Why Good Project Managers Make Bad Choices: Abstract

Why Good Project Managers Make Bad Choices:
An Introduction to Project Decision-Making
Lev Virine, Ph.D.
Intaver Institute Inc.
Abstract
Most project problems are the result of human errors. Why are good and experienced project managers making bad
choices that can dramatically affect their project? The answers lie in human psychology. Often managers are making
their choices not by logical and comprehensive analysis of the problem, but based on their own gut feelings.
Understanding a few basic concepts, such as how human mental machinery works, helps to improve the project
manager’s decision-making skills. But what is the alternative to the intuitive decision-making process? This paper
includes an overview of the structured decision analysis process. If a project manager and an organization follow a
consistent, comprehensive, and continuous process, it usually leads to better decisions. This process includes phases
of decision framing, modeling the situation, analysis, and evaluation, monitoring, and review of the decisions.
Power of Illusions
During the 1980s, the North Korean government was looking to make a bold statement to the outside world that
would illustrate the country’s industrial and technological power and attract much needed foreign investment---and
what better way to accomplish this than by constructing one of the largest buildings in the world, the Ryugyong
Hotel (Exhibit 1). This enormous building was planned to reach a height of 1,100 feet and to be comprised of 105
floors (Emporis, 2007a). The North Korean government envisioned this building as a channel to attract foreign
investors. Construction was halted in 1992, however, leaving behind a massive concrete shell devoid of all windows
and fixtures. The cost of this project represented an investment of a significant percentage of the North Korean
GDP. As it stands, the construction of the Ryugyong Hotel has had the exact opposite effect that was intended by the
Korean leaders. While we can understand the motivations behind the decision to start the project, the question
remains why the project was undertaken in the first place. Were the North Korean leaders unaware of the potential
costs? Even given the large amount of risks and uncertainties associated with a project of this size, calculating the
costs was not an impossible task.
Exhibit 1--Ryugyong Hotel: A Monument To Irrationality
© 2008, Lev Virine
Originally published as a part of 2008 PMI Global Congress Proceedings – Denver, Colorado, USA
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Although they may seem to be different, many project failures have a couple of things in common. First, project
managers of most such projects did have a choice. In the above-mentioned example, North Korean’s government
could have chosen not to build an impossibly extravagant skyscraper. Second, these were not trivial choices:
economic calculation with risks and uncertainties can be quite complex. Finally, eventually these choices led to
negative consequences, as they were essentially irrational.
What do we mean when we refer to something as irrational? People often use long words to describe simple
concepts in the hope that it makes them sound intelligent or hide their true meaning. So they will use words like
irrational when stupid would do just fine. However, irrationality is not stupidity, it is a contradiction. It is a
contradiction between what we would like to achieve and how we actually choose to achieve it. Why do these
contradictions, these irrationalities occur? Why are people unaware that the decision they have made will not
achieve the results they expect? These people are smart, educated, and are capable of making rational choices, but
fail to do so on a very predictable basis.
In reality, these decision makers, these normal people become the victim of an illusion. Criss Angel is an illusionist
and the star of his own show, “Mindfreak.” In one memorable show, he hypnotized and levitated a young lady in
front of stunned spectators on the street of Las Vegas. It was incredible and yet it was an illusion: both the live and
TV audience appeared to see the young lady floating in the air; however, according to well known laws of physics,
we all know that there must have been some sort of support. An interesting phenomenon that all types of illusions
have in common is that they require people to make similar mental errors. All of the spectators shared the same
perception during Criss Angel’s levitation trick: they could not see anything supporting the lady. Such mental
mistakes are similar for all people regardless of all the other factors that seem to distinguish us from each other: for
example, place of birth, income, nationality, sexual orientation, political preferences, and language. For example, the
mental errors made by a CEO and by a dishwasher will be the same, but, in terms of conducting business, the CEO’s
errors will have much greater impact.
Let’s return to Las Vegas. Here is the question for you. Take a look at the picture of Bellagio hotel (Exhibit 2) and
guess how many stories there are. Most people estimate that it has about 20 stories, which is precisely what the
architect wants us to see. The actual number is 36 (Emporis, 2007b). The difference between the estimates and
reality is caused by a well-designed optical illusion. In addition to optical illusions, several other types of standard
mental errors affect our human judgment. For example, when you walk on big suspension bridge like the Golden
Gate Bridge in San Francisco, you will be very uncomfortable because of the significant sway of the span in a windy
weather. You may think that the bridge is dangerously unstable. This is an illusion: bridge movements are perfectly
safe (we do trust the structural engineers). The Ryugyong Hotel project is an example a contradiction: instead of
becoming the first building outside New York or Chicago with over 100 floors or the largest hotel building in the
world, it earned another title: the world’s Tallest Incomplete Building.
