Efficient Project Markets

This post originally appeared on August 16, 2010 on BetterProjects.net.

Back in college, I was a finance major. Despite having never once used all those hours of studying and research as a part of my career, the concepts themselves stuck with me all the years since graduation. One concept in particular, the Efficient Markets Hypothesis, is something we’ve been hearing a lot about in the news since the start of the financial market ‘meltdown’ a couple years ago. Much of the debate has been about if the financial crisis invalidated or proved that markets really were efficient. Hearing all of the debate started me thinking about if projects represent efficient markets or not.
As a refresher for those of you who have forgotten your financial theory courses, or for those of you who were fortunate enough to avoid them, let me give you a very short review of the theory… it is impossible to make excess returns based on information that is available to everyone in the market. As soon as new information is generally released, all participants in the market immediately assimilate the information and make rational decisions based upon that data. While individual investors may not be rational, the market as a whole, which is made up of all investors, is rational as not everyone will be irrational at once.
(Note: I’m going to skip analysis of the three forms of market efficiency in hopes of not totally losing my audience. If you like this post, I can always go back later and discuss each of the three forms in relation to projects; all you have to do is ask.)
Those of us who work on projects understand that communication is a key element for project success. At one time or another, we’ve all had a coworker or stakeholder who is an information hoarder that believes knowledge is power and if they can accumulate enough knowledge, they’ll be untouchable. This strategy generally falls apart, especially in situations where the project is part of a strategic initiative or there are lots of people who are willing to share the information that the hoarder is trying to keep for themselves. In this way, a project is theoretically efficient, because once the knowledge is no longer exclusive to the source, then anyone involved in the project has access to that data.
So projects are efficient in that information is accessible, but what about that part regarding the market being rational as a whole? Does that stand up in project-land as well?
This is where I feel that projects tend to fall apart at being efficient, namely that the stakeholders and project members do not always regard the project with their own best interest. Sure, all employees in today’s work environment need to look out for themselves, and being on special projects is one way to prove your value to the organization, but often times the project is your red-headed step-child; that thing you deal with only when you don’t have pressing ‘real work’.
How many times have we walked into a project meeting only to find that no one has read the meeting pre-read? What about the number of times no one bothered to bring status updates to their project tasks? It happens considerably more often than it should. Its not that projects lack the ability to be efficient with information, but that stakeholders are often unwilling to provide enough rational ‘investment’ in the project to ensure its efficiency.
What can be learned from the research created in studying market efficiency that could be applied to our projects to help them have better information efficiency? The fact that so many research years (more like centuries at this point) have been put into studying the subject should tell us that one of the best ways to find inefficiencies in our project communication is to study our communication methods and modes to see what is working and what is not. If all of our communication is through one or two channels we should expand to additional methods to get our message out. If we perform irregular message blitzes, the problem is likely that our stakeholders don’t know that there is information they need to know.
As I referenced earlier in my aside about the three forms of efficiency, there are multiple ways to say that a market is efficient. Similarly, there are multiple ways to perceive that the communication of information in a project is efficient. People’s need for information is different based upon how the project impacts them and their job. It is a good idea to segment your communications, by frequency or by depth of information, and match that to communication to its intended audience.
Lastly, realize that there will always be critics. As the efficient market hypothesis has garnered a whole new round of criticism in this era of financial turbulence, so to will your projects be hit with waves of upheaval when it seems that things were going so very smoothly. Make sure that you identify risks that could upset your project’s information symmetry and plan your responses accordingly. Make sure that if you don’t have an up to the minute status report, you know the quickest path to the needed information and can place the knowledge in your stakeholders hands with a minimal amount of wait time. Updated project plans, a clear sprint backlog or even a listing of bugs resolved in the last week could be just the information you need to ease the concerns of your stakeholders.
Are there any other finance majors turned project people out there? What are your thoughts on the lessons of efficient markets and projects?