Wednesday, October 16, 2013

Some Limits to Central Planning

This may end up being a series of blog posts.

Central Planning has some dismal failures in its history.  It is instructive to examine the roots of those failures.

The Project Management Triangle



The Project Management Triangle is a conceptual tool used to teach students dual concepts
  • There is no free lunch
  • You do have some freedom to make trade-offs.


The three corners of the triangle are Cost, Timing and Deliverables.

Simply stated, you can save some Cost if you take more Time or if you water down the Deliverables.

You can do things faster if you are allowed to burn more money (Cost) or water down the Deliverables.

You can absorb a change to the Deliverables at the expense of increased Cost and/or increased Time.

The Project Management Pyramid

 

In the real world the student learns that the triangle is not flat.  Rather, there is a third dimension that co-joins the other three corners.

Risk

Risk is difficult to visualize and difficult to quantify.  Risk is a fart in an elevator.  You might get away with it.  The door might open and you leave before the stench reaches nose level.  It might be small enough that it is not noticed or the other passengers might be too distracted or too insensitive to notice.  Key Point:  If enough people fart in the elevator it will get noticed.

Example


You might be under pressure to reduce cost without impacting timing and deliverables.

You do some homework and find a supplier who wants to "buy the business."  Often, he is a new supplier who has no experience in the business and is trying to break into it.  Therefore, you are buying a huge learning curve and a price that is based on guesses and speculation.

Sometimes, the supplier has over-extended fixed cost base and is just trying to keep a factory or division running a little bit longer.  In that case you are farming out work to dead-men-walking and equipment that is being run into the ground.

Both of these scenarios can nuke your Timing and Deliverables (and even your Cost).

But you can make it work on paper.

You improved Cost, a hard metric, at the cost of Risk, a soft metric.
 

Ownership


Ownership is one of the factors that mitigate against willy-nilly flight to risk.

You might accept generic triple antibiotic instead of Neosporin (a brand named product) to dress a cut on your arm.  But you will not knowingly accept ear wax or brown grease because it is your arm.

The Central Planner lives in an office.  The ointment is not being applied to his arm.  His quality of life is dictated by the Planner above him.  Look good and life is good.  Look bad and you make your boss look bad....well, you don't want to think about that.

Risk Limit to Central Planning

One major shortcoming of Central Planning is the loss of risk mitigation due to lack of ownership.

Returning to our elevator:
The low level Central Planner may ride the same elevator we do, but he is wearing a gas mask.
The mid level Central Planner wears a Self Contained Breathing Apparatus. 
The high level Central Planner has a private elevator.



2 comments:

  1. Simply stated, you can save some Cost if you take more Time or if you water down the Deliverables.

    I disagree. If you take more time and have contractors or employees you still spending money. The cost of contractors is obvious. The cost of employees in this case is that they could be working on other things.


    P.S. I have no idea why my name keeps showing up as "unknown". I apologize and will look into getting a different OpenID.

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  2. A great book is "The Mythical Man-Month" by Fred Brooks.

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