Exhibit 2—Bellagio Hotel in Las Vegas
(One of the best examples of optical illusion in architecture: number of floors in this hotel seems to be much
less than it actually is)
© 2008, Lev Virine
Originally published as a part of 2008 PMI Global Congress Proceedings – Denver, Colorado, USA
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If critical decisions did not use the same mechanism that lead to illusions, we would have nothing to worry about. If
you take in one of Criss Angel’s shows, see a levitated lady and appreciate the skills behind the performance, this is
nothing but good entertainment. However, if after seeing the “Mindfreak” show, you conclude that the law of
gravity has been repealed and you start promoting a new theory of spiritual levitated balance in project management,
it can lead to some irrationality. Unfortunately, people often base their decisions on such illusions, which can have
disastrous consequences.
Why Is Recognizing and Dealing with Mental Errors so Difficult?
All people make these mental errors, so why all the fuss, you might ask. Mistakes can be identified and fixed.
But here is the problem. The mental errors that cause irrational decisions in project management can be very
cunning. They can hide their tracks so well that it is often very difficult to determine if there was a mistake and, if
you can determine that a mistake was made, if can be hard to identify what caused it. People who are extremely
competent in one area often display poor judgment in others. This explains why experienced politicians often cannot
properly manage their finances, and why successful businessmen rarely excel in public office. Thomas Jefferson, the
third President of the United States and one of the chief architects of the American constitution, was deeply in
financial debt (Sloan, 2001). During his career in office, Jefferson attempted numerous times to abolish or limit the
advance of slavery and strongly believed that society must free all slaves. At the same time, he owned many slaves
and did not free any because of his personal financial difficulties. Obviously, if someone like Thomas Jefferson can
find themselves in such an irrational situation, anyone can. But why is it so easy to get caught in these irrational
situations? Why is irrationality so widespread?
One of the most common sources of such mental errors is people’s difficulties in assessing future uncertainties.
Wouldn’t life be a bit more bearable if we could accurately predict what would occur as a result of our actions? You
start smoking: now you will die from lung cancer on January 17, 2021---24 years earlier than if you hadn’t smoked.
If you go to the casino today, you will lose $12,798.67, but if you hold off until tomorrow, you will win $6,589.32.
However, eliminating all uncertainty would have some drawbacks, since uncertainty is the basis of entire industries.
Who needs insurance if you know that your car will be stolen on September 20, 2017? Say good bye to your
investment advisor: invest in Enrot, Inc., and your stock portfolio is guaranteed to reach a value of $1,000,000 on
December 17, 2011. But it doesn’t work that way, does it? For example, if you asked people to estimate the risks
associated nuclear and fossil fuel power, most would believe that nuclear power is more risky, when in reality the
chance that the burning of fossil fuels will damage your health is much greater.
Here is another issue that leads to many mental errors: choices we make are often based on multiple objectives.
Balancing such objectives can be very complex. For instance, if you want to fly from Denver to Phoenix, would you
buy a ticket with a stop in Detroit for $200 or a direct flight for $300? (Airlines tell us that it makes economic sense
for them to have routes with multiple stops that zigzag across the country, but we are still not convinced that it is
rational.) You have to balance two objectives: convenience versus price, which may lead to irrationality.
Our decisions are often affected by motivational factors. Would you, for example, “creatively enhance” your resume
to improve your chances of attracting a potential employer? Apparently, some people are engaged in a similar
practice with regard to project planning, and to a much greater extent. Danish researcher Bent Flyvbjerg and his
colleagues reviewed a significant number of large transportation projects: roads, railways, bridges, and tunnels
(Flyvbjerg, Holm, & Buhl, 2002). They found that project planners often intentionally underestimate costs and
overestimate benefits to get their projects approved. Flyvbjerg found that costs are underestimated in nine out of ten
transportation infrastructure projects. He studied data dating back 70 years and found that, in spite of the
introduction of new sophisticated estimation tools and techniques, cost underestimation has not decreased over time.
As a final complication, many mental errors are due to group interactions. For example, the individuals involved in
the Kennedy administration’s decision to invade Cuba at the Bay of Pigs were interviewed in retrospect (Janis,
1982). Each person claimed that he had severe reservations about the invasion, but did not express them because
there were afraid of appearing to be the only hesitant person in the room. If a group of people is expected to make a
decision, it does not necessarily reduce the chance of mental errors; in fact, it leads to other types of mental errors.
