Quotation: the mind is an argument

The mind is not a single voice but an argument, a chamber of competing voices, and a [problem] occurs when we listen to the wrong side

Jonah Lehrer

If you don't believe this, read "Against the Gods", "How we decide", or "The irrational economist".



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Prospect Theory: Decisions under Risk

Daniel Kahneman and Amos Tversky may be a project manager's best friends when it comes to understanding decision making under conditions of risk. 

Of course, they've written a lot good stuff over the years.....my favorite is "Judgement under uncertainty: Heuristics and biases".  You can find more about this paper in a posting about the key points at HerdingCats. 

The original prospect thinking
Tversky and Kahneman are the original thinkers behind prospect theory..  Their 1979 paper in Econometrica is perhaps the best original document, and it's entitled: "Prospect Theory: An analysis of decision under risk".  It's worth a read [about 28 pages] to see how it fits project management

What's a prospect?  What's the theory?
 A prospect is an opportunity--or possibility--to gain or lose something, that something usually measured in monetary terms.

Prospect theory addresses decision making when there is a choice between multiple prospects, and you have to choose one.

A prospect can be a probabilistic chance outcome, like the roll of dice, where there is no memory from one roll to the next. Or it can be a probabilistic outcome where there is context and other influences, or it can be a choice to accept a sure thing. 

A prospect choice can be between something deterministic and something probabilistic.

The big idea
So, here's the big idea: The theory predicts that for certain common conditions or combinations of choice, there will be violations of rational decision rules. 

Rational decision rules are those that say "decide according to the most advantgeous expected value [or the expected utility value]".  In other words, decide in favor of the maximum advantage [usually money] that is statistically predicted.

Violations driven by bias:
Prospect theory postulates that violations are driven by several biases:

• Fear matters: Decision makers fear a loss of their current position [if it is not a loss] more than they are willing to risk on an uncertain opportunity.  Decision makers fear a sure loss more than a opportunity to recover [if it can avoid a sure loss] 
• % matters: Decision makers assign more value to the "relative change in position" rather than the "end state of their position"
• Starting point matters: The so-called "reference point" from which gain or loss is measured is all-important. The reference point can either be the actual present situation, or the situation to which the decision maker aspires. Depending on the reference point, the entire decision might be made differently.
• Gain can be a loss: Even if a relative loss is an absolute gain, it affects decision making as though it is a loss
• Small probabilities are ignored: if the probabilities of a gain or a loss are very, very small, they are often ignored in the choice.  The choice is made on the opportunity value rather than the expected value.
• Certainty trumps opportunity: in  a choice between a certain payoff and a probabilistic payoff, even if statistically more generous, the bias is for the certain payoff.
• Sequence matters: depending upon the order or sequence of a string of choices, even if the statistical outcome is invariant to the sequence, the decision may be made differently.

Quick example
Here's a quick example to get everyone on the page: The prospect is a choice [a decision] between receiving an amount for certain or taking a chance on receiving a larger amount.

Let's say the amount for certain is $4500, and the chance is an even bet on getting $10,000 or nothing. The expected value of the bet is $5,000.

In numerous experiments and empirical observations, it's been shown that most people will take the certain payout of $4,500 rather than risking the bet for more.

The Certainty Effect: Tversky and Kahneman call the effect described in the example the "Certainty effect". The probabilistic outcome is underweighted in the decision process; a lesser but certain outcome is given a greater weight.

The Reflection Effect: Now, change the situation from a gain to a loss: In the choice between a certain loss of $4,500 and an even bet on losing $10,000 or nothing, most people will choose the bet, again an expected value violation. In other words, the  preference....certain outcome vs probabilistic outcome...is changed by the circumstance of either holding onto what you have, or avoiding a loss.

These two effects are summarized in their words:

....people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty. This tendency, called the certainty effect, contributes to risk aversion in choices involving sure gains and to risk seeking in choices involving sure losses.

Other Effects:  There are two other effects described by prospect theory, but they are for Part II....coming soon!

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The process guys

Rather than make the trains run on time, it may be more beneficial to do away with trains!

Anonymous

To which I add my own:

Efficiency is a matter of getting the most outcome for the least effort. Effectiveness is getting valuable outcome for every effort applied. Value-add is effectiveness achieved efficiently!

