Picture of the book cover

Commitment

If you have ever had to defend a project, team or concept, the plot in Chapter 6 will resonate. This week’s installment I would title ‘explanations and office politics’, as we close in on the peak of our read of Commitment – Novel about Managing Project Risk by Olav Maassen, Chris Matts and Chris Geary (2nd edition, 2016) .  In Chapter 6 we meet the corporate inquisitor.  Management sends Duncan to find out what’s going on in the project. The briefing ends on the note, “We just need to make sure we do the right thing.”

The first major exposition in the chapter is on the game theory.  Game theory is the study of models (often mathematical) of conflict and cooperation in decision making.  Game theory is useful for both describing and anticipating activity between team members. Much of the theory behind real options is built on the prediction of how individuals interact, otherwise known as game theory. The exposition on game theory includes a discussion of the prisoner’s dilemma and the strategy of conflict. In the prisoner’s dilemma, the police arrest two prisoners for a crime they committed together. The police isolate each prisoner with no means of talking with each other. There is not sufficient evidence to convict the pair, so the prosecutor(s) hopes to convict each one on a lesser charge (typically stated as one year). In tandem, the prosecutors offer each prisoner a bargain. The prosecutors offer each prisoner the opportunity either to betray the other and avoid going to jail while the other prisoner goes to jail for several years (typically three years). The first person to “roll over” gets the deal. If neither testifies they will receive the same one-year sentence. In the prisoner’s dilemma, a purely rational player would immediately maximize their own utility by betraying the other prisoner, even though if they cooperate both there would be less overall jail time served between the two. The second aspect of the game theory discussed in the callout is the strategy of conflict.  Some of the main features of the strategy of conflict are to withhold information between participants and to not allow participants to negotiate directly with the decision maker. Under the constraints of the strategy of conflict, a system works up to a point and then fails due to a failure to collaborate and share information.  At this point, participants see the need to work together to survive and begin to collaborate.  Forcing teams to make decisions to deal with options at some point will precipitate the failure scenario. As soon as the team senses the potential for failure there will be a natural tendency to tip into a more collaborative process. Learning to resolve conflict improves the team’s ability to make decisions.  Suppressing conflict will cause the team to develop conflict avoidance skills, which will reduce the effectiveness of decision making.

Duncan, the hatchet man, begins his inquisition by telling Rose he is there to observe, but withholds the impact of a bad review.  Duncan observes and interviews the team in action before coming back to talk with Rose.

The authors use the Duncan’s observation and his discussion with Rose in Chapter 6 to tie real options to the game theory.  Rose points out that most people, when given the choice between being uncertain and being certain, will choose certainty. Therefore, if given the option of waiting for more information to make a decision people will tend to make the decision even if they risk being wrong.  Real options works when teams get to the point that they collaborate rather than just avoiding uncertainty; that point is predictable based on the strategy of conflict.  Rose walks Duncan through how the team has worked through the perception of failure and arrived at collaboration.

In a blog entry Rose points out that since learning about real options, she has begun to see options everywhere. Balancing options become a matter of the price you’re willing to pay for a choice to be an option rather than the commitment. In real life, too much choice is a bad because people would rather not make a choice.  The too many options issue is one reason many sales managers provide a single clear choice rather than options.  Advice for adjusting to the options rich world tuned by Rose is:

  • Be deliberate about what you treat as an option; not everything needs to be an option even if it appears to be.
  • Be deliberate about making commitments as commitments are nonreversible.
  • Don’t expect too much; allow yourself to get accustomed to options thinking.

Options have value, therefore, a normal question to ask would be how to value real options. In a blog entry, it is noted that real options began in the financial markets and uses the Black-Scholes equation to value options (predicted result * probability equals weighted value). While the equation is relatively simple, the use of estimated probability complicates the use of the equation. The blog suggests that while the equation works in financial markets, real world liquidity causes this type of valuation not to work for software development projects. It should be noted that Douglas W Hubbard’s How to Measure Anything, provides a mechanism to address this problem. Valuation, while a touchy subject for some, is a topic that needs to be understood.  Practice has taught me teams and organizations need to understand which options require extra levels of evaluation  and therefore valuation and which do not.  

Jumping over the kickboxing and dancing, at the end of the chapter, Duncan gives the project Rose is leading a clean bill of health. However, due to perceived risk of implementation, the client has canceled the project, which means that everyone will lose their job at the end of the month.  The chapter ends with Duncan uttering a great line, “All their options have expired.”

Previous Installments:

Part 1 (Chapters 1 and 2)

Part 2 (Chapter 3)

Part 3 (Charter 4) 

Part 4 (Chapter 5)

Advertisements