Guiding Quote

“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.” Einstein

Sunday, August 25, 2013

Potemkin lives on.

Catherine the Great, Empress of Russia, had a minister Gregory Potemkin who she had put in charge of incorporating the newly acquired territory of the Crimea into the empire. When she made a tour of inspection in 1787 the wily minister is reputed to have erected villages with just the facade of buildings but no depth. Just canvas and wood exteriors. At night lights were lit in the distance to give the image of more settlements than there really were.

Now historians are divided as to whether it actually happened and if it did that the Empress was fooled. Catherine was not reputed to be foolish. Some believe she was in on the scheme as she wished to deceive the emissaries of foreign powers who attended her court on the progress of the area under Russian rule. So we enter the realm of did she know, if she did, did it serve her purpose to go along with the pretense?

So what is the relevance of this piece of history? Well the concept of the Potemkin village is used widely in corporations today. But instead of canvas and wood we have spreadsheets, corporate reporting, financial modeling tools. All of them are used to create an illusion of the state of the enterprise that is at best a simplified representation of reality and at worst is borderline fraud.

One example is the VaR (Value at Risk) model used by financial companies to calculate how much risk they faced if the market in their securities went sour. Lehman Brothers reported on the Friday that they had a risk of $95 million. On the following Monday they were bankrupt with losses in the billions. Bear Sterns model said $35million before they went pear shaped with hundreds of millions in losses. Oops.

A less dramatic example than this was recounted to me recently by a friend. They were answering a spreadsheet on the state of their Disaster Recovery plan. So following the precept that you only answer the questions you are asked they have an excellent DR configuration, some blotches, but perfection makes auditors suspicious. The reality is that their DR system has only three disc drives, which cannot be used in parallel, and the best part of 150 tapes to recover, firstly from the off site storage facility and then to DR computers. At least 80 hours of recovery work. Their recovery target is 24 hours. Oops.

But if the unthinkable happens the management will point to the reports and say, "how were we to know? We trusted our technical people".  Glossing over the fact that they did know, they just didn't want it spelt out in terms that would have demanded that they take action and spend the money to fix it. Gregory Potemkin lives on in the form of the Potemkin spreadsheet. And, as in his time, we have to ask the question who is in on the deceit?

Is this important to project managers? Yes it is. Because you need to know that any spreadsheet you are given is only as good as the information in it. You need to know what is the purpose of the tool, where it gets its information from, and who is reading it? From a political rather than an ethical viewpoint you need to answer the question "Do the recipients really want to know the true state of the situation, or are they happy in their ignorance?" More messengers are shot than are bedecked with garlands. Your wife may have a large posterior but you'll get no praise for telling her so; even if she asks you, 'Do I look fat in this?" Know your recipient and act accordingly.

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