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    Silver Lining of Project Uncertainties
    Silver Lining of Project Uncertainties
    Silver Lining of Project Uncertainties
    Ebook172 pages1 hour

    Silver Lining of Project Uncertainties

    By Ting Gao and Thomas G. Lechler, PMP, PMI-RMP

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    About this ebook

    The Silver Lining of Project Uncertainties provides readers with a critical foundation for how to differentiate the management of project risks and uncertainties, how to differentiate project success from project value and how to clearly identify the key elements of project risk, uncertainty and value opportunity.
    LanguageEnglish
    PublisherProject Management Institute
    Release dateOct 1, 2013
    ISBN9781628251197
    Silver Lining of Project Uncertainties

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      Silver Lining of Project Uncertainties - Ting Gao

      set.

      Introduction

      Differentiating the Management of Project Risks and Project Uncertainties

      This research project is based on the assumption that the management of risks fundamentally differs from the management of uncertainty. The implementation of projects is faced with challenges from both risks and uncertainties. Classic project management has a long tradition of managing project risks (known-unknowns), and it is fair to say that the management of risks is a mature component of the project management discipline. Its foundation is the triple constraint paradigm, (TC-paradigm) which represents the basis for identifying and quantifying the sources of variation and the analysis of tradeoffs.

      However, the concept of uncertainty has neither been clearly addressed by classic project management, nor is it explicitly defined in widely accepted project management standards. A Guide to the Project Management Body of Knowledge (PMBOK® Guide) (Project Management Institute, 2008) mentions uncertainty as the unknown-unknown only in one section. It seems that risk and uncertainty are not differentiated and are being used synonymously—or, more precisely, uncertainty is treated as a special case of risk. One of the reasons for this treatment is that the prevalent theoretical and practical understanding of risk and uncertainty for projects is mainly based on the principles of control-oriented systems engineering (Cleland & King, 1968; Sayles & Chandler, 1971). These theories are grounded in the ergodic theory, which equates uncertainty with probabilistic and calculable risk (Davidson, 1991; Machina, 1987). The non-ergodic theory, in contrast, recognizes that some form of uncertainty is not reducible to measuring or estimating risk (Knight, 1948; Keynes, 1937; North, 2005), meaning there is no information available today about every single event in the future, and therefore the future is not fully calculable (Davidson, 1996). For this research we derive the definitions of project risk and uncertainty from the non-ergodic theory, as stated later in the text.

      By virtue of their unique nature, projects are mired in uncertainty. Economists view uncertainty as one of the major conditions for entrepreneurial behaviors in an economy (Schumpeter, 1934; Kirzner, 1973). Without uncertainties, entrepreneurial profits would be impossible (Knight, 1948). If projects are unique, as the general body of literature suggests, then uncertainties (unknown-unknowns) are inevitable, no matter how much information is gathered before a project is initiated (Hubbard, 2007; Sydow & Staber, 2002). Consequently, following the arguments of the economists, uncertainties are the precondition for the existence of opportunities. In contrast to risks, uncertainties are not necessarily limited to negative consequences; there are positive implications as well—or, as the economists call it, opportunities. Some authors suggest the coexistence of uncertainty and opportunity during project implementation in hindsight (Loch, DeMeyer, & Pitch, 2006; Jaafari, 2001), but at large these topics are not discussed in the context of project implementation.

