Game Theory in Management

As I discussed in my second book, tournament chess players have memorized the series of moves they use to begin a game. These chess openings have names, and their variations have names as well. Even at the junior high school level it is a rare player indeed who does not have committed to memory at least one opening to use as White, and two openings to use as Black (as a response to 1. P – K4 or 1. P – Q4), from the first five to fifteen moves of the game, with two to seven variations for each. When I was playing in tournaments, my favorites were:

• Giuoco Piano (as White, though I did not care for the Max Lange attack variant)
• Sicilian Defense (Najdorf or Dragon variants, as Black against 1. P – K4)
• Queen’s Indian Defense (as Black against 1. P – Q4)

…and, should I come across an opponent who was unaware of the traps and pitfalls inherent in the variation I was playing, I almost always won.

In a way, the memorization of chess openings is analogous to the advantage PMI® gives its members, especially the certified ones, when it comes to successfully managing a project. Project Managers don’t just arrive on-site, with a vague idea of the desired outcome. They know to capture the scope as accurately and completely as possible, decompose it into a Work Breakdown Structure (WBS), and begin to estimate the resources (Cost Baseline) and time (Schedule Baseline) needed to achieve the scope. It’s a moderately structured way of approaching the management of the project, and those who have a competent understanding of these structures will have a nearly insurmountable advantage over those who do not when it comes to successfully completing projects.

Now, for those of my readers who were not so geeky as to be involved in tournament chess, a quick side note about chess notation: when the moves are recorded, either by the players themselves or for publication and analysis later, three punctuation marks are used. A dash (“ –“) means “to,” as in “P – K4” means “pawn to king 4.” Then come the commentary marks: a question mark indicates an error, and two question marks indicate a blunder. An exclamation mark indicates a good move, and two exclamation marks indicate a brilliant one. These two can be combined, as well. An exclamation mark in front of a question mark (“!?”) means a bold but risky move, and the opposite order (“?!”) indicates a wild, perhaps even reckless move (well, as reckless as chess players can get, I suppose).

At the opposite end of the intellectual and entertainment spectrum, we have comedy. Really good stand-up comedians can be funny on a highly spontaneous basis, with very little pre-planned structure to their stories. Sketch comedy is a bit more structured in that the players are following a script, but even here the more hilarious instances come about when the comedians deviate from the original text. But what of those instances where deviating from the original script is called for, not to make people laugh, but to successfully manage a project? Here’s where the management sciences quickly lose efficacy, since, by definition, circumstances are unfolding in such a way as to preclude the lifting of solutions from other, highly analogous situations. The PM finds herself breaking new ground, often in circumstances where the wrong decision can have significant consequences.

In highly volatile project management environs, I’m often reminded of Dwight Eisenhower’s quote “In preparing for battle I have always found that plans are useless, but planning is indispensable.”[i] More often than we are perhaps ready to admit, the original plan has to be modified (not abandoned – that would mean we’re working off of a “rubber baseline,” a distinct no-no in PM space), occasionally dramatically, sometimes rather quickly. So, how to know when such immediate, dramatic baseline modifications are needed to save the project? I recommend using chess scoring notation!

Think about it: in the Variance Analysis Reports (VARs), the common template indicates the Schedule and Cost Variances in both dollars and percentages, along with the Cost Performance Index and Schedule Performance Index (CPI and SPI). If a variance breaks threshold, there are blocks of text discussing the problems’ causes and impacts, and corrective actions. Simply put the corrective actions into a bulleted list, and leave space for the program managers or customers to insert punctuation, as in:

Along those lines, I would like to arrange to have the following Project Management “Opening” named after me:

• Do the whole WBS thing, yeah yeah yeah, but then…
• Get rid of the Risk guys,
• Relegate the accountants to relaying actual costs at the reporting level of the WBS, and then offer no additional advice,
• Don’t budget more than the bare minimum for the communications and quality specialists,
• But make sure you are fully staffed with the Earned Value, Critical Path, and configuration management support.

With any luck, the “Hatfield Opening” in PM will become more famous than the other associations most often attached to my name, which include two train wrecks that happened 100 years apart, and a little misunderstanding with some people named “McCoy.”