© 2008, Lev Virine
Originally published as a part of 2008 PMI Global Congress Proceedings – Denver, Colorado, USA
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Solution: Structured Decision Analysis
You cannot simply command people to be more rational. You cannot outlaw irrational decision making with the
stroke of a pen. Displaying poor judgment is not illegal. Go ahead and paint your deck without removing the
previous coat, the paint will shortly peel off, and you can repeat the exercise every summer. You hurt no one but
yourself and enrich your local paint merchant in the process. In many cases, the prohibition of poor choices leads to
even bigger problems as the direct or indirect costs of imposing the prohibition is greater than the perceived benefit
of the prohibition. If this sounds familiar, it’s because the United States experienced this during the prohibition of
alcohol, or Dry Law, from 1920 to 1933. The current “War on Drugs” has cost American tax payers billions of
dollars in enforcement costs with negligible impact on either the use or availability of drugs.
The solution is to learn how to make rational choices by training yourself to overcome mental errors. For example,
the newest tourist attraction in Arizona, the Grand Canyon Skywalk, is a horseshoe-shaped glass walkway 1,200
meters (4,000 feet) above the floor of the canyon (Exhibit 3). When you first step on the Skywalk, you will feel very
uncomfortable as the irrational part of your brain tells you that you are in great danger and pumps adrenalin into
your system, even though you know that the structure is perfectly safe. However, after few minutes, you would
begin to feel a little bit more relaxed. You are able to look down longer and even may walk the loop a few more
times. Essentially, you have trained yourself to overcome a common human fear. Similarly, people are capable of
overcoming some of the symptoms of irrational decision making as long as they understand the potential mental
errors that they can encounter (Hastie & Dawes, 2001).
Exhibit 3---The Grand Canyon Skywalk
(A good place to train yourself to outcome your biases)
But even if you have good knowledge of an area, potential problems can be extremely complex, and wrong
decisions can be very costly. For example, when developing potential drugs, in which chemical should a
pharmaceutical company invest its money? This type of problem carries with it a great of uncertainties, and the
development of new drugs can cost hundreds of millions of dollars and require decades of effort. These are not
decisions that can be made intuitively or without structure. It requires special methods to perform the analysis of
complex problems: how to identify alternatives, consequences, and trade-offs; how to analyze uncertainties; and,
finally, how to make a decision. A special discipline called “decision science” offers a number of analytical methods
and processes aimed at reducing the chance of making irrational decisions.
Project Decision Analysis Process
Here are three basic things that a decision analysis process should have:
1.
2.
Rational decisions. Quality decisions should lead to maximizing project value while minimizing
expenditures. Good decisions should be based on an unbiased assessment of all possible alternatives. They
should benefit the whole business, not just the interests of a specific individual or group.
Transparent decision-making. You want to know how decisions are made, who made them, and who
should be accountable if a decision is wrong. You want to be able to participate in decision-making.
© 2008, Lev Virine
Originally published as a part of 2008 PMI Global Congress Proceedings – Denver, Colorado, USA
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3.
A mechanism for correcting mistakes. If there is a problem with the original decision, you should be able
to recognize it and take corrective actions in a timely manner. In sum, what you want is a process. As with
many other business processes, decision analysis has a set of procedures and tools that an organization can
readily follow.
Decision analysis is not a single, fixed process, but rather an adaptable framework that can be tailored by an
organization to meet its specific needs. There is no exact recipe for how to structure a decision analysis process.
Different processes can be adopted for various companies, types of projects, and the types of decisions required.
Your organization may already have, if not a fully established process, some components of decision analysis. (For
example, how do you review project risks and uncertainties? How are decisions made at product launch meetings?)
But what does a “fully established decision analysis process” imply? Any established or mature decision analysis
process is based on three main rules, which we call the “3C” principle: consistency, comprehensiveness, and
continuity (Virine & Trumper, 2007).
Consistency
The decision analysis process should be standardized for similar kinds of problems and opportunities. Inconsistency
in decision making can cause projects to change directions unnecessarily, which can lead to failure. This necessitates
that organizations have the same set of rules and preferences for making decisions for all similar types of projects.
Suppose, for example, an oil company has different offices around the world evaluating exploration prospects. The
company does not have enough resources to drill everywhere at the same time, so it must make choices. The
evaluations on potential drilling prospects are forwarded from the various
outlying offices to the corporate planning headquarters, where decisions about resource allocation are made. One of
the main difficulties that the corporate planners face is that this information is submitted by different groups looking
to develop their prospects in different locations, which are often in different countries. The planners don’t want to
“compare apples and oranges,” as the saying goes, so the company tries to ensure that the methods used
to generate the data regarding prospects are consistent across the organization. Otherwise it would be impossible to
make a comparison of potential oil reserves and make decisions on which prospects to develop (Rose, 2001).
