Game Theory in Management

No month-long theme of evaluating the sources of project failure would be complete without at least some mention of that thorniest of sources, office politics. Most – if not all – of my readers have felt the sting of frustration that comes from seeing, say, a rival for a job posting spending time behind closed doors with a member of the selection committee (if not the boss herself), engaged in conversation or laughter. You just know that the gremlin politics is nudging aside its more straight-laced, conservative influence cousin, merit, and you also know there’s not a darn thing you can do about it.

Let’s start with a precise definition of office politics. Office politics are those interactions among members of the organization that are intended to primarily advance a personal agenda. Unless that particular personal agenda is exactly aligned with the macro-organization’s agenda (which it never is), a conflict of interest is introduced, and the larger organization suffers, however slightly. Ideally, all members of the team you work for would be pursuing the stated objectives of the organization. But, being human, our self-interest naturally comes in to play, and we occasionally find ourselves faced with decisions that may harm the larger group we’re in, but will benefit us specifically. Some level of inflating our accomplishments and minimizing our failures is natural; however, when a significant number of the members of the organization become adept at minimizing others’ accomplishments and maximizing others’ errors, a highly-politically charged environment is introduced into the workplace, and its effects can be devastating.

The lynch pin of the source of political influence is the internal narrative, or script if you will, that we all carry around inside us. As I discuss in my recently-released, must-have book Game Theory in Management, these scripts serve three purposes:

·         They tell us who we are to ourselves,

·         They tell us what to expect from others with whom we interact,

·         And they tell us to what we ought to aspire.

We begin writing these scripts the day we enter the world, and obviously well before we have any notions of causality, logic, or the rules of evidence. People who maintain scripts that are at stark contrast with reality, and provably so, are said to be delusional, but my take is that we are all to some extent, at least mildly delusional. To be forced to quickly rip out and replace nice or complimentary parts of our scripts with reality-based, harsher versions is an extremely painful process, as stock brokers throwing themselves out of Wall Street windows in late October 1929 attest.

Now, your office political movers and shakers know this, at least at an intuitive level. And they are masters at using their favorite tactic, the ex parte conversation, to introduce modifications to the decision-makers’ scripts. By “spinning,” or creating a story that seems to explain why past things unfolded the way they did, and, by extension, explains why the future should unfold in a specific manner, they are in a position to:

·         Maximize their successes,

·         Minimize their failures,

·         Maximize perceived rivals’ failures,

·         Minimize perceived rivals’ accomplishments,

·         And, most insidiously of all, weave it into the decision makers’ internal narrative in such a way that reinforces those parts of their narratives that make them feel good or confident about themselves.

It’s really quite a racket, for being as predictable as it is, this political maneuvering. Note that, in coming up with ways of overcoming or getting around the tainted decision-making process in a politically-charged environment, we have totally abandoned the idea of re-introducing a meritocracy. Not going to happen. Once the “top” salesperson is determined by a subjective selection process among executives, the actually sales figures hardly matter. The most successful code block generator has no shot against the lowest golf handicap. I could go on, but you get my point.

I could offer some fortune-cookie-ish advice on how to survive in a politically-charged work environment, but such environs differ to the point that any such advice would either not be helpful due to being too general, or worthless in your particular setting. I will say, though, that the Jungle Fighters among us do tend to reap what they sow, even if we’re not around to witness their comeuppance. Just hang in there, and don’t become one of them.

After excoriating the risk management types over the past couple of blog entries (they deserved it!) for asserting the efficacy of their techniques far, far beyond their legitimate limits, I’m now ready to do the same thing for a group of management information custodians who have dominated the best-decision-in-any-given-situation dialogue for hundreds of  years, and yet shouldn’t. That’s right – I’m talking about our friends, the accountants.

What we now know as double-entry bookkeeping and accounting first came into existence along about the time of Machiavelli (coincidence?), and has largely monopolized the executives’ information stream ever since.  So prevalent is the suspender-clad ones’ take on the management universe that leaders who have no idea how to read a profit-and-loss statement will make regular reference to the “bottom line.” For my readers who have had occasion to (or even regularly) attend high-level meetings within your organization, let me ask you this: have you ever seen your company’s top executive cede ultimate veto authority over any course of action – no matter how subtly – to the chief financial officer? I have, and I find it appalling. The accountants have successfully manipulated the management information debate into a narrative where the general ledger is the ultimate arbiter of information for high-level decision-making, a sort-of oracle at Delphi dressed in clip-on suspender-supported togas, and I think it stinks.

What kind of information can the general ledger provide? The set of valid general ledger-based management information consists of:

·         How the assets are doing.

