Monthly Archives: November 2009

Complex Decision Making Explained

Complex decision making is a vital project management skill; required not only by the project manager but also by the project’s sponsor and client / customer among others.

Some of the key areas involving complex decisions include risk management, many aspects of planning (particularly optimising choices) and dealing effectively with issues and problems in a range of areas from scope and quality to cost and performance.

There is an underlaying assumption in project management (derived from traditional scientific management) that decisions will be based on a rational assessment of the situation to optimise outcomes. Unfortunately this is not true! As complexity increases assuming a ‘rational decision making paradigm’ becomes increasingly unrealistic. Human decision makers become ‘predictably irrational’.

Understanding the built in biases and ‘predictable irrational’ decision making processes used by people confronted with complex decisions can help managers requiring optimised decisions to craft strategies to minimise suboptimal outcomes. But where can busy project managers access this information?

I have just finished reading the most amazing paper on the subject that canvases the whole spectrum from risk aversion to behavioural economics in a practical, easy to read format; and it is free!

Behavioural economics and complex decision making: implications for the Australian tax and transfer system has been written by Andrew Reeson and Simon Dunsttall of the Australian national science agency, CSIRO. The report was commissioned by the ‘Henry Review’ into the Australian taxation system and is published on their web site. Whilst you can safely skip the last section which focuses on applying the knowledge to our tax system. The preceding 7 sections are focused on how people make complex decisions in any sphere and are just as relevant to complex project decisions as to complex investment and taxation decisions.

You can download this free resource from the review panel’s website: download the paper (a copy is also on the Mosaic web site on the assumption the Government site is temporary and will close once the Henry Review has reported: download from Mosaic).

If you find the report useful and you don’t live in Australia, you can buy the next Australian you meet a beer; it was his or her taxes that paid for this amazingly useful report. I know I will be keeping my copy handy for a very long time to come.

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PMI COS Seminar

This week, I will be presenting live from Australia the final session of the Fall PMI College Of Scheduling (COS) Wednesday Webinar Series: Scheduling in the Age of Complexity. This hour-long event will provide key insights for better scheduling from a personal level: What is the role of the scheduler and what is our future?

The PMI-COS Fall series is designed to bring highlights from the 6th Annual Scheduling Conference held in Boston, MA earlier this year.  Archived presentations are available at http://www.pmicos.org/ondemandlearning.asp if you find them of interest, why not sign up for the College?

The Featured Presentation:   Scheduling in the Age of Complexity

Scheduling was developed as a computer based modelling process at a time when ‘command and control’ was the dominant management paradigm. The mathematical precision of the early scheduling calculations were somehow translated into certain project outcomes. Today, the certainties are no longer so apparent. Most projects run late and uncertainty and complexity are starting to take center stage.

This paper identifies the key elements in Complexity Theory to suggest the real role of a schedule in ‘the age of complexity’. It concludes by recommending a way to re-establish the role of the scheduler in the successful delivery of projects in the 21st Century.

DATE:  Wednesday, December 2, 2009
TIME:   5:00pm EST (US Eastern Daylight Savings Time); Doors open at 4:45pm

LOCATION: http://pmi.acrobat.com/r31077016/

There is no dial-in telephone option for the presentation. All voice will be through the classroom platform.

Schedule Density

I have mentioned the work being done by the CIOB (UK) to develop a practice standard for scheduling in a few posts. This valuable work is now at the public comment stage and has a number of really innovative ideas.

The concept of schedule density contained in the CIOB ‘guide’ is not dissimilar to rolling wave planning but has far more practical advice.

The concept is based on the idea that it is practically impossible to fully detail a schedule for a complex project at ‘day 1’ – too many factors are unknown or still to be developed. The CIOB advice is to plan the overall project at ‘low density’, expand the work for the next 9 months to ‘medium density’ and plan the next 3 months at ‘high density’.

Schedule Density Over Time

Low density activities may be several moths in duration. Medium density activities are no longer than 2 months and focused on one type of work in one specific location. High density activities are fully resourced, with a planned duration no longer than the schedule update period and with specific workers allocated.

Activites are expanded to increase density

As the ‘density’ of the schedule is increased, the plan takes into account the current status of the work, current production rates and what is required to achieve the overall objective of the project.

This approach has a range of advantages over more traditional ways of scheduling not the least of which is engaging the people who will be responsible for doing the work in the next 2 to 3 months in the detailed planning of ‘their work’.

More later.