Comprehensiveness
Decision analysis processes should include a comprehensive assessment and analysis of the business situation.
Missing or incomplete information can lead to incorrect decisions. Let’s say that your manager approaches you and
shows you a project schedule. He says, “We performed a comprehensive analysis on all of our possible alternatives
and have decided to go ahead with this particular one.” After a brief look at the schedule, you say, “Looks like it’s a
very tight schedule. Did you account for any risk events? Where is the contingency time?” “Don’t worry about
contingencies,” he replies. “We covered everything. If you recall, we have done some similar projects in the past
and didn’t have any problems. Plus, the decision has come down from up high, so it’s out of our hands.” Two days
into the project, a major event occurs and the project is delayed. Did upper management perform a comprehensive
decision analysis as claimed? No, because they relied simply on their experience of some past projects and did not
include risks and uncertainty. The analysis was not comprehensive, and therefore it was flawed.
Continuity
Decision analysis is a continuous process of evaluating and refining decisions during the course of a project. Highquality results can be achieved only through constant and consistent adaptive management. Here’s an example of
failing to use adaptive management:
You recently completed a project and presented it to your client. Unfortunately, the client is not very happy. Why?
A couple of years ago, when the project was initiated, somebody made an incorrect decision that appears to have
reduced the value of the project due to huge cost overruns. The person responsible for that decision is no longer on
the team, so it will be difficult to understand the basis for it. And why were no corrective actions taken when it
became obvious that the evaluation of cost was flawed?
Upon further investigation, you discover that it is not a common practice in your organization to revisit a decision
once it has been made. In addition, when the problem surfaced, a great deal of resources had already been expended,
and there was a great reluctance at that point to change course. The final result is that your project failed to meet its
requirements because the team did not adapt to changing circumstances.
© 2008, Lev Virine
-5Originally published as a part of 2008 PMI Global Congress Proceedings – Denver, Colorado, USA
Phases of the Decision Analysis Process
The decision analysis process includes a number of phases, with each phase in turn consisting of several steps
(Skinner, 1999; Schuyler, 2001; Virine & Trumper, 2007).
Phase 1: Decision Framing
Decision framing helps decision makers to identify potential problems or opportunities; to assess business situations;
to determine project objectives, tradeoffs, and success criteria; and, finally, to identify uncertainties. The project
manager defines the scope of the decision. Depending on the situation, a project manager alone, an independent
expert, or a team of experts can perform the decision framing.
1.
2.
3.
4.
5.
Identifying potential problems and opportunities. In some cases, it is difficult to identify problems and
opportunities, especially when they are related to a strategic decision. For example, what causes different
projects within the organization to be consistently late?
Assessing the business situation. Before making a decision, it is important to assess the business
environment and define the constraints related to the problem. Business environments can influence
resource availability and costs. The assessment may also include an analysis of markets, competition,
prices, or anything else that can be related to the problem or opportunity. During this step, it is important to
list all external factors that may have an impact on the problem.
Determining project objectives, tradeoffs, and success criteria. Projects usually have multiple
objectives and therefore multiple criteria for decision making, which can make the analysis very complex.
Decision-making criteria include project duration, cost, scope, quality, and safety, among other parameters.
Project managers should find the right balance between these objectives and make trade-offs when
necessary.
Identifying uncertainties. Understanding uncertainties is the key to the decision analysis process. In the
decision-framing step, risks and uncertainties should be identified. Uncertainties can be found in a project’s
cost, scope, duration, quality, safety, or environment.
Generating alternatives. In decision framing, it is important to generate key alternatives. First, you must
identify what cannot be changed---that is, what the constraints are in the particular decision analysis. Then
you can determine potential alternatives.
Phase 2: Modeling the Situation
A mathematical model can help to analyze and estimate future events. To understand how a structure withstands
particular loads, engineers perform structural analysis on buildings using mathematical models. They don’t want to
find out that a particular beam cannot bear a load after it has been put in place, because by then it may be too late to
change it. The same situation exists with any other projects.
1.
2.
Creating models for each project alternative. Project managers constantly create mathematical or
valuation models of projects. In most cases, it is simply the project schedule. A more comprehensive model
of a project includes a breakdown of resources, costs, and other project variables. Sometimes, quite
elaborate models are required. For example, in the analysis of a product’s life cycle, comprehensive models
will include not only product development but also marketing and sales efforts.