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Programs and Projects

Greg Githens has a post on programs and projects that has a nice comparison of the mindset and objectives that go with each.

I'll pick on only two points:

• Greg draws a distinction between outputs and outcomes [that's good, and see my earlier posting on this], ....but then he puts 'outputs' in the projects column and 'outcomes' in the programs column. I would put it this way: all successful projects produce outputs that beget outcomes, else there is no benefit stream to offset the investment in the outputs.  Without benefits, a project is really not successful at the business level. [See: "New Coke"]
• He says project objectives are tactical and program objectives are strategic: Well, it depends on the project doesn't it? An ERP project is certainly a tactical achievement, but it's often justified on its contribution to strategic business performance and capabilities, especially capabilities directed to customers.

Greg makes two points I especially like:

• Projects regard “risk” as a threat that will undermine performance. Project mangers focus on reducing uncertainty. Programs regard “risk” as an opportunity that brings with it threats and obstacles that will be managed. Program managers focus first on managing ambiguity and then on managing uncertainty.
• Projects are typically led by people who have good knowledge of the technology and system.  Programs are typically led by people who appreciate the politics and culture as well as the technology. Stated differently, they tend to function more as executives than as technocrats.

Greg cites the NASA space shuttle as an example of a program. NASA agrees: From their website on program management, NASA states:

Program management lies between strategic planning and project management, since a strategic plan proposes programs that the organization will undertake. Each program is made up of several different projects. For instance, the Pioneer program included over a dozen spacecraft, ranging from simple test craft like Pioneer 4 to deep space probes like Pioneer 10, the first spacecraft from Earth to head on an interstellar journey

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Earned value reform

Earned value management [EVM] reform is in the air--actually, it's been in the air for some time with effort in Congress to correct some of the problems, as reported by Glen Alleman and Paul Solomon.

In the Nov/Dec 10 online edition of the magazine Defense AT&L, Paul Solomon reports on initiatives to close three big gaps in the ANSI-EIA 748 standard on earned value in an article entitled "Earned Value Management Acquisition Reform"

[Note to reader: Paul Solomon is one of the co-authors of ANSI-EIA 748 and maintains a website on performance based earned value at pb-ev.com]

By Solomon's reckoning, the gaps to be closed are these:

Quality gap: There is no explicit provision to measure quality achievement--or short comings--in the formulation of a claim for earned value by a cost account or work package manager.

Technical performance gap: Although all technical projects have some kind of a technical performance objective and most have some sort of time-phased technical performance achievement plan, again the EVM system is not required to take achievement objectives into account explicitly. 

Solomon believes that the fact that '748 is work oriented [work: the schedule] and not also product oriented [product: the WBS] leaves both quality and TPM--these more generally associated with product than work--in the shadows.

Risk management gap: Solomon says this: "The 32 guidelines in ANSI/EIA-748 fail to address the integration of risk management with EVM".  Among others, the standard provides no guidance for risk-adjusting EVM's linear equations used to calculate forecasts.

Other EVM problems

Here's the other problems, according to information quoted by Solomon: "DoD has reported that EVM, based on the earned value management standard, no longer serves its purpose", and about that standard, Solomon says: "EVM is still recognized as an international, commercial best practice, but ANSI/EIA-748 has been largely ignored by commercial companies. When there is no government mandate to use EVM, the Project Management Institute (PMI) Guide to the Project Management Body of Knowledge (PMBOK® Guide) is a widely used standard for project management."

PMBOK® Guide?

Well, the PMBOK® Guide may be the go-to for non-Defense projects that employ EVM, but it's been my experience of two decades using EVM in DoD programs and then more than a decade in commerical IT that few non-Defense projects use any version of EVM, especially backoffice IT projects.  And it's not because there's no government mandate. But if they want EVM, and if they went to the PMBOK® Guide, they'll find it's a subset of '748 that simply leaves out some of the process and reporting that weighs down '748. 

PMBOK® Guide has gaps

Solomon asserts that the PMBOK® Guide has started down the road to integrate risk, TPM, and quality with EVM.

I don't agree.