…and that’s it.

Of course, how the assets are doing is the basis for such decisions as how much your organization pays in taxes, how much it owes or is owed, how much profit can be claimed, etc., etc. But it is undeniable that data pertaining to assets is the limit to general ledger information. Naturally, your organization’s CFO team will never, ever admit this, but it is undeniably true. Of the information streams they claim to be able to provide, but can’t, the more prominent include:

·         Project cost performance (their pretending to the contrary is one of the more egregious management science frauds perpetrated on board rooms everywhere)

·         Schedule performance (making a list of objectives with associated dates and person(s) responsible is to schedule management what alchemy is to nuclear physics)

·         Estimates at Completion (EACs)

·         Return on Investment!

Yes, I know that last one will make even the most timid CPA sputter with rage. After all, the claim to be able to calculate that variable on any particular asset (or group of assets) serves as the underpinnings for almost all of their subsequent assertions that they can generate the brass ring of information tidbits, the ultimate definer of good business decisions, or bad ones. And it’s all completely wrong.

The basic formula for calculating ROI is:

ROI = (Gain From Investment – Cost of Investment) / Cost of Investment

so that any asset’s ROI greater than 1.00 is assumed to be a good investment decision, appropriate for pursuing.

Do I have to say it? This is sophistry of Cecil B. DeMill proportions. Except in extremely rare cases, the Gain from Investment (better stated as the anticipated Gain from Investment) variable is impossible to calculate. What was the Gain from Investment on the Titanic’s lifeboats? They were assets to the White Star Line, were they not? Why can’t the suspender-and-bow-tie-clad ones calculate it, then? Because if the Titanic doesn’t sink, the lifeboats have zero value, or even negative value if you take the character Cal Hockley’s assertion from the movie that they were a “waste of deck space on board an unsinkable ship.” However, since the Titanic did sink, then the existing lifeboats were literally invaluable.

And yet, how many business decisions are based on this ROI calculation? Even the Project Management Institute® published books defending the need for creating a Project Management Office (PMO) based on … its Return on Investment! 

How many other allegedly useful information streams are out there that are, in fact, either stretched way past their nominal limits of efficacy, or are out-and-out fraudulent? To find out, you can either stay tuned to this blog, or, if you are impatient, then order my recently-released, must-have book, Game Theory in Management.

In my previous post, I put forth a few reasons why I believe that large parts of risk management theory, as currently practiced, are of relatively little (or even no) value, and the time, effort, and resources devoted to its analysis and output are a complete waste. To completely bury any remaining opposing arguments, I want to delve a little bit into the realm of management information system epistemology – but don’t worry, I won’t get all fancy-smanshy in making my points. After all, that’s the approach the risk managers take all the time, and it makes me crazy.

As I discuss at length in my recently-released, must-have book, Game Theory In Management, while information is the life blood of the organization, not all information is valuable. In order for a given piece of information to have value, it must possess three characteristics:

·         It must be accurate. Inaccurate information is worse than useless – it’s actually misleading.

·         It must be timely. Among competitors, the one with the most timely information will win every match.

·         Finally, valuable information must be relevant.

Okay, Hatfield, you say, the first two bullets are measurable. But how does one know which information streams are relevant, and which aren’t? To make this assessment for any given information stream, you are going to have to purchase my previously-mentioned, recently-released, must-have book. For this blog, though, we only have to evaluate the risk management-flavored information stream.

Management information – especially actionable management information – isn’t free. It requires time and effort to collect raw data, process it into info, and deliver in a readily-understandable format. For project managers, one of the most valuable analyses available is the output from the critical path methodology. Let’s say you are the PM for a construction project, and you have an estimate from your concrete pourers that it will take 20 days for them to finish pouring your building’s foundation. Since the framers can’t start until the foundation is done, you have scheduled them to arrive on-site on day 21. After day 10, however, your scheduler has learned that the concrete pourers are only 25% done. A quick calculation from your CPM-capable software reveals that, at this rate of performance, the foundation will not be finished until day 40. If the framers don’t get a call telling them to not arrive until day 41, they will spend 20 days standing around, unable to do anything other than incur actual costs. Clearly this information is highly relevant, since its unavailability would have lead directly to negative cost variances.

Can risk management methodologies make the same claim? Before we evaluate RM techniques for relevance, let’s do a quick check to see if they meet the other two requirements put forth for information value. Is, say, a Monte Carlo cost and schedule contingency analysis timely? I suppose it can be, so I’ll pass it on that count. Is it accurate? It may or may not be, and this is where a particularly insipid piece of MIS legerdemain is allowed to creep in. If the Monte Carlo analysis happened to quantify a potential scenario that actually unfolded, then the risk managers claim victory. What about all of the potential scenarios that didn’t come about? Shouldn’t they represent system failures? And, if something happens that wasn’t captured in any of the risk managers’ analysis, they just claim it was an “unknown unknown.” Convenient, huh?

