Handling project uncertainties and change using the successive principle
Steen Lichtenberg and Russell D. Archibald
One of the new generation of management practices is the Lichtenberg Successive Principle1, as it has come to be known internationally since its first application in 1970 in Northern Europe. It is deceptively simple in concept, but requires the dedication of the senior people involved to make it work properly. It has been applied successfully in many countries and on a large number of projects in various industries. Here we will briefly describe the Successive Principle and give a few examples of its application.
Description of the Successive Principle. The Successive Principle is an integrated decision support methodology or process that can be used to address a variety of business problems or situations. It is particularly well suited to conceptualizing, planning, justifying, and executing projects. Its purpose is to produce unbiased, realistic results (time or cost estimates, risk analyses, profitability calculations, key decisions, and understanding of other key aspects or parameters of a project) based on holistic, broad coverage of all factors influencing or involved with the project, including subjective factors, hidden assumptions, and especially areas of uncertainty or potential change.
How It Works. The Successive Principle incorporates the concepts of holistic, whole-brain, systems thinking and the team approach with the mathematics of uncertainty and probability. The basic steps are:
1. Identify the evaluation subject and purpose. The evaluation subject may be a set of strategic plans, a project in the embryonic or early conceptual phase, a response to a request for proposal or bid on a defined project, a project encountering unforeseen problems, a project entering a later phase of its life cycle, as well as other situations requiring a disciplined decision-making support system. The evaluation purpose may be to decide (a) whether to proceed with the project, prepare a proposal and submit a bid; (b) what action to take in response to a particular change or problem; and/or (c) what risks are involved and what contingency plans are required to mitigate the identified risks, to name a few examples.
2. Form the evaluation team. Identify the most appropriate team of people for the evaluation purpose. The team should include persons with knowledge and experience in the major aspects of the evaluation subject, and if possible representing the most involved organizations.
3. Identify, quantify and rank the central factors of uncertainty. The team, using its factual knowledge and intuitive hunches and guesstimates, stimulated by open interchange of ideas and opposing points of view in a truly collaborative style, first identifies the factors that, in their collective judgment, reflect the greatest uncertainties or unknowns regarding the evaluation subject and purpose. Frequently, this results in a list of “top 20” items for further consideration. Second, the team members organize, define, and quantify each identified factor using the so-called triple estimate (minimum, likely, maximum) and Bayesian statistics to calculate the total result as well as the relative criticality to the result from each factor. This is expressed as the factor's specific influence upon the uncertainty of the result.2
4. Successively break down the most critical factors to reduce uncertainty. If any of the critical factors identified and quantified in Step 3 exhibit unacceptable levels of uncertainty (that is, the range between best and worst estimates is too great, or the mean value is too large or too small), the most critical factors are further broken down into their component parts (subsystems) by the team. These subfactors are in turn quantified and are included in the above ranking in the same manner as before. This successive breakdown, quantification, and ranking is continued until the level of uncertainty is close to the minimum or unavoidable. Logically, no further reduction in uncertainty can be achieved.
5. Present the results and make the decision. The results of the evaluation are presented by the team to the decision maker, who may accept them or require a re-planning. This systematic, disciplined, but wideranging and intuitive plus factual backup for the results has proven to be extremely persuasive in many diverse settings, and the resulting decisions have proven to be well justified. The results represent a realistic, largely unbiased total measure of the most likely values of the key parameters under consideration, and the related degree of uncertainty. Experience indicates that a list of the top ten areas of uncertainty will usually encompass all of the most critical items that need to be improved or kept under observation. Another very important but informal result from using the Successive Principle is attainment of a higher level of mutual understanding, trust and consensus among the evaluation team members. This improved potential for cooperation is utilized during execution of the project, if the decision is made to proceed, for better commitment, teamwork, motivation, and more productive response to unforeseen events and changes.
Case Example: Winning a High-Tech Systems Program Contract
Several typical applications of the Successive Principle are given here to illustrate its power and benefits. The first case involves a medium-large defense program, which might even be termed a mega-project (two-digit billions in U.S. dollars), in a European country. The client country announced in the early 1980s its program for the radical modernization of a part of its defense system, and invited selected companies and joint ventures to a prequalification process. A company in a smaller country that was interested in proposing on this effort had a long experience and good competence in a part of the program, but suffered from a lack of know-how in other areas.
