Managing Project Uncertainty: From Variation to Chaos

Uncertainty is an inevitable aspect of most projects, but even the most proficient managers have difficulty handling it. They use decision milestones to anticipate outcomes, risk management to prevent disasters and sequential iteration to make sure everyone is making the desired product, yet the project still ends up with an overrun schedule, overflowing budget and compromised specifications. Or it just dies.

To find out why, we studied 16 projects in areas including personal-computer development, telecommunications, Internet startups, pharmaceutical development, iron-ore processing, airship development and building construction. Interviews with team members and scrutiny of project documentation over five years showed managers consistently failing to recognize that there are different types of uncertainty, each of which requires a different management approach. The lack of awareness is understandable, given that the commonly accepted definition of a project (“a unique interrelated set of tasks with a beginning, an end and a well-defined outcome”) assumes that everyone can identify the tasks at the outset, provide contingency alternatives and keep to the same overall project vision throughout.1 Those are fair assumptions for routine or well-understood projects, but not for novel or breakthrough initiatives, which require companies to rethink the traditional definition of a project — and the ways to manage it. (See “Beyond Risk Management.”)

Beyond Risk Management »

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References

1. J.R. Meredith and S.J. Mantel, “Project Management — A Managerial Approach” (New York: John Wiley & Sons, 1995); C. Chapman and S. Ward, “Project Risk Management” (Chichester, United Kingdom:

Wiley, 1997), 7; and R.L. Kliem and I.S. Ludin, “Reducing Project Risk” (Hampshire, United Kingdom: Gower, 1997), 10–25.

2. C.B. Chapman, “A Risk Engineering Approach to Project Risk Management,” International Journal of Project Management 8 (1990): 5–16.

3. For more examples of projects with variation, see A. De Meyer and C.H. Chua, “Banyan Tree Resorts and Hotels: Building the Physical Product,” INSEAD case no. 4943 (Singapore: INSEAD, 2001);

A. De Meyer, “Product Development for Line Transmission Systems Within Alcatel NV,” INSEAD case no. 9991 (Fontainebleau, France: INSEAD, 1992); and C.H. Loch, A. De Meyer and S. Kavadias, “Dragonfly,” INSEAD case no. 4885, (Fontainebleau, France: INSEAD, 2000). For more examples of projects with foreseen uncertainty, see C.H. Loch, “Crossair: The Introduction of DGPS,” INSEAD case no. 4751 (Fontainebleau, France: INSEAD, 1998); and P. Verdin and A. De Meyer, “Alcatel Access Systems,” INSEAD case no. 4873 (Singapore: INSEAD, 2000).

For more examples of projects with unforeseen uncertainty, see M.T. Pich and C. H. Loch, “Delta Electronics,” INSEAD case no. 4874 (Singapore: INSEAD, 2000); C.H. Loch and A. Huchzermeier, “Cargolifter,” INSEAD case no. 4866 (Fontainebleau, France: INSEAD, 1999); and C.H. Loch and K. Bode-Greuel, “Evaluating Growth Options as Sources of Value for Pharmaceutical Research Projects,” R&D Management 31 (2001): 231–248.

4. These techniques were first proposed by A.A.B. Pritsker, “GERT: Graphical Evaluation and Review Technique,” memorandum RM-4973-NASA (Santa Monica, California: The Rand Corp., 2000). For more on network planning and scheduling, see “Project Management — A Managerial Approach.” Buffers have been proposed by E.M. Goldratt, “Critical Chain” (New York: North River Press, 1997), 151–160. Such buffers are applied routinely in software projects, as described in M.A. Cusumano and M.W. Selby, “Microsoft Secrets” (New York: Free Press, 1995), 190–207.

5. C. Terwiesch and C.H. Loch, “Managing the Process of Engineering Change Orders,” Journal of Product Innovation Management 16 (1999): 160–172.

6. C.H. Loch, “Acer Mobile Systems Unit (A and B),” INSEAD case no. 4825 (Fontainebleau, France: INSEAD Euro Asia Center, 1999).

7. Another formal approach is scenario planning. But rather than formal approaches, many companies use risk lists with a contingency plan appended to each risk, implicitly treating each uncertain event as independent.

8. C.H. Loch and C. Terwiesch, “The Development of Nopane,” INSEAD case no. 4661 (Fontainebleau, France: INSEAD, 1997).

9. M. Iansiti and A. MacCormack, “Developing Products on Internet Time,” Harvard Business Review 75 (September–October 1997): 108–117.

10. B.M. Bensaou, “Collaboration Support Technologies in Interorganizational Relationships: An Empirical Investigation in Buyer-Supplier Joint Design Activities,” working paper 99/78/TM/ABA, INSEAD, Fontainebleau, France, 1999.

11. Based on discussions with management; see also R. von Bitter et al., “Circored: Experiences With Two New Fine Ore Reduction Processes” (presentation at the METEC Congress, Düsseldorf, Germany, June 13–15, 1999). Lurgi’s (www.lurgi.com) metallurgy business was sold to the Finnish company Outokumpu in July 2001.

12. R.P. Smith and S.D. Eppinger, “A Predictive Model of Sequential Iteration in Engineering Design,” Management Science 43 (1997): 1,104–1,120; and J. Mihm, C.H. Loch and A. Huchzermeier, “Modelling the Problem Solving Dynamics in Complex Engineering Projects,” working paper 2001/48-TN, INSEAD, Fontainebleau, France, 2001.