In spite of what Paul says in the article and on his website, neither the PMBOK® Guide or the companion PMI Practice Standard for Earned Value Management directly address the three gaps.  The fact that TPM, Risk Management, and Quality are all addressed under the same cover, and TPM appears as a practice in Quality Management and Risk Management does not integrate these practices with EVM. 

Indeed, in Chapter 7 on cost management where the PMBOK® Guide discusses EVM--an improvement over its earlier positioning as a communications tool buried in Chapter 10--the PMBOK® Guide says the measure of earned value is based on work completed.  There is not a hint that product quality and performance should be considered.  To be sure, in Chapter 8, work performance and quality are tied together, but it's a reach to then tie that connection to Chapter 7.

And, although there are dotted planning lines from 'cost' to 'quality' knowledge areas, there are no such to risk management. 

In short, the PMBOK® Guide is not currently the answer to the three big gaps.

Managers should step up:

When I do DoD programs, I set up a performance review board to evaluate and approve claims of EV from the WP and CA managers.  It's the job of the board to hold the EV claimants accountable for TPM, quality, and risk.  Done right, the standard can work.

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ISO 31000

I was drifting through the final draft of ISO 31000 looking for nuggets. [Found none]
This is the ISO's first of three documents on Risk Management. Still to come:

• ISO 31000: Principles and Guidelines on Implementation
• IEC 31010: Risk Management - Risk Assessment Techniques
• ISO/IEC 73: Risk Management - Vocabulary

If you're interested in seeing what these documents might mean to your project if adopted, you can get copies at an interesting site:  "pdf search engine.com"

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Boots vs process

Since it's November, I'll return one more time to the November Harvard Business Review that has an interesting set of articles on military leadership.

In an article entitled "Which of These People Is Your Future CEO?: The Different Ways Military Experience Prepares Managers for Leadership", authors Boris Groysberg, Andrew Hill, and Toby Johnson make the following observations...paraphrased for PM:

Where there are highly integrated complex systems for which consequences are difficult to predict or control if managers and do'ers go "off book", process is king.  Everything is 'by the book'.

Where there are close encounters in local situation with local tools and capabilities, more or less self contained, then agile, evolutionary, and even emergent responses may be the best approach, indeed the required approach.

The Air Force and the Navy more often encounter the former: in general their officers highly value process; the Army and Marine Corps are more often in the the latter situation with 'boots on the ground', and they value personal initiative and local maneuver.

The authors say this:

To generalize, Navy and Air Force .... take a process-driven approach to management; personnel are expected to follow standard procedures without any deviation. This allows the [them] to excel in highly regulated industries and, perhaps surprisingly, in innovative sectors. Army and Marine Corps .... embrace flexibility and empower people to act on their vision. They excel in small firms, where they are better able to communicate a clear direction and identify capable subordinates to execute accordingly

On a lighter note:

As one former Army captain, a combat veteran of Operation Iraqi Freedom, put it: “Misplace a bolt in the Army and you might have a broken-down truck. Misplace a bolt in the Navy or the Air Force, and you might lose a $100 million piece of machinery

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Lean and spiral

I was doing some research on my class in risk management and I happened upon a post by Bernie Thompson on Barry Boehm's spiral model that had a new twist [no pun intended].

Thompson shows us this diagram:

 It's a take off on agile, lean, Deming's PDCA, and Boehm's spiral. 

You enter the spiral from the top left and go clockwise.

Obviously, you have to pass by the customer after every test....presumably this really means pass by the customer after every tested object is ready for customer application, evaluation, or go-live.

In any event, this diagram nicely captures the agile of idea of customer envolvement and a somewhat evolutionary outcome.

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Admiral Thad Allen on leadership

In the November 2010 issue of the Harvard Business Review, there is an interview with Admiral Thad Allen, the recently retired Coast Guard commandant and the "National Incident Commander" for the Gulf oil spill.

Entitled "You have to lead from everywhere", it's a good read for those interested in how an experienced manager with a proven track record approaches different situations under different degrees of urgency and stress.

Interviewer Scott Berinato took the title from a reply Allen made to the question: "In a major crises...do you think it's more important to lead from the front or from the back?", to which Allen replied: "You have to lead from everywhere".