Analysis sessions using the Successive Principle helped a small European company overcome its size handicap and win an important defense contract.
Initial Use of the Successive Principle. This company started a search for joint venture partners in other countries, and began negotiations with potential partners under the condition that the company would be the prime coordinator. At the same time the project manager, his senior management, and key project persons performed their first analysis sessions using the Successive Principle to identify, clarify, and rank the business risks and opportunities imbedded in the venture as well as to estimate realistically the expected profit.
Useful Results. After the analysis sessions the participants found themselves changed. To a higher degree than before this group of managers and key project persons considered themselves as members of the same team. They also shared a deeper insight into the project, and found it to be most promising, but with a scope and complexity far beyond their previous projects. They conclusively established a firm team commitment to win the contract and then implement the project successfully. The project manager thus found himself having unusually strong support.
Negotiations With Partners. The knowledge of the primary problem areas obtained during the analysis was now used to support the company during its final negotiations with the joint venture partners, which soon resulted in agreements with companies in several countries.
Joint Venture Use of the Successive Principle. After a successful prequalification of the proposed joint venture, a joint venture project group of key persons was organized and a new series of analysis sessions was conducted using the Successive Principle. Guided by an updated top-ten list of uncertainty areas, the group strengthened itself as a team and at the same time worked systematically to clarify and utilize the largest potentials indicated in the top-ten list.
A Key Factor: The Client Country. One of the top-ten factors was the degree to which the project was “colored” by and anchored in the client country. So the local share and local partners (those located in the client country) were given high priority and much attention at an early stage. In this connection it was found important to seek out not only competent but also prestigious local partners. Because the joint venture came so early to this conclusion they could freely seek out and agree with the best of the local partners. This later proved to be a most important factor to final success.
Winning the Final Competition. The next stage of the competition left three remaining candidates for the project: this joint venture and two competitors, both based in very large countries. These two competitors were therefore able to use considerable political pressure on their behalf, including visits of their countries’ prime ministers. Parallel to the political side the client negotiated with the three candidates using the conventional forms of pressure. During this critical period, current analysis sessions (using the Successive Principle) allowed the project manager and his key persons to know exactly where they could give and where to hold fast, also keeping in mind the relative perceived benefits on each point as seen from the client's point of view. Most importantly, the joint venture knew, through the analysis results, the most realistic, ultimate limit of price reductions.
According to the project manager, this knowledge, together with the top-ten lists, the team-building effect and the other benefits of the analysis sessions, were decisive factors for winning the contract, in spite of the handicap of being a considerably smaller company from a relatively small country.
The Outcome to Date. The program has now been under implementation for some time. The updated expectations of the results are reported to be positive, and still corresponding to the earlier analysis results.
Case Example: A High-Tech, Multi-Use Arena Project
The Design Concept. A European city needed a high-tech, multi-use arena that could also function as a landmark. This materialized in a design competition in the first part of the 1980s. The winning design was unique in many respects, reflecting an integration of the artist's and the architect's work. The estimated costs for this 10,000-seat arena were at this point in time about 80 percent, using 100 percent as the actual final amount measured on the same cost index.
Funding the Project. During the next four years the municipal owner discussed the project, found the financial means, and then was ready to proceed. Meanwhile the consultants had further developed the concept to meet the needs of many different sports, including ice hockey, basketball, and horse riding, as well as all forms of dance, concerts, exhibitions, and so on. A high degree of mechanization allowed minimum lead time between various events.
Initial Use of the Successive Principle. At this point, the newly established project manager initiated a two-day analysis session using the Successive Principle to evaluate realistically the expected costs and related uncertainty before the detail design could start, and before he committed himself to the project. The result stopped the whole project! The developments during the four years and/or optimism in the original budget meant a doubling of cost, from 80 percent to more than 150 percent. Additionally, the uncertainty of the cost was unacceptably high (with a standard deviation of about 15 percent).
A final cost only 1 percent from the expected value was the result of timely cost follow-up, change controls, and the use of Successive Principle analyses.
Redesign and Re-analysis. A redesign followed, with the owner in parallel seeking additional financing. The new goal was to keep the budget safely below 110 percent. One year later the new concept was again analyzed. The result this time was acceptable: with a cost of 95 percent expected and a 12 percent standard deviation it would be possible to keep the budget limit of 110 percent with a sufficiently safe margin of reserves.
