The Trib Misunderstands Management

In its recent editorial on the OHSU Tram debacle and the botched firing of a key manager, the Portland Tribune gets it very wrong.

The Trib seems to think the key lesson here is the need to "better manage and protect relationships among the business community, its own employees, nonprofit organizations and other government agencies."

Not even close. Commissioner Sam Adams' attempt to force out Vic Rhodes was based on his belief that Rhodes had lied to the City Council about the project's costs and risks. The principle lesson is on the need for managers like Adams to be able to rely on staff to be honest and candid, and to hold them accountable if they are not.

The breakdowns that occurred with City's and the Tram Board's oversight of the project -- actually four separate breakdowns -- have nothing whatever to do with 'managing or protecting relationships.' (Put away the guitar and douse the campfire.)

Big projects like the Tram have some very specific risks, and managers are on the hook to understand and mitigate those risks. Neither the City nor the Tram Board did so successfully. As Charles Roxburgh writing in the McKinsey Quarterly puts it, there are some very common mistakes that managers make in backing big, strategic initiatives like the Tram - the science of behavioral economics has shown that the human brain is prone to a number of common errors in judgment that are relevant when evaluating strategies.

Here are the four mistakes made in the Tram project so far:

1. Overoptimism - assuming that building a tram larger and longer than any other ever built before would be easy to estimate accurately, underestimating the risk of the technical challenges. No engineering feasability study was even done before the design competition started, according to Rhodes.

2. Mental Accounting (one of Richard Thaler's contributions to behavioral economics) - the City's direct financial exposure to the project was relatively fixed at around $3.5 million. Overruns would be covered by others (OHSU, PDC, taxpayers, etc.) whose money seems less "real" to City employees. This led them to greater laxity and greater risk-taking, as well as less oversight.

3. Anchoring - an effect where exposure to an early number tugs people's estimates toward that number. According to The Oregonian, Rhodes was accused of suppressing key information in order to provide the City Council with a false Tram cost estimate of $15 million. That estimate became a rallying point for the project. The more realistic cost of over $45 million should have been obvious even then.

4. The "sunk cost" trap - throwing good money after bad. Developer Homer Williams was quoted saying that the Tram project had "passed the point of no return" - meaning that, no matter how much more it cost, the project could never be canceled, because a certain amount of money was already sunk into the project.

Each of these errors is one managers can expect to face, and City Councils should too. Each one of these errors can be mitigated if one takes it seriously and puts in place the right planning structures and procedures.

For example, for overoptimism, score the project based on its cost, timeline, level of new technology, and staff expertise. Large and long projects with high costs that are outside staff's experience are much riskier than small, fast, cheap projects that are done routinely. For these large projects, have a formal risk assessment with much broader parameters and test it over many more scenarios (i.e. steel price fluctuations; technical glitches). For large strategic initiatives, require three alternatives be presented using different levels of technical risk. (To this day, no alternatives to the Tram have even been voiced.)

To resist sunk-cost errors, establish "gating" criteria that the project must pass through or be killed automatically, and have the discipline to stick to it.

Managers with responsibility for large and risky projects like the Tram have an obligation to understand these risks and take mitigating steps. The City of Portland should retrofit all its current projects - including the Tram - with mitigation strategies.

And employees who lie to their bosses about the costs and risks of projects should be fired.

Oregonian: the only bad tax is one that wouldn't pass

Wow. According to The Fishwrap, the only thing wrong with Potter's new proposed tax is that it wouldn't pass.

Nothing about the effect on the economy or the business climate of yet another tax in a high tax area.

Nothing about a broken vow to voters - the vow three years ago that the I-tax was "temporary" and would buy leaders time to fix the underlying cost structure problems.

Nothing about the underlying cost structure problems.

What a worthless editorial.

PDC: Why so Dysfunctional?

Got the news yesterday that the PDC (Portland Development Commission) has a track record of miserable cost overruns on projects. Not just the $15 million Tram that's now over $45 million and climbing - even a simple pedestrian bridge over I-5 that was supposed to cost $1.6 million will now exceed $5 million.

Why is there such an epidemic of bad forecasting, overspending, and failure to contain costs?

I'll have to take that up in a future posting. There are lessons for all managers here.

Brilliant Talk by Atkinson

Jason Atkinson's performance Thursday night (26-Jan-06) in front of the Multnomah County Republican Meet-Up group was the best I've seen from him, and perhaps the best of any candidate for Governor of this state.

Naturally I tend to judge candidates against myself, or my own rosy image of myself. Tonight Jason performed better than I think I ever have myself.

I have not seen all three candidates in every one of their venues, so there's a lot I have not seen. And there's much more ahead.

But tonight and for the first time, I can imagine Jason Atkinson actually winning the Republican nomination and the governorship.

I still haven't picked my favorite, and I will enthusiastically support whoever wins the primary. I have things I like about Saxton; I have things I like about Mannix. Now I have things I like about Atkinson too.

What did he do right?

He was both comfortable and confident, exhibiting a sense of leadership and of commanding the room without effort. He knew his material. His plans for the office are more specific than I've previously heard from any candidate, and were delivered with confidence. His phrasing of the role as the "CEO Governor" worked well for me.

Best of all, he had a human story for every question and issue, and put a human face on his answers. He demonstrated a sense of caring (without the bathos of a Bill Clinton) and of deep sincerity.

This party could use a dozen more people like Jason Atkinson. I'm glad the one we have is running for Governor.

Increase Recycling Using Market Forces

When I went in front of the Oregon League of Conservation Voters last week I brought with me a bucket filled with dozens of plastic items. They were different sizes and had different recycling numbers, but they shared one feature: Hillsboro won't recycle any of them.

The way to get more of these items recycled, I said, was find places that already do recycle them, and figure out how they manage it.

Consider a margarine tub. A margarine tub contains the same polymers as some of the screw-top bottles that the recyclers do take. You can tell because they have the same number inside the little "recycle" triangle. The difference is in the manufacturing process - tubs are stamped; bottles are injection-molded. That results in a different end product with a different level of demand by the plastics-recycling industry.

In the case of Hillsboro and margarine tubs, that's no demand at all. Nobody around here will buy them, so Hillsboro Garbage won't collect them from your recycling bin. They have to go in the trash and get buried in a landfill.

However, in San Francisco, you can recycle your margarine tubs at the curb. The difference: in Lodi, California some 80 miles east is Epic Plastics, which turns recycled margarine tubs into a landscaping product called Bend-a-Board.

In other words: there's commercial demand for that plastic.

So the trick to increasing the amount of solid waste that's recycled isn't to spend buckets of taxpayer dollars, nor is it to slap a mandate on the private sector, but to emulate the pattern found in nature, where every entity's waste product is some other entity's food. Find a way to identify or create a product that uses the plastic.

For the Portland Metro area, I would suggest that every area's waste stream be analyzed at least at the granularity of the eight jurisdictions that have solid waste contracts with haulers. Identify the major waste elements that are theoretically recyclable but are not yet being recycled. Partner with the science teachers in each area's high schools and middle schools and hold recycling science fairs to come up with potential commercial products that use those waste materials.

This could also be opened up to the general public. We've seen that average folks will do extraordinary things with little more encouragement than an annual event, publicity, and a small prize (build seige engines; build absurd flying machines; etc.) so this should attract some free creative labor as well.

And since I'm surely not the first to think of it, we should steal any good ideas that look like they've worked for others in the past, whether for recycling rubber, plastic, or anything else.