Finally, the relevance evaluation. Let’s say in the previously discussed construction project that your customer insisted on a robust risk management program, but didn’t care about critical path scheduling. Since you had access to only one project management analyst, you assigned her to perform a risk analysis. Your framers show up on day 21, but the foundation is only half complete. Your analyst comes to you with one of the following two reports. Which one is relevant?

·         “I know you wanted a complete risk analysis by now, but I’m having trouble with the software. However, I did have a feeling that something like this might happen.”

·         “According to the completed risk analysis, we projected a 34% chance that this would happen, and that the impact would be the cost of the framers having to stand around for 20 days, or $100,000. So, we put $34,000 into the contingency reserve, since that’s $100,000 times 34%.”

If you said that neither of these reports is relevant, go to the head of the class.

And, once you are standing at the head of the class, inform your risk manager that his information is only tangentially accurate, completely irrelevant, and that he needs to go away and stop pestering you. Next up: when to tell your accountant to sit down and shush.

The incomparable Walter E. Williams has written several prescient columns on the topic of the idiocy of raising the minimum wage, and he has furthered several interesting arguments in his criticisms. I think one of his most effective points is that if the minimum wage is $7.25 (USD) per hour (which it is), but any given (usually unskilled) employee is incapable of generating that amount in wealth, then no organization that seeks to turn a profit would ever hire or retain such a one.

According to Salary.com’s Salary Wizard page, risk managers typically earn between $72,033 and $132,106 (USD) per year. Forgive me for being imprudent, but I have to ask:

What does that buy you?

Obviously risk managers do not create that amount in wealth. So what, exactly, do they produce? They produce information. What kind of information? Ahh, there’s the rub. In order for risk managers to lay claim to justifying their salaries (not to mention their offices, computers, overhead accounts, and colleagues having to put up with their statistical jargon-based haranguing), they would have to show that the information stream they generate leads to, if not the realization of that amount of economic wealth, then at least the avoidance of being hit with fines or overruns equal to or exceeding that amount.

Okay, so what kind of information, specifically, do risk management-types provide? (I promise to stop writing as if some unseen person is asking me questions.) Typically, Decision-Tree or Monte Carlo analyses are based on a review of the existing scope, cost, and schedule baselines for a given project. The point of the review is to try to articulate and estimate alternate scenarios to the project execution plan documented in the baselines, and then to estimate the impacts of those scenarios should they come to pass. This fails on several levels:

·         Unless the projected alternate scenarios alter the project team’s response to events unfolding in that manner, they remain nothing but rank speculation. So what if the alternate scenario came about? Other than “I told you so” bragging rights, nothing has improved from the project managers’ point of view.

·         The possibility that something – anything – could go wrong on a project is the typical PM’s ubiquitous consideration. The quantification of this consideration is highly subjective, and adds nothing to the decision-makers’ information base.

·         Consider the risk managers’ own terminology. Events are either “known-unknown,” or “unknown-unknown.” What’s the difference? The former were documented in the risk managers’ analysis, the latter were not. It’s an inherent get-out-of-stupid-analysis-jail-free card. Did we predict it, and it came about? We’re geniuses! Did we predict it, but it didn’t come about? Well, it’s a good thing we at least thought about it! Did we fail to predict it? It was inherently unpredictable!

Now, I understand this sort of pseudo-management science has a vast following, its own ISO standard, a revered place in the PMBOK Guide®, and is entrenched in many guides on how to conduct project management. But a lot of law enforcement bodies employ psychics on major cases, especially when they’re desperate, but that doesn’t make psychics a valid avenue of forensic crime investigation. “Pet Rocks” created quite a sensation in their day, but that doesn’t make common rocks an appropriate object of our attentions or affections.

Risk managers are particularly useless in information technology projects. Will technology change in the middle of your IT project? Probably. Will the scope change, in ways both subtle and profound? Undoubtedly. That’s why Agile and Scrum were developed in the first place. Has your risk manager ever fed you information that tangibly helps mitigate, or even ameliorate, these happenstances? The successful project manager is prepared to respond in a robust manner to the unexpected events that unfold in the course of pursuing her project’s scope requirements. Attempting to quantify the odds and cost/schedule impacts of those things that may or may not go wrong is nothing more than institutional worrying, described in Gaussian terms.

