Project Practitioners > Negative Expected Value in Project Management

Negative Expected Value in Project Management

By Chris Cook, PMP

READ TIME: 5 minutes

 

“The kind of mathematical equation someone like Peter might consider would look something like this: if there is a 20 percent chance that Gawker will cost me $1 billion, then it makes perfect sense to spend up to $200 million trying to prevent that from happening. Negative expected value – it’s a calculation Wall Street guys make every day.”

“So at first the math says, you know, don’t do anything. Just ignore it. Let it go. Listen to your friends.”

“But if he looked beyond Gawker’s potential cost to him in dollars to the cost to society in total, the math changed. What are the potential risks to his partners and friends? To the global economy? What is the societal cost of the “Gawker jitters”? If the continued effect of Valleywag is that it makes Silicon Valley 1 percent less ambitious, what is that cost? If one suicide is prevented and that person could have been a great founder or could have had one great idea? For every dollar in revenue that Gawker makes, how much economic value is it destroying, for Peter and for other people?”

 

This excerpt is from Ryan Holiday’s book Conspiracy. Gawker Media outed Peter Thiel in 2007. Since that time, Thiel was thinking of ways to take down this menace to society. One day, a person named Mr. A (not his real name) approach Peter to discuss some possibilities.

As time went on, more people became involved while this team of conspirators gathered information from a website that had no idea what was about to hit them. They release a video of Hulk Hogan in an intimate moment with his best friend’s wife (you read that correctly).

This video jumpstarts a lawsuit that Thiel funds without the knowledge of Gawker. The excerpt describes Thiel and his thought process in even attempting to fund the lawsuit. He is justifying the price to enter litigation because the reward vastly outweighs the financial risk. This calculation is the negative expected value.

The project management version does not necessarily involve a sex tape, an outed gay man, or billions of dollars. This version is quite simple. A team member becomes aggravated. Every day he or she comes to work with a poor attitude and talks openly about it all day, every day. This person leads a small group of team members.

The team he or she leads is productive. They hit their daily goals, maintain equipment, and work safely. Yet, the problem becomes worse. This person’s thoughts and ideas start to infiltrate others making more disgruntled employees. Patient zero needs to go.

The negative expected value calculation might look something like this:

The team leader has a 50% chance of costing you $3,000 per week in loss of production. Over the course of a year, this leader is losing $156,000 per year. That means, if a case against this individual costs less than $78,000, you should pursue their termination. If their employment lasts longer than a year, obviously this value increases and becomes more apparent that action is necessary.

While a conspiracy against him or her is unnecessary, you need to find a way to remove cancer from your organization.

 

  1. Identify the problem

The problem is staring you in the face. This team leader needs to go. You have identified the individual. Now, you must also identify the actions. Listen to the words he or she speaks to the team. Look at the productions as time goes on.

A disgruntled employee rarely hides their emotions or watches their words. This team leader will be outspoken against management and how things are run. Instead of coming to you to discuss, you will hear it through rumors. These words are not quantifiable and may not make the best case since it comes down to he said, she said.

Production is quantifiable. You can point to the lack of production based on similar setups that other teams have. In my calculation above, this difference is the $3,000 per week. That is an obvious problem you can link to the team leader.

 

  1. Dismiss the problem

Take action. You have the case built against this team leader. You must remove the cancer. If there is pushback, remember the negative expected value calculation. This cost needs to be considered during the removal process.

In some cases, the person goes away quietly knowing what he or she did and wants to be out anyways. You can apply the negative expected value towards the new hire regarding training and work out the kinks.

If the person decides to fight the decision, you have this calculated amount to use for whatever actions are necessary.

The removal sets a tone within your organization that you have zero tolerance for negative influences even if they produce within their markers.

 

  1. Examine the filter

The problem employee ceases to exist. You must examine the filter in which he or she passed through originally. Something is broken. Find out what that is and adjust.

Did the person have a point amongst all of the negativity? Criticism is difficult to take yet there always lies a truth. Had this person come to you professionally to discuss changes, maybe he or she would still be working for you and become a productive model for the organization.

Examine not only the filter for current employees but also new hires. You are trying to establish a new culture and allowing these same individuals to enter this space only hinders your progress.

 

Takeaways

The Peter Thiel example is at the highest level of finances and media coverage. Your decision will be much lower key and under the radar. However, the principles of elimination remain the same.

What is the value this individual costs your organization? What are the chances you can rid yourself of the problem? Use these numbers to calculate your negative expected value and apply that number to your process.

Once you decide to move forward, start to identify the causes and dismiss them. This dredging process may take a while, but once the pond is clean of debris, reset your filter. You have this brand new pond with fresh, clean water. Keep it that way with a new filtration system.

Apply the new filter to existing employees and new hires. Continue to tinker with it until you have the right mix and match of employees. This process does not happen once, and it is over. You must continue to identify, dismiss, and reexamine.

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