Game Theory in Management

As I wrap up my month-long eye-roll on the subject of “green” project management, I must admit that the people at Gantthead have been very good sports about my playing the role of curmudgeon. But, since they have given me this amount of latitude, I’ll go ahead and test their patience just a bit further:  virtually all projects that result in an advance in technology or improvement in people’s lives are automatically green.

Of course, that assertion flies in the face of the enviro-wacko crowd, who insist that anytime “nature” is encountered by man, “nature” comes out on the losing end.  Incidents such as my previously-blogged-about saving of the whales by Rockefeller and Standard Oil, or even little things like spotted owls building nests in K-Mart signs, somehow escape them.  Early in my career I worked at the Trestle EMP Test Site at Kirtland Air Force Base in New Mexico. The Trestle was (and perhaps still is) the world’s largest all-wood structure. It was designed to provide a platform for testing the effects of Electro-Magnetic Pulse on aircraft while the planes were in-flight. Since a potential effect of an EMP on an aircraft was to render it un-flyable, the Trestle was constructed so that planes could taxi from a nearby runway and onto the “hot pad,” which was about five stories above the floor of Tijeras Canyon. There it could be bombarded by simulated EMPs without the ground interfering with the collected test data, and without any aircraft actually tumbling out of the sky.

Naturally (get it?), local environmentalists hated the whole project, dealing, as it did, with radiation research. Nevermind that the radiation involved was radio-frequency, and the site didn’t introduce any more radiation into the environment than a radio transmitting tower – this was radiation, and it therefore had to be detrimental to “the environment.”  Only problem was – “the environment” didn’t agree. A family of great horned owls set up a nest beneath the hot pad, and proceeded to raise a few generations of great horned owl chicks. Those had to be the most closely monitored non-endangered birds in history. Trestle project opponents just knew that the birds’ health was endangered. But the data never supported that supposition.

Consider the progression of the fuels mankind has used over the ages. Tribal through feudal civilizations burned wood for heat and cooking. Of course, wood comes from trees, so as the demand for energy increased, more and more trees had to be harvested. Also, wood produces far more smoke for far less realized energy than…

Coal came into widespread use at the advent of the Industrial Revolution. It was already supplanting wood as a heater of homes in London in the 1800s, but it was also preferred over wood for the running of steam locomotives.  A given quantity of coal has twice the BTUs of the same amount of wood, while emitting less ash into the atmosphere when it’s burned. Of course, coal is more difficult to extract than trees are to harvest, but the overall pattern was clearly pointed towards supplying greater energy demands with a smaller impact to “the environment,” which brings us to…

Fuel oil contains 115,000 BTUs per gallon. There are 365.5 gallons per ton of the stuff, meaning that fuel oil has almost twice the energy of coal by weight while, again, releasing fewer contaminants into the air when it’s burned. By now even the senior executives at Greenpeace should be able to pick up a pattern, a pattern which continues to manifest as we move from oil to natural gas to nuclear energy. The fuel becomes more difficult to extract, but it produces much, much more energy for fewer quantities of waste products. Note that none of these transitions happened because protecting “the environment” was a universal goal. They all came about as mankind advanced technology and searched for more efficient ways of meeting escalating energy demands – “the environment” benefitted every single time such a transition took place. In fact, the only way that the argument that mankind’s energy use is harmful to the environment can be supported is if we look to history, when energy technology wasn’t as advanced as it is now, and compare those circumstances to today’s. We may find the descriptions of a coal smog enfolding cold Londoners of the 1890s to be distasteful, but London of 1890 was a far better place to live than London of 1590, and for reasons that go far beyond preferred energy usage.

And what drives this search for advanced technology? What Edward Bulwer-Lytton, First Baron Lytton coined as “the almighty dollar.” History’s energy barons weren’t trying to improve the environment – they were trying to get rich supplying a population’s energy needs, and the natural world around them improved as a side benefit. It appears Adam Smith was more right than he realized: each person pursuing their unique economic interests not only benefits the macro economy – he also improves the environment. The (US) dollar is green, too.