Detail Design and Contract Award. One year later the detail design was ready and most bids received. An update analysis was performed, using the Successive Principle, resulting in an estimate of 105 percent, plus or minus 10 percent. After a short final cost-cutting process down to 99 percent, the contracts were signed and the construction period began.
Results Achieved. The completion target date was set so that the first large event could be held in the arena 23 months from the start of construction. In reality, the first event was realized in only 19 months! The project manager concluded that the identification and discussion of the critical factors by the project team, using the Successive Principle, contributed significantly to the very successful implementation.
After a busy first year of operation with several national and international events, the final accounting was made and accepted. The result was a cost of 100 percent, which was 10 percent below the ultimate limit and only 1 percent from the expected value. This was not pure luck, but rather the result of timely cost follow-up, control of marginal project changes when necessary, plus the assistance of the Successive Principle analyses.
A few of the wide range of examples of the use of this approach are:
- Optimization of strategic plans
- Strategic “survival plans” for a large shipyard
- Export of large, high-tech telecommunications systems.
The above examples are selected from about 300 applications of the Successive Principle over 16 years, all with documented records of good analysis performance. There have been no cases of unpleasant surprises when comparing the analyses to the actual results, except that the projected outcomes have often been surprisingly close to the actual achievements—especially when comparing projected and actual project completion dates.
Conclusion: Holistic Management Has Arrived
Too often projects fail to meet expectations because the practices and tools being used do not accommodate the uncertainties and change that are prevalent in today's project environments. A new management model based on holistic, systems thinking and using fuzzy logic, probabilistic methods, and teaming of the people who have the best knowledge of all major aspects of the project, is required. The Successive Principle exemplifies an approach that embodies these concepts, and which has been applied to a large number of various, complex situations. Further refinements of this approach can certainly be expected, but the key concepts it embodies are rather universal:
- Project objectives are given high priority, including intangible, informal ones.
- Deep involvement of the key interested persons is required.
- All potential factors that may significantly affect the project are dealt with, including those that are uncertain, fuzzy, or normally hidden within key assumptions.
- Uncertainty is accepted, not only as a natural, unavoidable element, but as a highly useful and important matter, and handled strictly according to Bayesian statistical laws.
- Intuition, whole-brain and team thinking are encouraged and accepted.
- Strict top-down planning is applied, with detailing of only the most uncertain factors.
Experience with several hundred projects over a 16-year period in using the Successive Principle shows that compared with the use of traditional project planning and evaluation methods:
- Far more correct decisions are made.
- Consensus is reached more quickly and efficiently and produces previously unused synergistic benefits of good cooperation and motivation.
- A far better understanding of and adaptability toward changes (for example, during contract negotiations) is produced.
The new project management principles are in full operation. Holistic project management is starting to take over. ■
This article was adapted from Archibald and Lichtenberg, 1993, “Experiences Using Next Generation Management Practices,” Keynote Paper at the 11th INTERNET World Congress on Project Management, Florence, Italy, and published in Proceedings, vol. 1, pp. 83–96. For further background on the approach described here, see “Uncertainty and Change Require a New Management Model” by the same authors, PM Network, May 1994, p. 6–10.
1. For more detailed discussion and description of the Successive Principle, see:
Lichtenberg, Steen. 1990. Experiences From a New Logic in Project Management, Dimensions in Project Management, Reshke, H. and H. Schelle (Editors), Springer-Verlag, Berline, pp. 144.
Lichtenberg, Steen. 1989. New Management Principles for the Conception Stage, International Journal of Project Management, INTERNET/Butterworth, London, vol. 7, no. 1, pp. 47–51.
Lichtenberg, Steen. Real World Uncertainties in Project Budgets and Schedules, Proceedings of the 1981 Joint PMI/INTERNET Symposium, Boston, pp. 179–193.
2. Correct use of the methodology eliminates the need for correlation factors, because the user deliberately creates stochastic independence between items and factors.
Steen Lichtenberg of Lichtenberg and Partners, Hellerup, Denmark, is an internationally recognized researcher, consultant, and lecturer on project management.
Russell D. Archibald has more than 40 years of international experience in the program and project management fields. He is a Founding Member of PMI, a PMI Fellow and a certified PMP.
PM Network • May 1995