[i] Retrieved from https://www.brainyquote.com/quotes/quotes/d/dwightdei164720.html on October 2, 2017, 12:44 MDT.

Are you tired of various media outlets, politicians, and special interest groups inundating you with attempts to “raise (your) awareness?” I know I am. Since this is my last post for the month of September, my readers will be perhaps interested in knowing that this is the “official month” for the following:

• National Italian Cheese Month
• National Self-Care Awareness Month
• Better Breakfast Month
• Classical Music Month
• Fall Hat Month
• Intergeneration Month
• International Square Dancing Month
• International Update Your Resume Month
• National Blueberry Popsicle Month
• National Chicken Month
• National Courtesy Month
• National Honey Month
• National Mortgage Professional Month
• National Mushroom Month
• National Papaya Month
• National Piano Month
• National Potato Month
• National Preparedness Month
• National Rice Month
• National Sewing Month
• Save Your Photos Month
• Self Improvement Month
• Whole Grains Month[i]

…among others. Now, many of you will no doubt wonder why you need to have your awareness raised about, say, blueberry popsicles, much less spend time in the month of September contemplating, or even celebrating them. But I would like you to imagine a scenario where you are in a project team meeting, and, in the middle of evaluating the cost and schedule performance indices, some consultant suddenly interrupts.

“You’re not taking into account blueberry popsicles.”

You respond “That’s right – I’m not.”

“But there have been several articles on the effects of blueberry popsicles on this kind of work in the trade journals. Haven’t you read them?”

“No, but I have never seen a published study establishing, with verifiable data, that blueberry popsicles – or any popsicles, for that matter – have anything at all to do with the kind of information I need to maximize the chances of bringing this project in on-time, on-budget.”

“Well, that’s only because your awareness of the blueberry popsicle effects hasn’t been raised. I can perform an analysis and write your project’s Blueberry Popsicle Plan…”

“I don’t want such a plan. I can manage without it.”

“No, you can’t, and the fact that you are suggesting as such is evidence of your lack of knowledge of Project Management.”

Sounds absurd, doesn’t it? But it is of a piece with the Information Deficit Model, the notion that, for any given field of study, there are experts who have an abundance of knowledge and expertise, and others who are not as enlightened, but should be. In those cases where we’re talking about passing along experimentally-derived findings that support new theories or overturn existing ones, I’m okay with this model. It’s in those instances where management science swerves into pseudo-experts pushing a poorly-supported (or completely unsupported) hypothesis that this “raising awareness” stuff gets truly irksome. In many of these instances, the Information Deficit Model effect is indistinguishable from arrogant pseudo-intellectuals foisting their shallow musings on the rest of us, and demanding recognition and respect for doing so. For Project Management professionals, I believe that a usable litmus test to differentiate between the two should be if the PM advance being asserted is backed up by something more substantial than expert opinion, or even consensus. If the organization’s key decision-makers need to be made aware of a usable technique, theory, or even hack, then let those on the in-the-know side of the divide show a record of repeatable outcomes, usable experimental or real-life data, or results published in a peer-reviewed journal. To see if such a litmus test is usable, go back and re-read the indented paragraph, but substitute the words “risk management” for “blueberry popsicles,” and consider for yourself if it works.

If it does, the people who consider themselves to be the owners of an abundance of Project Management techniques and want to impart their wisdom to the rest of us should either produce their objective, repeatable findings, or else, to borrow a phrase, check their “in-the-know” privilege.

[i] Retrieved from https://nationaldaycalendar.com/september-monthly-observations/ on September 23, 2017, at 13:13 MDT.

Edward Lorenz (1918-2008) was preparing to give a talk at the 139^th meeting of the American Association for the Advancement of Science on the theory that very small variations in certain nodes of a network or parameters in complex equations can have rather large consequences in the outcomes or effects in those environs, but he couldn’t come up with a title. Phillip Merilees suggested the now-famous “Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?[i],” and the summarizing title stuck. As counter-intuitive as it may sound, the short answer to the question is “quite possibly.”

