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Analysis vs. Illusions in Project Management

SECOND EDITION

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

Intaver Institute Inc.

Calgary, Alberta, Canada

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Structured analysis of the situation helps project managers to overcome illusions can improve their judgment. However, more likely than not, prior to making a decision people have not performed any structured analysis, or they misinterpret the results of the analysis. Complicating matters, sometimes the analysis is extremely complex and results may be incorrect. Even if the analysis is performed and is correct, often people do not realize its value. As a result, even now where we have highly trained experts with access to powerful computers, running the most advanced mathematical models, we still bear witness to the outcome of so many poor quality decisions.

Why people don’t perform even simple analysis?

On September 15, 2008, the Lehman Brothers filed for Chapter 11 bankruptcy protection following the massive exodus of most of its clients, drastic losses in its stock, and devaluation of its assets by credit rating agencies. Why did one of the largest and oldest financial firms with $691 billion dollars in assets collapse so rapidly? Superficially, we have been told that their heavy investment in subprime mortgages and associated derivatives were the catalyst that set off the fall of Lehman Brothers. But how did their army of highly educated MBAs and powerful financial models fail to foresee this risk and communicate the threat to the decision-makers at the helm of Lehman Brothers and other related financial institutions to do something it? Sadly, the truth is that the senior management of Lehman Brothers, particularly CEO Richard Fuld, was well aware of the subprime mortgages problem having being warned on multiple occasions, but they deliberately chose to ignore these warnings. Moreover, the management carried on a campaign to silence individuals who talked about these risks (McDonald and Robinson 2009). Was this arrogance, ambition, greed, or something else?

Lehman Brothers worked within a framework of government regulations. Government, in this case the Federal Reserve, is supposed to ensure that financial crisis like the subprime meltdown should never happen. Did they (the Federal Reserve) see the danger of the type of financial practices associated with sub-prime mortgages? Apparently yes, but for a long period of time they believed that the problem associated with subprime mortgages would be localized and could not bring down the entire economy (Wessel 2009). Macro-economic analysis is not trivial like simple arithmetic, but surely the Federal Reserve with its significant resources, expertise, and mandate to oversee economy would be able to foresee the unintended consequences of the financial decisions that were being made by the major US financial institutions. As it turns out they did make mistakes and there are at least three reasons for this.

In complex situations when potential issues are identified, it is generally obvious that an in depth analysis would help decide on a proper course of action. Low quality decisions are usually the result of:

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 February 2012 edition of PM World Today. It is republished here with the authors’ permission.

About the Authors

 

pmwj34-May2015-Virines-LEVLev Virine, PhD

Intaver Institute
Alberta, Canada

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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]

 

pmwj34-May2015-Virines-AUTHOR2Michael Trumper

Intaver Institute
Alberta, Canada

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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.

 

pmwj34-May2015-Virines-AUTHOR3Eugenia Virine, PMP

Intaver Institute
Alberta, Canada

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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.