Guest post by Travis Anderson
Glen Alleman made reference to ?Against the gods: The remarkable story of risk? in a previous PM Student post, ?How Expectations Mess Up Project Estimates. By trade I work as a PM Analyst and have an EVMS background. Measurements are a primary requirement on projects that utilize the fundamentals of EVM. Even for projects that are not required to use EVM, measurements are ever present.
One particular paragraph about measurement vs. intuition stood out as very interesting to me.
?Measurement always dominates intuition: rational people make choices on the basis of information rather than on the basis of whim, emotion, or habit. Once they have analyzed all the available information, they make decisions in accord with well-defined preferences. They prefer more wealth to less and strive to maximize utility. But they are also risk-averse in the Bernoullian sense that the utility of additional wealth is inversely related to the amount already possessed.? (Bernstein 1996, p. 246)
If this aphorism is applied to the project management context, one could say that project managers must always use measurement rather than intuition when making decisions. PMs cannot afford emotion or whim when analyzing information during the decision making process. The PM will prefer positive variance to negative and strive to protect and maximize company profit. But they are also risk-averse if the project is ahead of schedule and earning optimal profits.
Using measurements combined with intuition generally leads to better outcomes. Otherwise we would still be looking to the stars or oracles for answers instead of using Income Statements, Balance Sheets, Cash Flows, EACs, CPRs, TPMs, etc to measure the outcomes of various decisions made during daily encounters on our projects. Often these various measurements corroborate our intuitive conjectures. The trick is to recognize credible measurements that lead to more rational decisions and therefore resulting in the most optimal outcomes.
More is not always better. That is why it is important for project managers to understand the law of diminishing return. Project managers spend so much time explaining the ?Why? to customers using various reports that show red (unfavorable) measure that they forget to discuss the ?What?. The ?What? involves the processes and people involved to achieve the end result. The reports are only a means for validating that the process is working in the first place. Was it the measurements or intuition that the project manager used during the decision making process that resulted in a red indicator? Since project managers are not psychics, they must use a rational decision making process combined with intuition and experience to determine the exact measurement technique for developing accurate plans, consistent status, and reliable forecasts of future outcomes. I?m sure we all have some war stories that testify to this point.
When it comes to utility and risk, the satisfaction we gain from eating one hamburger doesn?t mean that we will double our utility by eating a second. Most people make decisions and then try to justify afterwards. For example, on projects the PM spends a large amount of time and resources establishing the estimated plan and then defends the plan afterward, even if the plan is flawed and not realistic six months into execution. PMs become emotionally attached to past rationale and decisions. The unknowns of yesterday may become more apparent as time passes, which requires a change in rationale and decisions to carry the project to completion successfully.
If we are rolling the dice or flipping a coin, then I would say that measurement always dominates intuition. However on projects and in business, there is something to be said about gained intuition and use of measurement as a way of validating what we already know. We have come a long way from using mysterious oracles, but it can be said that to some extent that forecasting is still in an epistemological state.
Bernstein, Peter L. (1996). Against the gods: The remarkable story of risk. New York, New York: John Wiley & Sons, Inc.