Metcalfe’s Law also deals with the potential behavior of large networks. Originally intended to address telecommunications design, it demonstrates that, while two telephones have one connection, five telephones have 66 connections. The actual formula is:

C = (n*(n-1))/2

Where C is the number of connections, and n is the number of nodes in the network. While not a geometric progression, the number of connections per added node grows at a significant pace above an arithmetic rate, implying that the larger the network, the more powerful and unpredictable it becomes.

Meanwhile, Back in the Project Management World…

Most Project Managers rightly dread the prospect of cataclysmic effects overwhelming their ability to bring a project in on-time and on-budget, which is probably the main driver behind the pseudo-science of modern risk management. While overuse of statistical analysis techniques will not reduce the odds of such project-killing events occurring, there are some things a typical PM can do to help avoid such failures, and they are things as common to us as flapping butterflies’ wings. But first, a quick distinction: forces that are purely external to your project that have the power to either wreck the project or have a significant deleterious effect on its performance are not predictable, period. Yes, you can worry about them, and even put down your worries in a Monte Carlo simulator and call it “risk management,” but you haven’t done a thing to reduce the likelihood of their occurrence. But many of the internal aspects of disaster avoidance can be addressed. A short list follows.

• Cronyism and nepotism. Whenever anybody is hired or promoted on a basis other than merit, this butterfly wing-flap doesn’t happen just once. It happens each and every time the improperly hired/promoted person makes a decision related to the organization’s performance, which is to say virtually every hour of every day. You see, when such a hire/promotion takes place, not only does a poorer performer get placed into a decision-making role, the individual who merited that role has been pushed aside, to either assume a position of subservience in the existing organization, or else to be made available to the competition. It’s only a matter of time before the improperly hired/promoted individual makes a less-than-optimal decision of such consequences that a cascading event occurs, overwhelming either the specific project being worked, or even the entire organization.
• Poor Management Information System (MIS) strategy. My oft-cited version of the Pareto Principal as it relates to PM, that the 80^th percentile best managers who have access to 20% of the information needed to obviate a given decision will be out-performed by the 20^th percentile worst managers with access to 80% of the information so needed, carries with it several implications. Perhaps the most profound is that, if the Program Management Office (PMO) insists on pursuing information streams that are ultimately irrelevant (e.g., comparing budgets to actuals at the line-item level; time-phasing the Estimate to Complete; performing a [or even multiple] “bottoms-up” Estimates at Completion), then the unfortunate project teams who have to comply with these diversions will be wasting their MIS investment in time and money, making absolutely no progress towards the percentage of information they need to make better decisions. As in the previous example, it’s only a matter of time before the bow-wave of poor decisions swamps the project team, virtually guaranteeing cataclysmic project failure.
• There are many other examples (a “Peter Principle” promoting of the inept; the avoidance or even punishment of any negative feedback from the project team; allowing Asset Managers to determine Project Management actions, to name but three), but with the space I have left I would like the reader to consider what kind of cascading error effect would be had by combining the previous two bullets. With improperly-placed and inept project management “experts” chasing utterly irrelevant but difficult-to-assemble information systems, not only are valuable resources being wasted, and not only are the better people, information systems, and options being displaced, but the 20% worst managers are not even being fed 20% of the information they need to make optimal – or even functional – decisions. It’s inevitable – many bad, often very bad, choices will be made within this project team.

And that, friends, is a recipe for disaster.

[i] Butterfly effect. (2017, September 10). In Wikipedia, The Free Encyclopedia. Retrieved 18:41, September 17, 2017, from https://en.wikipedia.org/w/index.php?title=Butterfly_effect&oldid=799973299

In Tom G. Palmer’s book The Morality of Capitalism[i], among the many, strong arguments supporting the title’s assertion is the idea that capitalism is morally superior to other economic systems in that it rewards those who are of service to others. We’re not talking about how, since capitalist societies tend to be more successful than controlled economies, they leave participants with more resources that can be devoted to charity. Rather, in order to attain those resources in the first place, the participant in a free-market economy must provide a service or good that others desire, and for which they are willing to pay money. Indeed, those who refuse to be of service in some way will either suffer economically, or else have been made materially well-off by others who were previously (in the case of inherited wealth), or are currently, being of service to others.