The Luddites were a group of anti-industrialists, active mostly during the early 1800s. Alarmed by the way in which advances in technology allowed relatively unskilled workers using machines – primarily looms – to replace the work of skilled artisans, all with greater output and lower costs, they set about destroying the machines used in production.

The Industrial Revolution began around 1750. At that time, life was, as Thomas Hobbes put it, “nasty, brutish, and short.” Life expectancy for an English man was 31 years – and England was then, as now, one of the best places on Earth to live. Two-thirds of all babies born did not live to see their first birthday. Prior to 1750, virtually all members of the populace worked in agriculture, with next to none in what we would term “industry.” It was, I would imagine, very close to what many “green” protestors would project as an idyllic setting. Flash forward to 1900, the green’s nightmare. Smoke stacks dot the horizon, belching smoke into the air, making textiles, consumer goods, weapons. However, the life expectancy has jumped 14 years, and only 15% of babies die in infancy. Not only that, but England’s population swelled, from 7 million in 1750, to 37 million in 1900. The standard of living had a commensurate advance, too.  In 1750, travelling across the Atlantic was fraught with peril. By the beginning of the 20^th century, the only way such travel was even potentially fatal was if your ship happened to run into an ice burg, and even that was considered extraordinarily rare. Many other examples abound, but I’ll go ahead and state the obvious: if the anti-industrial, anti-technology efforts of the Greens were to reach their logical conclusion, life would return to being nasty, brutish, and short. But at least the snail darters would thrive!

How is it, then, that green protestors so quickly assume – and are so gratuitously granted – the intellectual and moral high ground when they seek to protest a given project? The highly irksome tendency of the greens to lay claim to the intellectual crown when they select a project to protest is particularly absurd, committing, as they do, the Luddite Fallacy, and in dramatic fashion. History shows, time and again, that advances in technology produce advances in life expectancy and quality of life, and those societies that, for whatever reason, eschew or cannot attain or integrate advances in technology, quickly become very unpleasant places to live. And yet, there go those green protestors, attracting media coverage and making your project look like you are harming someone, somewhere – exactly how is never clearly spelled out. It has something to do with greenhouse gasses, or animal experimentation, or deforestation, or something, right?

If you are the manager of a project that has drawn the attention and subsequent ire of green protestors, your life has just become much more difficult. Being gracious or reasonable with these people is a fool’s errand. They are famous for using unusual, confrontational tactics, and their goal is to force your project to fail. Not cost more, not be delayed – abject failure, even as they go about making your project more expensive and inflicting delays. It’s either your project team or the greenies, and part and parcel of the PM’s job is to make sure your project team comes out ahead if you find yourself in this situation.

Of course, I’m not advocating that anyone do anything illegal; but, if the other side can push the limits, why can’t your project team? Say your project is in the crosshairs of the animal rights crowd, or even PETA itself. What’s the harm in finding out if it’s illegal to round up a few dozen rats, and release them into the protestor crowd 15 minutes into their bullhorn-communicated rabble-rousing? These people love rats, right? You would be doing them a favor.

Naturally (get it?), that tactic requires your project’s opponents to come out into the open, and try and state their case. But what happens if, say, Harrison Ford has “one acre” of his chest hair removed, via waxing, no less, to “call attention” to deforestation, as Access Hollywood reporters look on? There’s really nothing you can do, other than revel in the irony of LucasFilms dropping its plans for a 269,000-square foot studio in Marin County, California, because of opposition from “green” leaders. George Lucas, as is widely known, is the main reason anyone knows Harrison Ford in the first place, having cast him early in his career in American Graffiti, and then his break-out role in Star Wars. Who is the Harrison Ford of this generation, whom LucasFilms was poised to make insanely successful, had they only been able to build their studio? Whoever he is, he may prove to be lucky, having been spared the fate of being rich and famous, but idiotically misguided in adopting extra-professional causes to promote.

In short, if your project has green protestors, don’t accommodate – overcome.

A staple of “green” management is that any project that tends to kill off significant numbers of animals – even animals that are dangerous, or ones nobody has ever heard of, like Great White Sharks or Snail Darters – is inherently bad. This, of course, raises the question if the converse is true, that projects that tend to save animals’ lives – particularly endangered animals – should be considered good, or at least green.

