Project Management and Skin in the Game

22.11.2013 Hayden Liekefett

Aligning with a client’s business objectives can create significant value for both the client and supplier during a project. This alignment is achievable when the agile project management methodology is employed whereas it is far more difficult to achieve if the traditional waterfall methodology is used. As discussed previously, the advantage of following an agile project management methodology is not just limited to being antifragile. It also enables the project team’s members to establish a higher level of accountability or “Skin in the Game” to the client.

According to Nassim Nicholas Taleb, “Skin in the Game” is a risk management approach that reduces the exposure of others to low likelihood high consequence risk. It seeks to overcome informational opacity and minimise the principal-agent problem where the benefits gained by are in stark contrast to the loss incurred by others as a result of a particular choice.

“Skin in the Game” has been and still is a renowned investment strategy of many high-level executives and fund managers such as Warren Buffet. By investing in their company (either directly or through performance rights), these individuals are exposed to both the positive and negative returns the company generates. This strategy aims to establish trust with investors because the company’s decision makers have an incentive to act in the best interests of the company and generate high returns. When a project follows an agile methodology, this strategy can be followed to satisfy the client’s requirements and schedule is truly met.

An analysis of a project managed with the traditional methodology, have a single interface between the client and supplier. This is the project manager. At this level, the project manager is the only individual on the supplier’s side who is seen as being directly accountable to the client for both the positive and negative outcomes of the project. This forms a barrier which isolates the project team from the client’s true intent and motivation. Hence this barrier constrains the client’s feedback and the ability to constructively intervene during development and implementation. This leads to an area of concern which is a project is perceived as successfully meeting the project’s milestones when in fact it has not met the requirements to the client’s satisfaction. Under the traditional methodology, this concern is typically discovered during the later stages of the project (i.e. delivery to the client). This is far too late in the project and significant rework costs / lost value will be incurred by both the client and supplier. Overall, the client has full exposure to the project outcomes, the project manager has some level of exposure and project team members have no exposure. This can cause a lack of motivation and intent by both the project manager and the project team.

In comparison, when a project is managed using the agile methodology, the project manager and team members will directly interface with the client. This provides them with the opportunity and ability to obtain skin in the game which otherwise would not have been achievable. These relationships are formed during sprint meetings where team members and the client assess the previous sprint outcomes and determine the required outcomes to be achieved in the forthcoming sprint. Hence the interface between the client and supplier is expanded and accountability within the project is increased. This increased accountability provides individual team members with greater incentive to achieve and deliver each of the requirements.

In addition to the client having direct insight into the project’s development and milestones being achieved, there is a significant reduction in risk of delivering a project which does not meet the requirements. Overall the client, project manager and team member’s exposure to the project are aligned such that if the client receives a substantial benefit from the project, the project manager and team members also share these benefits. This introduces a sense of ownership to the project manager and team members causing improved motivation and intent within the project.

Overall, when an agile methodology is employed for a project, the quality of the tasks performed during the project is superior where “Skin in the Game” can be obtained by all team members. Clients can be assured that the project milestones are being achieved in line with their expectations and corrective action can be taken earlier when necessary. Team members have higher motivation, incentive and are given greater responsibility through direct interactions with the client. Not only is the agile methodology antifragile by nature but it also provides the framework to align the project team with the client’s business objectives. Therefore both the supplier and client can share the positive and negative outcomes of the project.

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