Project risk and opportunity management an owner's perspective · Norwegian University of Science...

Norwegian University of Science and Technology

INTRODUCTION

Project risk and opportunity management –an owner's perspective

Why chase opportunities?

Asbjørn Rolstadås

Professor emeritus, NTNU


My background• MSc in Mechanical Engineering, NTNU (1968)

• PhD in Production Engineering, NTNU (1972)

• Professor Production Engineering, NTNU (1984)

• Vice Dean, Faculty of Engineering Science (2006-2017)

• Research

− Numerical control of machine tools

− Computer-aided manufacturing systems

− Production management and logistics

− Productivity measurement and development

− Project management

• 317 publications including 21 books


The rationale for a new book

• Risk is adequately addressed in all mega-

projects

• Opportunities are often overlooked or

neglected

• Project success is strongly linked to how

uncertainty is managed

We need a new perspective

on how to manage projects


Sydney Opera House – Project Success?

By Christian Mehlführer, User:Chmehl - Own work, CC BY 2.5,

https://commons.wikimedia.org/w/index.php?curid=3378013

• Cost overrun by a factor of 14

• 15 years behind schedule


New Norwegian monetary unit

• Project goals• Unsuccessful

• Business goals• Successful

• Societal goals• Successful

130 % cost overrun

These are the

projects that get

media attention!


Projects are difficult to manage

• They may involve substantial innovation, as there might not be any proven technology available.

• As they are one-of-a-kind, there is limited experience data available for planning and execution.

• They involve cooperation amongst several organizations that may not have previous experience from working together.

• They have a high complexity involving many actors and challenging processes, organizational aspects, and logistics.

Need to understand complexity

to successfully manage projects


Project complexityNot a direct function of size, and more than simply a big project

• Baccarini (1996)˗ Organizational complexity˗ Technological complexity

• Williams (2002) ˗ Structural complexity (organizational and technological)˗ Uncertainty (uncertainty in goals and uncertainty in methods)

• Shenhar (2001)˗ Four levels of uncertainty (low, medium, high and super high tech) and three

levels of complexity (assembly, system and array project)

• Brady and Davies (2014)˗ Structural complexity (system produced, producing system, wider system˗ Dynamic complexity


A project complexity framework

Complexity

drivers

Surroundings

Nature

Project

result

Project

execution

Complexity

factors


A project complexity model

• Ambiguity

• Uncertainty

• Unpredictability

• Pace

Complexity drivers

Complexity factors

Nature

• Socio-political

• Economic

• Technological

Surroundings

Project execution Project result• Producing system

• Production technology

• Project context

• System produced


Uncertainty, risk and opportunity

Uncertainty

Risk

factor

Con

se

qu

ence

s

Opportunity

factor

Risk

Opportunity

Uncertainty = opposite of certainty = lack of information

The difference between the amount of information required to perform a

task and the amount of information already possessed by the organization

(Galbraith, 1977)


Uncertainty influence

Activity

execution

Decision to

do activity

Potential

result

Uncertainty

influence

Potential

result

Potential

result

TechnologyNature Stakeholders


Major stakeholders

Project owner Project organizationPEO


Project owner roles

• Asset owner: the part of the owner’s organization that is responsible for the business case

• PEO (Project Executive Officer): the part of the owner’s organization that is responsible for the governance of a single project

• Sponsor: the one that provides the funding of the project

• Users: those who will use or apply the results of the project


Project stakeholders

Primary internal

stakeholders

Project owner

Project team

Suppliers

and

contractors

Project organization

Project

manager

PEO project A

(project governance)

PEO project B

(project governance)

Sponsor Users

Asset owner

(strategic project portfolio management)

Primary external

stakeholders

Authorities,

resource

owners,

service

providers

Secondary

stakeholders

Media,

NGOs,

organizations

or persons

influenced by

(or indirectly

influencing) the

project


Types of uncertainty

• Known knowns

• Known unknowns

• Unknown unknown

Death

Weather

Black swans


Un

ce

rta

inty

fa

cto

rsUncertainty Impact

Potential

resultImpact

ImpactPotential

result

Potential

result

Controllable FactorsNon-controllable Factors

Influence

Action

Opportunity

Risk

Directly involved in

project execution

Directly involved in

project results

Indirectly influential

Quality and deviation

of design

Quality and deviation

of the construction

Change of methods

and technology

Soil condition, cables

and pipes in the ground

Optimizing solutions

New owner

requirements

Weather

Market

Accidents

Stake-

holdersNature Teknology


Major sources of uncertainty

• Stakeholders may have conflicting expectations

• Project objectives may change

• Insufficient definition of project result or development method

• Technological constraints

• Market conditions

• Variations in quantities or quality


Risk and opportunity categories

Categories• Operational

• Strategic

• Contextual

Time

Op

port

un

ity

Strategic opportunityOperational opportunity

Contextual opportunity

Strategic riskOperational risk

Contextual risk


Classical risk management process

Perception that risk is something “evil” that should be avoided.

Identification of

risk factorsRisk analysis

Risk action

planRisk control


Need for a shift in mindset• Projects as deliverables to a means to enhance project

business value

• Uncertainties as “evil” to acknowledge the project nature as unique and uncertain

• Projects as known tasks to be accomplished in known environments to embracing a continuum of tasks to be executed in turbulent business environment

• Deviations from project baselines as inaccurate planning or inappropriate control to acknowledgement of deviations as being the rule


Manage risks rather than eliminating them


First attempt at a changed mindset

Beyond the myth of predictability

1. Exploring the hidden risks in the CAPEX portfolio

2. Risk navigation strategies

3. Risk navigation tactics for a reshaped governance system


Extended risk navigation concept

Bermuda risk triangle


Extended risk navigator components


Opportunities are overlooked

• Innovation is often avoided in large projects due to uncertainty

• The owner and the project management try to minimize risks

• Rely on using proven technology

• Choosing the lowest bid, transferring risk to contractors, and sticking to the original plan

Why?

• Safer to stick to the agreed plan

despite potential reward in

chasing opportunities.

• Existing tools neglect

opportunities

• Exploiting an opportunity could

be time consuming and costly.

• If the project is on track, there is

little motivation to seek new

innovations.


Second attempt at a changed mindset

An owner’s perspective

1. Why chase opportunities?

2. How to chase opportunities

3. Changed mindset


Risk and opportunity management approach

Opportunity analysis

• Project view

• Project owner view

• Society view

Establish risk and opportunity

management strategy and identify

uncertainties

Cost risk/opportunity

analysis

Schedule risk/opportunity

analysis

Mitigation/exploitation

actionsMitigation/exploitation

actions

Expected project cost

Expected project

deliverables hand over

date


Hunting for opportunities makes a difference

• It creates a potential to improve the deliverable during project execution

• It helps avoid cost and schedule overrun

• It shifts the mind from reactive to active thinking

• It is a new management philosophy requiring project managers with a changed mindset

• However, hunting for opportunities is challenging – if the project is not willing to change plans – the best hope is "as planned“


What next?

• Industry must shift focus from mitigating risk to manage positive and negative uncertainty

• We must develop tools to identify and exploit opportunities

• We need pilot projects to test new tools and research to prove benefit of hunting opportunities

• We must further develop an opportunity typology and do research to link typology to success factors

Project risk and opportunity management an owner's perspective · Norwegian University of Science...

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