In Star Trek IV, The Voyage Home (Paramount Pictures, 1986) the officers of the recently-destroyed U.S.S. Enterprise go back in time in a Klingon star ship in an attempt to reintroduce humpback whales into the Earth’s ecosystem, since whales are extinct in the 23^rd Century. Of course, our heroes succeed, and the world’s cataclysmic end, set in motion by those ignorant, un-green humans of previous centuries, has been averted. Great news, right?

A couple of problems. First, in real life, the whales’ populations have been increasing steadily since 1950. The International Whaling Commission, as sensitive as they are to any possible injury to whales, is estimating that the humpback whale population has been increasing by 10% per year for decades, and the species is nearing its pre-hunted (“unexploited”) population rapidly. Barring the sudden onset of some widespread, massively self-destructive behavior, such as spending time trying to “Keep Up With The Kardashians,” the humpback population should certainly be robust enough to respond to any future rocky, cylindrical alien probe sent to communicate with them, but ends up filling the planet’s skies with humanity-threatening thick clouds instead.

So, why are the whales doing better? In Paul Soloman’s Public Broadcasting System-sponsored blog, “The Business Deck,” he spent a bit of space attempting to overturn the “Whale Oil Myth.” This “myth” is that, when kerosene became plentiful and cheap, it was simply no longer economical to hunt whales, whose main retail product was the whale oil that lit the streets of Europe and the eastern United States for decades.  As part of his attempt to perform this overturning, he includes the following table:

By 1850 a consumer had a choice of:

* Camphene or "burning fluid" -- 50 cents/gallon (combinations of alcohol, turpentine and camphor oil - bright, sweet smelling)
* whale oil -- $1.30 to $2.50/gallon
* lard oil -- 90 cents (low quality, smelly)
* coal oil -- 50 cents (sooty, smelly, low quality) (the original "kerosene")
* kerosene from petroleum -- 60 cents (introduced in early 1860s)

The implications here should be obvious, even by PBS analyst standards. If kerosene, which performed the function of fueling lamps better than whale oil could, was available from half to one-quarter of the cost of whale oil, then the whaling industry was doomed. Soloman goes on to offer up some truly strange analysis, such as the amount of whale oil harvested in a given year, divided by the Earth’s human population (???), in trying to assert that the availability of abundant supplies of cheap kerosene did not save the whales, but they fall comically short. Clearly, it was kerosene that replaced the demand for dead whales and their oil.

So, where did the kerosene come from? John D. Rockefeller began working in the oil business in 1866. By 1890, his Standard Oil represented 90% of all American petrochemical production. Strangely enough, Standard Oil is not known for being “green” – quite the opposite, in fact.  Oil companies in general are widely believed to be bandit-like polluters, even if a large number of dead animals can’t be laid at their doorstep.

So, which industry is causing widespread wild animal destruction? The Wildorado Wind Ranch, outside of Amarillo, Texas, sits on 16,000 acres, and generates enough electricity to meet the demands of 50,000 households, Unfortunately, the blades of the turbines tend to kill a large number of migratory birds, to the point that the farm is colloquially known as a “bird Quisenart.” How many birds is the topic of some debate; but, by contrast, the Public Service Company of New Mexico’s San Juan Power Plant, fired mostly by coal, provides power to 40 times the number of customers, without killing off a large number of any animals whatsoever. Just as with Standard Oil, PNM will never receive the credit it deserves for being “green.” They are, in fact, the target of a supposedly green advocacy group’s PR campaign, attempting to portray them as decidedly environ-unfriendly.

But I’m wondering … is that right?

Our August theme is Green Project Management, which presented quite a problem for me. While I’m a big fan of the latter, I’m highly skeptical of efforts to further the former. In short, I’m fairly sure that much of the so-called Green industry is based on bad science and what Nassim Taleb referred to as “flawed tools of inference;” yet, “going green” certainly seems to be the rage within management circles these days. I’d like to add a bit of perspective.

On November 15, 2005, the late Michael Crichton presented a talk sponsored by The Independent Institute in San Francisco, entitled “Fear and Complexity: State of Fear + Why Politicized Science is Dangerous.” One of his best (in my opinion) examples of how “scientists” and “experts” can get the notion of advancing or bettering the state of a given environment horribly wrong, and be extremely slow in not only recognizing the error, but ceasing their damaging efforts, had to do with Yellowstone National Park.

