EVM Training – Decision Making & Charlie Munger – Part 1

by Humphreys & Associates on July 2, 2018

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Tendency Toward Misjudgment – Part 1


Charlie Munger and EVM Training

So, what does Charles (Charlie) T. Munger, Vice Chairman of Berskshire Hathaway and partner of Warren Buffet have to do with EVM training? Decision Making.  You can imagine the big-money decisions he has helped Buffett make during the many years of building up the legendary outfit. Along the way, he kept track of the happenings around him that through various speeches and writings espoused some clear thinking. Born in Omaha in 1924, Charlie began working with Warren at Buffett & Son, a grocery store owned by Warren Buffett’s grandfather. Eventually graduating magna cum laude from Harvard Law in 1948, Charlie moved into the business world.

Psychology of Human Misjudgment

This blog is narrowly focused on what I gleaned from Charlie’s writings about the “psychology of human misjudgment.” Looking to see how this information could be used to help guide a EVM training workshop on the topic of decision making, I went through each of the 25 “tendencies” that he defined and discussed. I would never have guessed that we humans have 25 tendencies that impinge on our thinking processes, but after studying his list, I think he nailed it. Most of the tendencies are backed up with some reference to psychological studies; so be assured Charlie did not make them up. This blog will treat them in numerical order and will add thoughts from the Humphreys & Associates earned value training material on decision making that will make the Charlie Munger points more specific to the subject at hand.

In our EVM training material, we emphasize the process of decision making is critical, and Charlie thought so way before I did. Bad decisions can come from good processes, but that is less likely than bad decisions coming from no process or, even worse, from a bad process. At one point Munger advises the use of checklists can help navigate through the minefield of human tendencies toward misjudgment. An amazingly timely idea, because here at Humphreys & Associates we are just wrapping up our work on “The Big Book of Project Management Checklists” that is aimed at doing just that.

Blocking Human Misjudgement

What about human misjudgment? It appears we humans are fraught with innate tendencies that, if not blocked, can lead us to make misjudgments. A misjudgment would be a wrong decision in terms of this blog. With all that follows in the blog about misjudgment, we are trying to discern a sound process for earned value decision making, with tools like decision trees, that can help avoid or counter the influences of the counterproductive tendencies. Developing your decision-making process should involve findings tactics that help you avoid or defeat or neutralize these tendencies in your EVMS processes.

Tendency #1 – Reward and Punishment Super-Response

Let’s cover one tendency as an example. Tendency #1 is called the “Reward and Punishment Super-Response Tendency.” The word “super” attached to the idea of response to reward is to emphasize that this is a case of over responding. We all know people move toward what is incentivized; they seek the reward. It must be obvious that, if the wrong thing is incentivized, people will be moving in the wrong direction. According to Munger, there is a strong tendency to move toward the reward; an overly strong tendency. Charlie cites some great examples from his experience. Your decision-making process should include some “clearing the minefield” efforts early on in the process to make sure that the decision will not be made in a move toward a reward that would be wrong for the situation. A simple example could be that you are involved in deciding about launch-ing a long-term effort that would cost quite a bit that does not have certainty to the outcome. If you are incentivized toward short terms profits, then you have the biased tendency to discard the idea in favor of short term gains.

Deprival Super-Reaction Tendency

There is a potentially related tendency called the “Deprival Super-Reaction Tendency.” This is the tendency to feel more pain from a loss than to feel pleasure from a gain of the same amount or thing. According to this tendency, there is more motivation associated with avoiding pain than making a gain. The see-saw is weighted in one direction. How counterproductive is that tendency toward carefully considered decision-making? If we are trying to make a gain in our decision process, we are not only fighting the facts of the situation but also our innate bias against taking a risk. The idea can be seen in the commonly observed action of throwing good money after bad. A loss is imminent, so the decision is to spend more to head it off to potentially save the day and avoid the pain; is that wise? Think about the situation where someone says or is known to think that “I will not be denied no matter the cost.” You probably do not want that kind of thinking involved in your decision making. Now think about a situation where tendency #1 and tendency #2 both align against one of the options being considered. Would an option that faces the tendency to risk some pain of loss and to move against a potential reward stand a chance if those tendencies were not neutralized?

Blog Series

Hopefully you get the idea now. This blog will be followed by another that covers some of the remaining tendencies identified by Charles T. Munger. I hope to learn more from and will translate what I learn here and in our EVM training material. Stay tuned.

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Preventing a Communications Failure

by Humphreys & Associates on June 4, 2018

US Army Helicopter

“What we’ve got here is failure to communicate.”

From the movie Cool Hand Luke”, you would probably remember the famous line, “What we’ve got here is failure to communicate. Some men you just can’t reach. So you get what we had here last week….”

Ask people who work on programs and projects, “From your experience, what are the top 10 reasons that projects fail?”  You will nearly always find, at the top of the list, the cause as being one of poor communications. That’s right, failure to communicate, pure and simple. But maybe not so pure and not so simple.