The Demise of the Iron Triangle

The iron triangle was invented by Dr Martin Barnes in 1969 to demonstrate the connection between time, cost and output (correct scope at the correct quality) – see The Origins of Modern Project Management. The correlation remains but the concept of the triangle is fading and becoming more complex.

The problem with the triangle is whilst the three interconnections are relevant; the way the elements interact geometrically is not intuitive or correct. Output should react inversely to the other two dimensions. Less output is bad, but less time or cost is potentially good.

As we move into second decade of the 21st century, leaving the ‘noughties’ behind, PMI have dropped the concept of the iron triangle from the PMBOK® Guide and the search is on for more meaningful and unfortunately complex metaphors to define the challenges of satisfying a project’s stakeholders and customers. This is a multi-dimensional problem and there is a real need for a new paradigm similar to the iron triangle but representing the many different facets of success.

As Albert Einstein once said “For every complex question there is a simple and wrong solution.” And whilst the iron triangle was not intrinsically ‘wrong’ in the 70s, 80’s and possibly 90’s it is certainly incomplete in the complex world of the 2010s.

I have seen several attempts to replace the simplicity of the triangle with tetrahedrons and multi dimensional effort charts but they lack clarity of insight. Another quote from Einstein is “If you can’t explain it simply, you don’t understand it well enough.” The question and challenge is how to replace a project management icon as powerful as the ‘iron triangle’ with a more representative symbol.

What will be the new symbol of project management in the ‘teen years for the 21st century? Any ideas are welcome.

The Probability of Chance

I have just returned from a trip to Singapore where I was facilitating a workshop to set up the initial risk register and risk management plan for a $1 billion project to deliver one package in a multi billion oil development. The beginning of November is also the Spring Racing Carnival in my home state featuring the Melbourne Cup – the race that literally stops the nation. The combination of these two events and many hours sitting in aeroplanes started me thinking about the difference between project risk and the more widely understood actuarial risks managed by insurance companies and the like.

I have already posted on some of the challenges faced by project risk managers dealing with a single occurrence, the project, using theories based on constrained probability distributions in large populations (see: A Long Tail); and written a number of papers on risk management, see: http://www.mosaicprojects.com.au/Resources_Papers.html#Risk. This post looks at the challenges from a different perspective, how people in project teams perceive and understand probability.

The Singapore workshop started with the consideration of range statements for two sets of parameters, the likely impact of a risk event and the probability of it occurring. The outcomes were quite straightforward:

  • >$20 million was seen as a very high impact risk through to <$500,000 for a very low impact risk.
  • >70% probability was seen as a very high probability through to <5% for a very low probability.

The valuation of a ‘very high impact’ was based on a percentage of the project’s anticipated profit. Interestingly, the project manager for the overall project (some $20 billion investment) thought the monetary values were on the high side but accepted the views of the engineering company I was working with.

The focus of this post is on the difficulty of assessing probability based on limited data for a one off event such as a project. The following simple scenario illustrates the problem:

There are 3 sealed envelopes – one contains $100.

As a starting point, most people would agree there is a 33.33% chance any one of the envelopes will contain the money.

If we open one envelope and it is empty, there is now a 50:50 chance either of the remaining envelops has the money. One does, one does not.

Now to make the situation interesting…….

I give you one envelope and keep two for myself.

As a starting point you have a 33.33% chance of having the money and I have a 66.66% chance – the odds in my favour are 2 envelopes to your 1 envelope

Now I open one of my envelopes and we see it is empty. What does this do to the probabilities?

One perspective says there is now a 50:50 chance the money is in your envelope and 50:50 it is in my envelop – we know it has to be in one or the other and it has not moved.

On the other hand nothing has changed the original starting scenario – the odds in my favour were 2:1 and at least one of my envelopes had to be empty so on this basis is there still twice the probability my remaining envelop has the money compared to yours…… we have done nothing to improve your chances, you still only have one out of the three original envelopes!

Which scenario best represents the situation and why??

Now to make the situation even more interesting….

If I was to offer you $40 for your envelop would taking the money be a good or a bad bet???

If the scenario suggesting a 50:50 chance is true, the Expected Monetary Value (EMV) of your envelope is $100 x 50% = $50

If nothing has changed the starting scenario the EMV of the envelope is $100 x 33.33% = $33.33.

Which option is correct????

Peter de Jager posed a similar question to the PMI Melbourne chapter and favours the 2:1 option remaining true, many of the chapter disagreed.

Any thoughts would be appreciated.