Mental models
Here's the point that struck me: Allen says he approaches every assignment with a number of different mental models of how command might be exercised....Allen is an admirer of Peter Senge, noted MIT advocate of mental models....and may change models as events unfold.  In many situations he has faced, he states that the chain of command model simply doesn't exist!

OMG! No chain of command?!

What he's saying is that in some situations there is no single manager is in charge.

OMG! No one in charge?!

But, Allen can work this way and make it effective. He calls for "unity of effort" rather than "unity of command"

Unity of Effort vs Unity of Command
Allen makes a very interesting distinction in those cases where the organizational model simply does not converge....parallel lines rather than a pyramid, or multiple pyramids with a loosely layered level of federation and coordination:

In what I would call a “whole of government response”—to a hurricane, an oil spill, no matter what it is—that chain of command doesn’t exist. You have to aggregate everybody’s capabilities to achieve a single purpose, taking into account the fact that they have distinct authorities and responsibilities. That’s creating unity of effort rather than unity of command, and it’s a much more complex management challenge.

Admiral Thad Allen, USCG [Retired]

Program management lesson
So, what's the program management lesson here? Well, of course, the lesson is right in the word 'program' that implies multiple projects ostensibly working toward a common objective.

And, of course, the objective may change, forced by unforeseen events.

And if some of the effort is in the government, and some is in contractors and NGO's, and even within the government there are state and federal, or USA and ROW, there's a lot to be learned by studying the methods Allen has championed.

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It's cultural!

A recent student of mine in risk management had this to say about risk management as a contractor working abroad:

....the most challenging factor is the cultural:
- Locals do not value risk management at the same level.
- Regulations are more flexible and international standards are not necessarily enforced\followed
- Stakeholders tendency to be more risk-takers.
- Misunderstanding of the role of Risk Management across the projects and its benefits

Unfortunately, this is not an uncommon refrain. In fact, the tension between stakeholders and the project team arises from different biases, different anchor points, and different metrics to which they are held accountable.

As a general rule, my observation is that stakeholders tend to underestimate project risks...thinking there is enough time for things to work out...and PM's overestimate risks....too much knowledge about too many things that all seem to add coherently rather than randomly

If you've read my posts on "the project balance sheet", you'll understand where I'm coming from

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Wanna be a PM?

I had a recent post on attributes to look for in a Project Executive. Now comes Mike Clayton with a nice list of 15 ideas about "how do I become a project manager?"

I like the list because for the most part it's all about taking personal initiative to get involved, get informed, and get educated.

I particularly like the first idea:

Seize opportunities – any opportunities. Take any chance you can to get involved in a project and then look for a chance to take more responsibility

There are 14 more where this came from. Give it a read.

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To get and to give

We make a living by what we get, but we make a life by what we give

Winston Churchill

It's extraordinary to learn how many projects and project managers are engaged in public service and voluntary efforts, lending the project skills they "get" from their paid work to effort they "give" away.

It's been recently estimated that more than 63 million Americans are actively engaged in volunteer work...that's a blessing of our demographic metric of 330M citizens...and a fair number of them are engaged in real projects....as different from day-to-day volunteer operations. And the projects are everything from building houses to putting in water systems to putting up food banks.

If you're looking for a "life", volunteering your PM skills may be the way!

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John Marshall?

Well, John Marshall has made his decision; now let him enforce it

POTUS Andrew Jackson, 1832

What, might you ask, does a dispute between Georgia, the Cherokee Indians, and the Chief Justice Marshall have to do with project management?

It's a matter of federalism: is the PM--as the central authority--still relevant?

YES! Read on...

Jackson was an union agilist....at least when he took office. POTUS Jackson originally thought Marshall's reasoning was wrong and the states should be able to decide for themselves which federal statutes to follow, but within a few months Jackson reversed himself.

In the project context, this comes to the fore when agile methods are introduced that challenge the role of the PM [playing the part of USA] and agile teams [playing the part of states].

And, the question at hand is: What decisions and directions of the PM--specifically those for which the authorities are not enumerated in the project charter--are to be followed by the teams, and by what means does the PM 'enforce' decisions?

Even if you diss the conventional 'command and control' ideas of the PMBOK, unless you are a one-team project, all teams are--or should be--'federated' under the leadership of the PM.

