December is usually the time of the year when corporations are working on their EPPs – the Employee Performance Plans for next year. Once I had my EPP of which a part of it went something like this 1) Improve Schedule Performance of projects. 2) Ensure that projects are completed according to the corporate mandated milestones. Mostly this meant that if you don’t meet the project schedule within a specified tolerance (say +/-5%), you will not get your full bonus. With this type of EPPs, the corporation is trying to avoid slipping project schedule and most importantly, deliver products on a faster pace. The assumption is that given the cash incentive, people & teams will work harder. If you meet your schedule, you have something to gain, namely, your bonus. If it works according to the plan, it can shape the behavior of the team members. Your team members might give you an evil eye if you were perceived to be someone causing the delays resulting in slipped schedule. Better yet, your team members might lend you a hand if they see you have trouble with your assigned task. So if things work out as planned, you have a collaborative team that helps each other and deliver the product on time or earlier. Team members will be happy because they will all get the big cash bonus. Your customers will be happy because they get their product on time. As a result, your company is more profitable. The principles of carrot and stick in action. Brilliant! Right?
Will the team members act rationally as expected here? Worse yet, would they cheat? Is there an opportunity to cheat in this set up?
It turns out that people may not always act rationally. And yes, they may cheat given an opportunity and a reason. In the HBR article named “how honest people cheat”? [ref1] [ref2] Dan Ariely claims that “most people operating on their own, given the opportunity will cheat – but just a little bit, all the while indulging in rationalization that allows them to live with themselves”. If you have read the book Freakonomics [ref3] [ref4], you know people always respond to incentives, but not always in the rational way you might expect them to; sometimes by cheating. For the teachers, whose incentives depended on students passing the standardized tests had too much out of their control namely those students in the bottom of the list. So what did they do? They cheated! That is right; those teachers, in pursuit of controlling their own destiny, corrected some of the answers on student’s answer sheets. Some of the teachers were really smart; they just quickly went thru everyone’s answer sheets and corrected the answers only to the questions they know are most difficult.
Now what can happen to the projects? Well, at the time when the team starting out on the project, we have too many unknowns. That’s exactly when we are asked to build a schedule. At that point, the team member who is giving the estimates on the individual tasks and the manager who is putting it all together as the project schedule definitely have the incentive to pad that estimate. Furthermore, they can surely find a long list of things that might affect the project and elongate the schedule. This is the rationalization step so they don’t feel so bad that they padded the schedule. (Note: the project manager might publish that list with a title “project risks”!) We all know what happens once we have a long schedule – the student syndrome will take over and the work will fill up the allowed schedule and even spill over.
You might say we knew that this will happen; we knew that individuals may cheat. But these decisions are taken at the team level. Schedules are put together by the team so you cannot cheat and really look into your colleague’s eye straight; can you? In addition we have supervisors and managers who will check the schedule. That is exactly why we have the second EPP goal – they need to meet the corporate milestones. It turns out we are wrong there too. In a 2009 HBR article “The end of rational economics” [ref 5][ref6], Dan Ariely describes some of his experiments and its results to show that even the teams cheat when it is beneficial to each other. In addition, he also shows that this is true even when there is supervision and monitoring involved although it decreased a little bit with supervision and monitoring. It seems that as the members of the team became better acquainted, the tendency to cheat increased.
Let’s be honest, we always padded our schedules. There were good reasons for doing that. As a team member, I want to keep my promises; I have a lot of unknowns; in some cases, we knew the management will push back on us and halved our schedule in the name of the management advice that they have to give us stretched goals. As project managers, we knew which task estimates to pad (remember that aggressive but naive programmer who always missed his schedule?). We also had a contingency bucket.
So here is my prediction. Given the EPP as they are, the projects may meet their schedule. However, the goal of coming out to the market faster will not be met instead the time to market will increase.
So what is the solution? Well, that may be the subject of my next article.
What are your thoughts? Do you agree with my prediction and line of thinking here? What solution do you offer?
Reference:
1. Dan Ariely (2008), “How Honest People Cheat.” Harvard Business Review Vol. 86 No. 2
2. http://blogs.harvardbusiness.org/cs/2008/01/how_honest_people_cheat.html
3. Steven D. Levitt & Stephen J. Dubner (2005), FREAKONOMICS: A Rogue Economist explores the hidden side of everything.
4. https://www.chicagobooth.edu/capideas/may05/cheating.html
5. Dan Ariely (2009), “The end of rational economics.” Harvard Business Review Vol. 87 No. 7/8
6. http://hbr.harvardbusiness.org/2009/07/the-end-of-rational-economics/ar/1
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