Back in the 1890s it was commonly believed that elk were endangered, so their Yellowstone populations were fed and encouraged. At the same time, predators known to attack elk were hunted or driven away from the park. What happened next was entirely predictable: the elk population exploded, to the point that, in 1915, former president Theodore Roosevelt urged a “scientific study” based on his concerns of the dramatically increased elk population. He was ignored as the Park Service continued to encourage the elk. Soon the pastures were over-grazed, driving away the deer and antelope. The elk, having consumed all available grasses, turned to aspen bark, the nominal sustenance of beavers. When the beaver population dropped, they stopped building dams, and, when that happened, the fish populations were impacted as well, since they depended on beaver dam-created pools to spawn. When the fish and beaver population dwindled, the bear population plummeted. Since bears were also predators on elk, the elk population continued to expand as yet another predator was virtually eliminated.

At the same time, lightning-caused fires were contained and put out instead of being allowed to burn. This led to massive amounts of dried pine needles and branches falling onto the forest floor, creating a layer of dense fuel close to the ground. When a large-scale fire finally broke out, as it did in 1988, the amount of fuel and its proximity to the ground led to the blaze becoming so hot that it destroyed virtually all of the organic matter in the soil, rendering it sterile.  Much of these areas still haven’t recovered.

The problem here, of course, is that the Park Service was attempting to manage a hopelessly complex system, and they either did not recognize it as such, or, having recognized it, arrogantly assumed they nevertheless knew best how to handle it.

Now, flash forward to today’s “green” initiatives. One of their more irksome manifestations is in their indoctrination of students into their take on the impacts of every-day industry (read: management) on the environment. One of my younger son’s friends attending a public high school was informed that, for every molecule of chloro-fluoro carbons that escapes into the atmosphere, one square inch of the Earth’s ozone is destroyed. I laughed out loud, but it was clear my son’s friend took this “fact” very seriously. So, I did the numbers.

There are a little more than 4 billion square inches in one square mile (4,014,489,600).  The Earth is almost 197 million (196,939,900) square miles.  Based on the public high school earth science teacher’s ratio, it would take almost 791 Quadrillion (790,613,180,375,040,000) molecules of CFCs to completely destroy the Earth’s ozone layer.  Daunting, no? So, what would it take to push into the Earth’s atmosphere that number of CFC molecules? Well, there are 7.5 * 10²⁴ molecules in 8 ounces of water. A can of car refridgerant – which, back in the 60s and 70s, contained R-13, the ultimate villain of CFC introductions, don’t you know – sells at my local AutoZone for $49.99 (USD) for 20 ounces (and thanks a heckuva lot for that, “green” managers!). If there were a similar number of molecules of CFC in the 20-ounce can than there are of H2O in 8 ounces of water, one shade tree mechanic, by mis-applying the special car air conditioner input nozzle into his 1975 AMC Gremlin, and venting the entire contents to atmosphere, could have destroyed the Earth’s ozone more than 9 million times over. According to the earth “science” teacher’s ratio, of course.

There are actually studies that show that, when you take into account the environmental impact of procuring and transporting the materials needed for construction, a big ol’ V8 Hummer will have a smaller carbon footprint over its expected life cycle than a Chevy Volt.  So, to all you Leaf drivers who refuse to get out of the passing lane when my Cadillac DeVille’s Northstar engine wants to go blasting past you – save your smug “I’m saving the environment” looks for people who don’t know better.

Time and time again, what conventional wisdom – or even “consensus” science – proclaims to be beneficial to the environment turns out to have the exact opposite impact. The overall environment is simply too complex to know with certainty what a particular course of action’s end result will be, and that includes green project management actions.

Or am I wrong?

