you doing?

If you said “I know I’m gonna get rapped in the mouth for this, but if I don’t know how many widgets I made, why is the amount I’ve spent relevant?” go to the head of the class. The seemingly intuitive conclusion that something has gone wrong because you’ve spent $100 more than planned, is rendered completely irrelevant if you have, in fact, made, say, 1300 widgets. In basic Earned Value parlance, you are not only not in bad shape, you are actually performing well ahead, enjoying a 18% positive cost variance, as well as a 30% positive schedule variance. If you had mistakenly presumed that spending $100 more than budget was a bad thing, you would have blundered in any action taken based on that so-called analysis. And yet, here’s an organization pushing the idea that such an analysis produces usable PM information simply because it’s happening at a more granular level of detail. Guys, it’s irrelevant! And, by pushing such an assertion, it kind of makes your organizations look, well…

Who’s Behind This Massive Criminal Conspiracy?

So, who, exactly, is pushing this narrative? I seriously doubt their numbers include a significant population of Performers. Performers don’t think that way. It has to be the Processors, who churn out this stuff blithely unaware of any duty they have to relevancy, nor of the fact that not even movie magic can make the budgets versus actuals analysis reliable or insightful. As long as they can push out “guidance” that compels a certain analytical behavior, they’re happy as clams, regardless of whether or not such analysis yields any usable management information. It’s almost as if they were assigning tests to the PM world, to see if they can make its adherents accept the predicate that such useless analysis must be performed in order to lay claim to “doing” legitimate Project Management. Naturally, to call into question the basis of their assertions, much less their motives, is to incur their wrath, and invite being rapped in the mouth.

But I’ll take that chance, because much as I would hate to see California fall into the Pacific Ocean due to nuclear weapon-induced cataclysmic earthquakes, that can only happen with large doses of movie magic. Conversely, furthering the idea that comparing budgets to actuals is a key aspect of legitimate Project Management doesn’t require any movie magic at all. It just needs PM’s current practitioners to become fearful of these criminal masterminds Processor-style PMs