The PM has the responsibility--and retains the responsibility--to set standards, values, and doctrine; to establish strategic direction; and to evaluate and give credit for earned value, leaving tactics to the agile teams.

Indeed, the strategic-tactical tension is the strength of agile methods: those who are closest to the problem devine and execute the means to do things; but those closest to the intent of the enterprise set the strategy and the standards, and evaluate progress.  When things go off track, it's the PM that directs recovery.

Works for me!

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Quotation to remember

Campaign with poetry; govern with prose

Attributed to Mario Cuomo, New York

In our world, evangelizing the wonders of the project and waxing eloquent about its advantages and disadvantages is the poetry of the visionary.

Project managers grind it out with 'prose': the day to day plans, documents, and metrics of management!

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Nash Equilibrium Part II

Here we are back with Mr John Nash and his equilibrium, called conveniently enough: the "Nash Equilibrium".  If you missed Part I, you can get it here.

Today, we take a look at what Alan Blinder did to move it along. Our spin is on project management, different from what Nash and Blinder used as the context, but nevertheless, the Nash Equilibrium shows up in project situations more often than we might imagine.

Equilibrium refers to the idea that the game ends with everyone winning something, or no one losing everything. In other words, a state of balance exists between the parties when the game ends. Thus, equilibrium applies to non-zero-sum outcomes.

Just to review:
Just to review Part I of this series: the Nash Equilibrium comes out of 'game theory' that is itself a study of how wary adversaries interact....most often in non-zero-sum situations in which they find themselves mutually involved. It is presumed that there is a sequence of moves by the parties in accordance with some protocol.

Game theory is somewhat related to the more familiar 'utility theory' that describes how one or more persons' attitude is affected by the persons' relationship to [an inanimate] condition, risk, or event.

The Blinder Matrix
Here's what Blinder gave us in the so-called 'payoff' matrix or the "Blinder Matrix":

The setup: Two parties face a situation. A resolution is needed. Each makes decisions independently. Each has similar tools and capabilities and preferences for an outcome, but they weigh each differently. What's most important to one is not so important to the other. And each has a pretty good idea of the other's priorities, tools, and capabilities.

Project Game
For the project game, let's assume that both cost and time are of importance to both the project team and to the stakeholder community, but each sets a different priority.  We'll assume scope is constant.  In the first figure below, we see a partially completed "Blinder Matrix".  Stakeholder preferences are in the upper side triangle of each square.  You can see that there are four combinations of two preferences between two parties.

"cost/cost; cost/time; time/cost; and time/time"

We see that the stakeholders most favored preference is time and it is given the number 1 to indicate it's first rank.  Cost is the least favored preference by the stakeholders [after all, project cost usually doesn't show up on stakeholder P&L].

Now, let's fill in the project preferences. In this 'game', project preferences are opposite the stakeholders; the PM values cost first.

Play the game
So, with the preferences established, let's play the game. Each party knows the other's preferences and thinks they know the other's strategy to react to the other's move. Each party is independent; each party is not looking for an optimum solution; they are looking for a stable solution that they can both live with.

The next figure shows the strategy reactions by preference. For example, the upper right square, time/cost, is second rank for project after its first ranked preference time/time because at least the project is still focused on time. The project's third ranked preference is cost/time; the time 'agenda' is shifted to the stakeholder but that's better for the project than cost/cost that has no time preference.

Game moves
Let's say the stakeholder decides to make the first move: if the stakeholder chooses Time as their first move, then the project is not going to respond with time since a time/time situation ranks 4 for the PM; if the stakeholders goes with Cost, then the project will jump on that and the upper square situation will result with everyone lined up on cost; this ranks 4 with the stakeholders so stakeholders won't start with cost.

Now, here's the equilibrium: there's no way to reach the upper right square with the stakeholder making the first move with Time.  The stakeholder will go first with their higher preference, Time, along the lower row. If PM responds with time, then the game is an unstable 1/4 state; but we expect    the PM will respond with their higher preference, Cost, and the game equalizes on the time/cost 3/3 square in the lower left, which is 3rd preference--a clear sub-optimization--but nevertheless stable!

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