When the US Department of Energy first came into existence, their guidance on performing project management was pretty much the same as the rigorous version used by the Department of Defense. However, it didn't take long for those requirements to get watered down via DOE Order 4700.1 and 4700.5, which implemented a so-called "graded approach." This graded approach spelled out the circumstances under which certain projects could opt out of certain aspects of the project management requirements, based primarily on the complexity and risk profile of the specific project. As soon as the new requirements came out -- wouldn't you just know it? -- a whole bunch of projects that had previously been considered appropriate for complete PM implementation were suddenly asserting that they were, actually, very simple, with low risk profiles! A veritable avalanche of arguments against projects having to comply with the complete set of PM requirements ensued, the vast majority of which were completely bogus. I was even involved with a project where the project manager sought to have his project renamed as a program, since programs, per se, were not required to obey the previous rules, only projects.

Flash forward to the Summer of 2009. Based on the release of my first book Things Your PMO Is Doing Wrong (PMI Publishing, 2008), I had been invited by PMI®’s Information Technology Special Interest Group to do a webinar on the difficulties of performing traditional project management techniques in an IT environment. The webinar, entitled “Stop Those Divorce Proceedings! Performing Earned Value Analysis in an Agile/Scrum Environment” was well-received, but I came across some disquieting factoids while I was doing my research. Of course, the frequency with which software projects come in over-budget and late is such that poor performance against their baselines had already become axiomatic. But, since 1986, when Hirotaka Takeuchi and Ikujiro Nonaka  published the seminal work that would form the basis for Agile/Scrum project management, the efforts to streamline project management to rid it of its more restrictive aspects in order to make it useful in an IT environment has led to a few “graded approach” moments which, in turn, threaten to return software projects to their days of persistent overruns and delays.

Take, for example, the aforementioned use (or lack thereof) of Earned Value Management Systems in IT projects. There is a myth, perpetrated by those who don’t like or understand project management in general and Earned Value in particular, that EV “requires” the existence of highly-accurate time-phased budgets, known in the EV world as “Planned Budget,” or, for us old-timers, the Budgeted Cost of Work Scheduled. Without these well-estimated and time-phased budgets, say the ignorant resistors, all subsequent Earned Value analysis is rendered useless. This lie is tailor-made for those who seek to avoid having to do any PM at all by asserting the Agile/Scrum approach. When, they ask, we are in the middle of a scrum, and the scope baseline has been changed and approved, does anyone have time to perform a bottoms-up estimate of the new scope? Isn’t that why Agile/Scrum was invented in the first place – to avoid software development teams having to stop work to formally reset the baselines in order to comply with some stodgy, old PMBOK Guide®-recommended requirement? Surely it’s best to eschew (actually, these Visigoths would never use a word like “eschew,” but hang with me) all Earned Value Methodologies for this work, and subsequent projects like it!

The truth here is that Earned Value does not need a highly-accurate time-phased budget to return extremely valuable management information. In fact, in those instances where the work has been woefully mis-estimated, Earned Value is the best analysis to uncover the error. Say you had a task that has been estimated to cost $100,000 (USD), but the more appropriate cost estimate would have been twice that. The task gets underway. At the end of the first reporting cycle, your project controls analyst asks your overall percent complete, and you inform her that it’s about 25%. However, your project controls analyst collects your actual costs, and they come in at $50,000. Using the traditional formula for calculating an Estimate at Completion, :

EAC = (BAC / CPI)

where BAC is the budget at completion ($100,000) and CPI is the Cost Performance Index (Earned Value divided by Actual Costs; in this example, 25,000 divided by 50,000, or 0.5), she instantly knows that this task will most likely cost $200,000 – which is what a perfectly prescient estimator would have known beforehand.

Okay, but what does this have to do with Agile/Scrum, and costing the change that was introduced in the middle of the last Scrum? The previously shown formula can be algebraically reduced to:

EAC = ACWPcum / % Complete

where ACWPcum is the cumulative amount spent on the task. In the example, $50,000 divided by 25% also produces the $200,000 amount. Simply ask the Task Manager to estimate his percent complete based on the expanded scope, and divide that figure into the altered task’s cumulative actual costs, and you have the new estimate, ready to plug into the cost baseline.

This is but one example, but there are many others where traditional PM techniques may be compromised safely, and others that cannot. How to differentiate? For that, the insightful reader will want to order my recently-released, must-have book, Game Theory in Management, and I look forward to y’alls’ comments.