Quantifying the uncertainties. The uncertainties in a project, identified through the decision-framing
process, should be quantified. One of the ways to quantify uncertainties is to define ranges for their
parameters. For example, define low (optimistic), base (expected), and high (pessimistic) duration or cost
estimates for each task. Another way to define uncertainties is to list all of the potential events that could
affect the project schedule, then quantify their probabilities and impact.
Phase 3: Quantitative Analysis
After the mathematical model is ready, the analysis may include a number of steps, depending on the situation. It is
possible to apply simulation techniques to analyze the project. These techniques can give project managers enough
© 2008, Lev Virine
Originally published as a part of 2008 PMI Global Congress Proceedings – Denver, Colorado, USA
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data to make an informed decision. For example, quantified analysis may show that the chance that a project will be
completed on time equals 80%. Is this acceptable? It may be in some projects, but not in others. In addition, the
results of quantitative analysis must be communicated properly to decision makers to minimize the potential for
biased decisions.
1.
2.
3.
Determining what is most important. A model of a project can include a considerable number of
variables: large numbers of tasks, resources, risks, and other parameters. Some of these parameters may
significantly affect the course of the project. For example, certain risks will cause failure of the project,
whereas other risks will have no noteworthy effect. It is impossible for a project manager and a project
team to concentrate their efforts on mitigating all possible risks. The team should therefore focus first on
mitigating critical risks.
Quantifying risks associated with the project. Uncertainties associated with input parameters were
already quantified during the modeling step. Now you need to analyze how the combination of all these
uncertainties could affect the project. The goal of this analysis is to create a “risk profile” of the project.
Deciding on a course of action. In some cases, it is easy to select the most efficient alternatives based on
the results of risk analysis. The best alternative based on selected success criteria may be obvious and can
be easily selected without further steps. In many situations, however, the selection between the alternatives
is not so easy. Sometimes, different scenarios are executed only if certain conditions exist. In many cases,
decisions are made using numerous criteria, which complicates the selection of the most efficient
alternative.
Phase 4: Implementation, Monitoring, and Review
1.
2.
project implementation and monitoring. Now the decision has been made, and the selected course of
action is under way. In many cases, a new decision-framing step will be required if a new decision within
the same project is required. Tracking project performance helps you to forecast what could happen to the
project, even if some activities are only partially completed. Before the project started, you had only one
source of input information for the decision analysis process: historical data, which is either objectively
defined based on certain records or is the result of expert judgment based on past experience. Now the
project manager can also use actual project performance to make decisions.
Review of the decision experience. You need to know whether your analysis and decisions were correct.
Otherwise, you will make the same mistakes all over again.
Conclusion
Decision analysis methods are actively used in many areas. Lawyers use decision analysis methods to choose
litigation strategies under uncertain circumstances. Through this process, they can tell you if it makes sense to
appeal federal court decision or not to sue your neighbour because his dog dug up your roses. Doctors use decision
analysis tools to make more accurate diagnoses. Investment brokers use sophisticated decision analysis methods to
improve their investment advice. Pharmaceutical companies use advanced analysis to determine strategies for the
clinical trials of new drugs. Oil companies plan their exploration and production activities using decision analysis.
(This probably does reduce the prices we pay at the pump, but certainly improves executive bonuses.) Despite all of
the advances in decision science, most people and many organizations opt not to use decision analysis tools and
methodologies, and this reliance on our relatively primitive psychological decision-making abilities is the cause of
irrational decision making.
References
Emporis.(2007a). Ryugyong Hotel. Retrieved September 14, 2007, from
http://www.emporis.com/en/wm/bu/?id=ryugyonghotel-pyongyang-northkorea
Emporis. (2007b). Bellagio Resort and Casino. Retrieved April 7, 2008, from
http://www.emporis.com/en/wm/bu/?id=bellagioresortcasino-lasvegas-nv-usa.
Flyvbjerg, B., Holm, M. K. S., & Buhl, S. L. (2002). Underestimating costs in public works projects: Error or lie?
Journal of the American Planning Association, 68(3),279--295.
Hastie, R., & Dawes, R. (2001). Rational choices in an uncertain world. Thousand Oaks, CA: Sage Publications.
© 2008, Lev Virine
-7Originally published as a part of 2008 PMI Global Congress Proceedings – Denver, Colorado, USA
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Institute.
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© 2008, Lev Virine
Originally published as a part of 2008 PMI Global Congress Proceedings – Denver, Colorado, USA
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