Establish a Communications Plan

There are so many dimensions to communication that it is advisable, even necessary, to establish a communications plan. Think about all the topics we need to communicate; the list is mighty: goals, schedules, budgets, product requirements, status, problems, successes, forecasts, roadblocks, directions, and so on. So, it makes sense that we should take time to define the communications process and actions in our communications plan.

Assuming we are about to undertake a new project rather than inject ourselves into an ongoing one, we should consider the most natural first step in preventing a communications failure. Just as we must define the product requirements, we should also define the requirements for communications through an analysis. That analysis should be rigorous and should cover all apparent aspects of communications.

  • What do we need to communicate?
  • Who are the providers and the receivers of various communications?
  • What are the form and format for the communication?
  • What are the frequencies required for these communications?

Such a requirements analysis could result in a communications compliance matrix that lists the requirement and provides the method by which the requirement will be satisfied.

Formal and Informal Communication

Two major subsets of communications could be the formal and the informal. To start considering the formal we could go to the contract the Contract Data Requirements List (CDRL) and the many requirements for plans, reports, and other deliverables that are forms of communications. The contract could be the root of a large tree that grows level-by-level. For example, the contract might have the Statement-of-Work (S0W) that tells us to use the systems engineering approach and a CDRL item to provide a System Engineering Management Plan (SEMP) in which another level of communication is revealed. On major contracts the SEMP is but one of several plans that are often required and should be extremely useful in defining the communications plan. The totality of these plans is comprehensive and very detailed.

EVMS Structure

Of interest to us here in this blog is the requirement to manage the program using Earned Value Management Systems (EVMS). A properly implemented EVMS can be the key to avoiding many of the problems of communications that are rolled up into the generic problem of “poor communications.” EVMS is one for the formal requirements that can embody wide ranging forms of communications. In the EVMS we will communicate:

  • Goals for scope, schedule, and budget. These are in various artifacts within the EVMS and provided to the stakeholders. Goals are the topic of the Integrated Baseline Review (IBR) to the extent that the probability of meeting the goals is assessed. Goals are clear when you have an Earned Value Management System.
  • Structure for the project work, people, and resources. EVMS requires a Work Breakdown Structure (WBS) to formally define and decompose the work. That means it is open and clear to all on the project what must be done top to bottom and by whom it will be done.

Integrated Master Schedule

Timing for work is established in the comprehensive Integrated Master Schedule (IMS). The IMS, when properly built and coded, provides deep insight into the time plans for the project and the relationships among the players. Topics such as “external dependencies” might have once been an obscure bit of knowledge but in the IMS these are clearly defined, and the logic shows what is dependent on these external inputs to the project.

The IMS communicates the milestones that are to be achieved. Vertical integration from the work tasks to the milestones provides the links that communicate the contributors to any major event. We know what and when we must reach a certain capability, and, with the IMS, we know how we will get there and who will carry us to that goal.

Work Authorization Document

The control account Work Authorization Document (WAD) provides a formal documentation of the baseline agreement on scope, schedule, and budget for the managerial subsets of the total project work. Carving out these manageable sections of work and making formal communication of the goals and responsibilities provides a detailed communication and acceptance for the project goals and the responsibility for their accomplishment. It would be nearly impossible to get lost in the well documented baseline of an EVMS managed project.

Measuring Progress

The status of our project is known by measuring our progress and reporting it formally; these are cornerstones of the EVMS.

  • What should we be doing?
  • What are we doing?
  • Are we meeting our scope, schedule, and spending goals?
  • Where are the problems?
  • What are the root causes of the problems? The impacts?

Communicating all of these up and down the hierarchies and even to the customer provides what should be open and clear communication. The generic complaint of “poor communication” often means “I was surprised.” There should be no surprises in a well run EVMS program.

Future Outcomes

Perhaps the most important thing to communicate is the future outcome. Based on our plans and our status, we are always making projections for the potential outcomes of our project from within our EVMS. The forecast for timing is contained within the IMS. The forecast for spending is contained within the Estimate to Complete (ETC). Each period we update out view of the future and analyze what that means. We use the analysis to undertake corrective action plans that have the intended effect of getting us back on track.

Summary

So, in summary, you should see that poor communications of the items that are within the purview of the program management system (EVMS) should not happen. The EVMS should be one the main pillars of communications plans and processes to prevent a communications failure. The outcome of the program might still be less than desired, but the outcome should have been foreseen and discussed many times within the communications engendered by the EVM System. We should know what we need to do, how we are doing, and where we will end up; and those are all things we need to communicate.

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Summary Level Planning Packages (SLPPs) Misnomer and Alias

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Hiring the Right EVM Professional

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EVM Hiring, Not Selling You are searching for the right person to fill that critical EVM program management or project controls position on one of your newer or one of your tough projects. So, what does the interview sound like? Probably like so many I have witnessed. But there is a much better way to […]

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