I’m not even close to exhausting my criticisms of the risk management field, as currently practiced. A more complete discussion is contained in my recently-released, must-have book Game Theory in Management (Gower Publishing, 2012). For now, the simple fact remains that the future cannot be quantified. Anyone who claims to the contrary is either engaged in deceit, or in quackery. For that reason alone, you should fire your risk manager.

The other day I made the mistake of surfing over to a popular search engine/ news web site' business page, and read an article about the dangers of using some of the trendy clichés that have become prevalent in the vernacular of the modern office. As with virtually all of the articles that deal with cliché usage, this one admonished readers to avoid them, but not because their usage may lead to misunderstandings, and not because their usage is a clear indicator of lazy or fuzzy thinking. No, this article wanted people to avoid using trendy techno-managerial clichés because – wait for it! – you might not come off well in a job interview.

I have a couple of problems with this, and they both point to a troubling trend in articles that are putatively about how to manage better. My first problem is with the original subject line of the piece. From a writer’s point of view, taking on excessive cliché usage is (ironically) in and of itself a cliché.  But, for all the nose-upturning towards the linguistic hoi polloi out there repeating pat phrases ad nauseum, the simple fact of the matter is that clichés can convey specific meanings, often in ways far more efficient than their more verbose, complete cousins. They only become useless (and then straight on to highly irksome) when overuse leads to the blurring of their original reference or meaning.

Take (as this writer did) “It is what it is.” Bill O’Reilly himself sneered at this phrase, on his top-rated cable news analysis show, no less. Consider what I believe to be the more complete definition of this phrase:

The (person, concept, asset, thing) we are discussing is not changing, and, if we are counting on it doing so, then we will fail. We had better evaluate our future alternatives in light of this unchanging parameter.

Hmmmm. Five words versus thirty-seven. If for no other reason than sheer expediency, one would believe that “It is what it is” would not receive such sneering condemnation. Now, I must admit that one of my friends, a brilliant and capable project manager, tends to use this phrase often. The problem with this fellow is that, genius that he is, he was raised on a farm/ranch in Oklahoma, and he has this Oklahoma accent going that makes him sound like he fell off of the grunion truck yesterday (you thought I was going to say “turnip truck,” didn’t you? Well, I can’t, because that would be a cliché, and might anger certain business writers!). I and some of his other friends recommended he use the Latin version, Id eccum id ecca, in an attempt to sound more sophisticated. Alas, not even Latin spoken in an Oklahoman accent sounds sophisticated.

Another undeserving target is the phrase “going (gone) viral.” Allow me to take another stab at this phrase’s more complete meaning:

The (person, concept, asset, thing) we are discussing has received more exposure, attention, and acceptance than anyone could have expected beforehand, based on its relative merits. It is now so common as to be nearly ubiquitous.

An even more complete description of the phrase would have to include a brief discussion of Metcalfe’s Law. As I discuss in my recently-release, must-have book Game Theory in Management (Gower Publishing, 2012), Metcalfe’s Law deals with a characteristic of networks also known as the Butterfly Effect. In essence, Metcalfe’s Law posits that the power of networks grows exponentially as the number of connections between its nodes increases, but this also increases the network’s vulnerability to cascading events, or episodes of small changes to a limited number of network nodes leading to large, or even catastrophic impacts to large segments of the network removed from the initially small changes. The “viral” in the phrase “going viral” refers, of course, to a disease organism, which can potentially be transmitted to a large population through very few initial carriers. But using the dreaded cliché “going (gone) viral” negates the need for the discussion contained in the entire preceding paragraph. People who have no idea of any aspect of network theory, much less Metcalfe’s Law, know in an instant what is being communicated when that phrase is invoked.

Which brings me to my heartburn with the ultimate point of the original article, the idea that, if you don’t do as the writer recommends, you will somehow suffer in a job interview. Many articles have been published around this theme, mostly along the lines of Human Resource directors spilling their deeply-held secrets about who does or does not get job offers. These sub-rosa decision criterion almost always turn on what most would consider trivial aspects of the candidate’s resume, dress, or demeanor. It should go without saying that focusing on such trivial aspects of employment candidates, instead of their capacity to generate or protect more wealth than their salaries, dooms the organizations these HR geniuses work for to an inevitable, but well-dressed, demise, clichés and all. From a business writer’s point of view, it’s a cop-out. It’s a defense of an arbitrary and capricious practice, based on nothing that could remotely pass for “management science,” but dressed up in such a way as to present as helpful information for the reader. Yeah, showing up for an interview and using clichés might come off poorly – so does being overly verbose while answering direct questions, and the selection of linguistic approach depends on the circumstances.

So, yeah, managers and projects fail. So do business writers.