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Why Good Project Managers Make Bad Decisions

SECOND EDITION

Lev Virine, Ph.D., P.Eng.; Michael Trumper; Eugenia Virine, PMP

Intaver Institute Inc.

Calgary, Alberta, Canada

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It is not uncommon to see good and experienced project managers make poor decisions that led to issues and eventually project failures. What is the explanation: misjudgment, lack of experience, or do some project managers just run out of luck? People make similar repeatable mental mistakes when they make choices, whether they are mothers trying to decide which is the fastest route to their children’s soccer match, or managers of large companies who are trying to decide which design they should use for their next product launch. These illusions are a primary source of human error in project management, errors that can eventually lead to project failures.

The Power of Illusions

Starting around 1995 a number of large computer companies including Oracle and IBM were involved in ambitious projects. They were trying to develop and market a range of diskless desktop computer devices, which Oracle called a Network Computer or a NC. The idea was quite revolutionary: if computer were mostly used to connect to the Internet, it does not require a very powerful processor, a CD-ROM, and even hard drives. Computers could be much cheaper than regular desktop computers were at the time: they could be priced at less than for less than $1000. Moreover, since the software was installed on the server rather than the NC, the user would not be required to maintain and upgrade it. Customers could have a computer that met all of their needs for a fraction of the cost. Despite all of its promise, the idea failed to materialize and NCs were not sold in significant enough quantities (Roth 2009). Why? For this project to succeed at least four conditions had to be met:

  1. The price of regular PC computers must stay way above $1000 to ensure that NC would be competitively priced.
  2. The availability of a wide range of compatible software for NCs.
  3. Widespread network availability of network infrastructure sufficient to run NC software.
  4. Widespread acceptance by consumers of the idea of network computing where central control was external, that is someone else on the server side would be in control of the system and even their data.

Let’s assume that probability of each condition that each condition be met equals 70%. At first glance 70% appears to be quite high and chances are promising. But taking a closer look we can see that there are several conditions that must be met, each of which has a 70% chance. Therefore project success is the product of all of the chances for each condition. It is 0.7*0.7*0.7*0.7 =~ 0.24. So, would you invest millions of dollars on a project with a projected chance of success of only 24%. The makers of the NC most likely faced a similar situation, but went ahead with the project anyway. Most likely because the executives of these companies were subject to an illusion, they thought that the chance of success was much higher. This illusion “overestimating the probability of conjunctive events” is quite common and behind many project failures.

With just this brief example, we can see that organizations are capable of acting quite irrationally, but just so you don’t think that this is an isolated case, here is another. In the 1980’s, the North Korean government was looking make a bold statement to the outside world that would illustrate the country’s industrial and technological power and attract much needed foreign investment. The government’s leader came up with a most audacious project – they would construct a building that would be the envy of the rest of the world, a hotel that would not only be the world’s largest, but one of the largest buildings of any type in the world, the Ryugyong Hotel. (Figure 1).

This enormous building was planned to reach a height of 1100 feet comprised of 105 floors. This project represented an investment of a significant percentage of the North Korean GDP (Hagberg, 2008), and would become the center piece of the North Korean’s governments efforts to showcase the success of their political and economic system and take some of the shine off of the economic success of their arch enemy South Korea.

As fate would have it, the project did not turn out to be the resounding success that the North Korean leadership had envisioned…

More…

To read entire paper (click here)

Editor’s note: Second Editions are previously published papers that have continued relevance in today’s project management world, or which were originally published in conference proceedings or in a language other than English. Original publication acknowledged; authors retain copyright. This paper was originally published in the December 2011 edition of PM World Today. It is republished here with the authors’ permission.

 

About the Authors

pmwj19-feb2014-virine-AUTHOR1 VIRINE LEVLev Virine, PhDflag-canada

Intaver Institute

Alberta, Canada

Lev D. Virine, Ph.D. has more than 25 years of experience as a structural engineer, software developer, and project manager. He has been involved in major projects performed by Fortune 500 companies and government agencies to establish effective decision analysis and risk management processes as well as to conduct risk analyses of complex projects. Lev’s current research interests include the application of decision analysis and risk management to project management. He writes and speaks around the world on the decision analysis process, the psychology of judgment and decision-making and risk management. Lev can be contacted at [email protected]

 

pmwj19-feb2014-virine-AUTHOR2 TRUMPERMichael Trumperflag-canada

Intaver Institute

Alberta, Canada

Michael Trumper has over 20 years’ experience in communications, software design, and project risk and management. Michael is a partner at Intaver Institute Inc., a vendor of project risk management and analysis software. Michael has authored papers on quantitative methods in project estimation and risk analysis. He is a co-author of two books on project risk management and decision analysis. He has developed and delivered project risk analysis and management solutions to clients that include NASA, DOE, and Lockheed Martin.

 

pmwj19-feb2014-virine-AUTHOR3 VIRINE EUGENIAEugenia Virine, PMPflag-canada

Alberta, Canada

Eugenia Virine, PMP, is a senior manager for revenue development at Greyhound Canada. Over the past 12 years Eugenia has managed many complex projects in the areas of transportation and information technology. Her current research interests include project risk and decision analysis, project performance management, and project metrics. Eugenia holds B. Comm. degree from University of Calgary.