In last week’s blog I made the case against the idea that price gouging was immoral. Now I want to go a step further, and argue that Project Management, like capitalism in general, is an inherently more moral pursuit than its cousins, Asset Management and Strategic Management. I’m not doing this to blow sunshine at my readers (much as they deserve it), but to try and inject a novel sense of proportion regarding Project Management’s role in the universe of management science.

Corner Cube theory[ii] explores the purposes of the three types of management. For example, the Asset Managers are extremely direct and simple in stating their purpose: it’s to maximize shareholder wealth. Indeed, they go so far as to assert that those three words represent the purpose of all management, which this blog has debunked on several occasions. For today, though, I would like to direct the reader’s attention to a comparison between the idea that people and organizations flourish in a free-market economy by being of service to others, and the notion that the purpose of (asset) management is to maximize shareholder wealth. Even if there’s not a direct denotative contradiction between the two ideas, it’s readily apparent that, at the very least, a connotative inconsistency exists. Add to this the fact that common things are typically less valuable than rare things, then ask yourself: is there really any kind of shortage of people or organizations who are looking to enrich themselves (i.e., “shareholders”)?

Next up are the Strategic Managers, whose purpose is to maximize their organizations’ market share. Incidentally, by employing the other two types of management in advancing this goal, we have yet another example of why Project Management tends towards the inherently moral. What organization has ever gained market share by pushing resources to their shareholders? Conversely, relatively few organizations fail to gain market share by delivering their projects (goods, services) to their customers better, faster, cheaper. But I digress…

Although the popular television series Mad Men, set in New York City’s Madison Avenue advertising agency district in the 1960s, often alluded to the seedy goings-on in the high-end marketing industry, the act of acquiring market share itself is essentially morality-neutral, since it is focused on the competition among organizations, as opposed to internally-focused (shareholders) or the customer-centric. And, while the tactic of engaging in a hostile takeover of a competitor’s business has received a lot of bad press, this tactic is also morally neutral. Indeed, if we go by the “maximize shareholder wealth” mantra, it’s good, since pre-takeover the target organization’s stock prices tend to increase significantly, meaning that the target’s shareholders see their wealth increase in exchange for surrendering market share.

Which brings us to Project Management. The codex of PM practices, strategies, and techniques are directed towards delivering any given project’s scope within the constraints of cost and schedule. Who sets these constraints? The customer, of course. In essence, Project Management theory is dedicated towards introducing and socializing methods that enable managers to be better servants to their customers. Put another way, Project Management is an avenue for developing management science to advance superior servitude, which represents more moral business behavior in addition to providing a better economic payoff.

Of course, I’m not advocating that all project managers should be automatically considered the moral superior of other types of managers (better dressed, of course, but not necessarily morally superior). We just have better attitudes.

[i] Retrieved from https://www.atlasnetwork.org/assets/uploads/misc/The-Morality-of-Capitalism-PDF.pdf on September 9, 2017, 1400 MDT.

[ii] “Managing to the Corner Cube,” Project Management Journal, 1995, available at https://www.pmi.org/learning/library/three-dimensional-management-world-5329.

I used to live in Texas, and regularly vacation there (especially in the Corpus Christi – Padre Island area), so I watched the news coverage of hurricane Harvey rather closely. Of course, our thoughts, prayers, and donations go out to the victims. I have additional concerns that reach into the management sciences arena as well. I wouldn’t want any common misperceptions about how projects – specifically, rebuilding projects – can be optimally executed to get in the way of a speedy and efficient recovery for the area.

So, I experienced some level of trepidation when I heard media analysts complain about “price gouging,” which, I take it, is the practice of selling an item or commodity at significantly higher prices than consumers are used to seeing. The common narrative accompanying the charge of price gouging is that the owner of the item or commodity is “taking advantage” of the devastation in the wake of the hurricane in order to make an “unfair” level of profit. This charge, and its accompanying narrative, is invalid, and I can prove it.