      Classic project management offers many concepts and tools to identify project risks; however, it does not offer a conceptual or practical basis for understanding either project uncertainty or its relationship to opportunity (Thiry, 2004; Siebert, 2005). Several authors (Ward & Chapman, 2003; Kahkonen, 2001; Kapsali, 2011) have criticized the conceptual limitations of project management practice—in particular, the basic premises of the widely accepted and established TC-paradigm. In more abstract terms, these critiques raise issues related to two limiting premises. First, the notion of opportunity is not directly addressed by the TC-paradigm because uncertainty and risk are conceptually not differentiated. Second, the TC-paradigm does not include the notion of maximization; it is based on optimization within the given constraints. Under these conditions uncertainty on the project level is a threat, since opportunities are conceptually not an alternative and variation should be avoided. Consequently, uncertainties are treated as risks. Risks are potential threats leading to a variation from predefined objectives and therefore could impact the baseline. Depending on the severity of these potential events, specific measures are taken, such as the use of buffers or contingencies to mitigate these risks. These risk management processes assume that events are known and their occurrence can be quantified with some probability. Given these conditions, it is conceptually not possible to identify and treat uncertainties in the same way as risks. For one, it is impossible to know all events at the beginning of the project, and even if some events are envisioned as potential threats it is not possible to know the probability of their occurrence. More importantly, it is not clear how to manage these unknown-unknowns during the implementation of a project. Following the classic project management logic, variation from the baseline should be avoided, since it has a negative impact on the project. According to this logic, the baseline cannot be questioned and therefore there is no provision for seeking out opportunities that might require redefining the value proposition of a project.

      Research Objectives and Contributions

      Following the arguments of the economists, we assume that situations of uncertainty are connected to opportunities to improve the value proposition of a project, or at least to significantly change it. In our previous research (Lechler & Byrne, 2010), we were able to observe that many project managers (PMs) and other stakeholders (team and sponsors) claim that they exploited opportunities during a project's implementation. In fact, our results indicate that opportunities frequently occur and are exploited during project implementation. Measuring the exploitation of different opportunities on a scale from one to seven, the mean is above 4.6. Furthermore, our results show that the exploitation of opportunities is highly correlated with project success (up to .54). These findings suggest that some project managers or other project stakeholders are taking an entrepreneurial role by seeking opportunities to solve problems beyond predefined project objectives and baselines, leading to greater success.

      However, in examining the data of more than 110 projects, we were surprised to identify two different groups of project-related opportunities. The first group of opportunities is related to the classical project performance indicators (schedule, budget, and scope). These are opportunities directly related to significantly improving the triple constraint (TC) criteria, i.e., schedule, budget, or scope performance. The second group of opportunities is related to the creation of value for the different stakeholder groups beyond the TC. Both groups of opportunities reach different correlation levels with the achieved project value, suggesting that the Gestalt and nature of opportunities, as they occur during the project implementation, are important for improving project value.

      This research project extends our previous research by identifying the basic characteristics of project opportunities. This allows a classification of the opportunities and the identification of antecedents experienced during the implementation of projects.

      This research project also emphasizes the specific conditions under which the identified types of project opportunities occur. It sheds light on different causes of uncertainties and their relations to the occurrence of project-related opportunities.

      This study also addresses the question of who selects the project opportunities to be exploited. The answer is not obvious. Our previous results suggest that project managers with a project value mindset are seeking opportunities, but it is not clear who makes the decisions to exploit the identified opportunities. Empirical studies consistently show that project sponsors have a very strong impact on the success of a project, even though it is still not clear why their influence is so strong. It seems, based on the empirical evidence, that sponsors are playing an important role in exploiting value project opportunities. The study considers the role of different stakeholders in recognizing and exploiting value opportunities during the implementation of projects.

      From a theoretical perspective, our study takes an interdisciplinary approach by integrating the theoretical concepts of the entrepreneurship research field into the project management discourse to develop a more comprehensive theory of project management. It adds a new perspective to the project management literature and allows us to explore the management of uncertainty on the project level.

      From a practical perspective, this research has direct implications for the selection, training, and education of project managers. The results should guide the development of a more business-related curriculum for managing projects. Also, the results will support the selection of project managers, to achieve a better fit between the available and the necessary skills for implementing a specific project.

      This is an exploratory study that characterizes opportunities and uncertainties occurring during project implementation. It sheds light on the causes of uncertainties and their relationships with project related opportunities. Originally we planned to conduct in the first step three to five case studies and then in the second step to collect data with a survey. Due to

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