First, let’s make a couple of definitions clear. A commodity is a resource that’s virtually indistinguishable from others like it. One gallon of unleaded gasoline is pretty much like any other, which is why a single gas station is highly unlikely to charge a price more than a few pennies more than its competitors. The same is true of purified drinking water, or canned peaches, or any other commodity. Those who deal in the selling of commodities are said to be “price takers,” since they have little control over the price at which they can expect their products to sell. The laws of supply and demand determine that selling point, which is why commodities trading can be so volatile and is a prime example of high-risk investing.

A certain television news website ran a story about a convenience store in Houston charging $99 (USD) for a case of bottled water, with the implication that it represented a prime example of price gouging.[i] Let’s take a look at that, shall we? Since many of the roads to Houston were flooded, the chances of prompt resupply of bottled water in the hurricane’s aftermath were remote, meaning that supply of that commodity was low. At the same time, there are a lot of people who live in Houston who chose not to evacuate, meaning that anticipated demand was high. The presence or lack of avarice on the part of the sellers of bottled water in the Houston area is irrelevant. With limited supplies and high demand, the price will escalate automatically. When it does, it signals potential suppliers that, if they can bring more bottled water into the area, they will be rewarded for doing so. This will lead to those who have access to (a) bottled water, and (b) a boat or high-suspended truck to risk bringing water to the area. What happens when additional supplies are brought in while demand stays level? If you said “the prices come down,” go to the head of the class.

And The Benefits Don’t End There

An additional benefit of the price going up is that, for those people who chose to (a) not evacuate and (b) not buy bottled water when it was only mildly overpriced, they will now only buy what they absolutely need to get by. If the price were to be artificially kept down, say, by well-meaning but micro-economically naïve cable news business analysts, then the first few customers who came in to that store and realized that a rare commodity was underpriced would tend to buy much more than they needed, meaning that later customers wouldn’t be able to purchase bottled water at any price. In addition to signaling the nearby communities that drinking water was more valuable in the Houston area, the higher prices also helped guarantee that the maximum number of people would receive the minimum amount needed, rather than a few having more than they needed, and most having nothing at all.

Meanwhile, back in the PM world…

But enough about commodities. What about Project Management? The same rules of supply, demand, and price are true here, as well. When the waters recede, and the city, county, State and Federal Governments start taking bids on the re-building projects, does anybody really believe that the bids will be at the exact same levels as similar jobs performed before the hurricane hit? The area’s utilities (yes, including drinkable tap water) are off-line, and most major construction projects require a reliable source of energy, water, and sewage/waste disposal. Sure, there are work-arounds, but the work-arounds tend to cost more money, as when the job site requires its own electrical generator, which itself needs potentially scarce gasoline. Many skilled workers won’t think of an area recovering from a major disaster to be a preferred work destination, and will probably need a little extra incentive to be attracted to such an area – at the very least, a dry and cool place to sleep and eat – so labor costs are likely to climb. And we’ve already seen what is likely to happen to the availability of the commodities used in construction.

Now imagine the same cable news business analysts who harangue water-selling convenience store owners goading politicians into performing a review of the recovery projects’ bids, and comparing them to previous budgets for similar projects, and discovering that the post-disaster bids are significantly higher. If they employ the same “logic,” will they not want to accuse the contractors of price gouging? No seasoned PM will view any of these cost-adders as representing an act of taking advantage. It’s simply the way projects are bid, accepted, and executed. If a contractor’s bid is too high, all the customer needs to do is award the work to a lower-priced competitor. And, if some politician or official were to review the project estimates with an eye towards charging those bidders on the high end with price gouging, what do you suppose would happen to the pool of potential bidders? If you said “It would dry up,” you probably also had the right answer to the previous pricing question.

In short, I believe everybody would be better served if certain cable news outlets would leave the management science “insights” to people other than journalists – preferably, to PMP®s.

[i] Retrieved from http://money.cnn.com/2017/08/31/news/hurricane-harvey-price-gouging/index.html on September 1, 2017, 14:28 MDT.