The silver lining of project uncertainties
discovering opportunities to enhance project value
The Management Challenge
By virtue of their unique nature, projects are mired in risks and uncertainty. Classic project management offers the techniques and tools to manage risks, but, unlike risks, uncertainties cannot be managed in the same ways since they are unknown until they arise thereby making long-term upfront planning an inadequate form of management. Planning is a major component of classic project management, but it does not allow for uncertainties that have not or could not be identified.
The risk management approach adapted by the classic project management standards is concerned with managing the variation around the baseline, but it does not include the notion of maximization. Therefore, both uncertainty and risks are similarly treated as threats to achieving the a priori defined project goals. This may add to the confusion discovered in this study between the two terms, and it may also partially explain the misperception about opportunities because project value opportunities are only recognized and subsequently evaluated and exploited when the predefined baseline is fundamentally questioned. This is a concept that is not included in the standards.
Every project manager has faced an unanticipated situation. The question is whether situations of uncertainty could provide opportunities or is uncertainty associated only with the potential for negative impact to the project? While uncertainties are inherent in projects, it is important to understand the elements of an uncertain environment in order to find practical tools to deal with these situations and perhaps even transform uncertainty into an opportunity for additional project value. Following the arguments of the economists, uncertainties are related with 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. If it is agreed that the economic principle that uncertainty is a precondition for opportunity, then project managers can be viewed as pioneers facing uncertain territory seeking opportunities to create project value. This study explores whether opportunities exist in situations of uncertainty, what they look like, and who perceives them.
A qualitative approach was used to study the situation of uncertainty in projects. The primary means of data collection was semi-structured interviews with the project managers responsible for the case under investigation. In all, 41 in-depth cases were collected from different industries representing six distinct categories of projects with the majority of cases relating to information systems projects. Projects ranged from 3 to 36 months in duration with budgets between $200,000 and $69 million.
What Did We Find?
In a qualitative study using open-ended questions, it is not unusual to be surprised at the information gathered from the interviewees. What was thought to be straight-forward questions, such as “Did you encounter any uncertainty during the project?” were often answered with responses which indicated that the question itself was being interpreted in different ways or that the terminology was confusing. In particular, the terms risk and uncertainty were often used interchangeably and the concept of project-related opportunities was not well understood. In addition, misperceptions were observed about the identification of opportunities. Another major insight of the study revealed that project managers were the stakeholders who most often identified opportunities, which places them in a unique position to find areas of increased business value for their firms.
Terminology Confusion: Risk vs. Uncertainty
It was apparent from the initial interviews that some of the project managers were confused between the concepts of risk and uncertainty. In 14 cases or 32% of those interviewed, project managers mistook risks as uncertainties. This is an important issue, because in this study, opportunities are linked to uncertainties. Project managers who misperceived a situation of risk as an uncertainty are also likely to misperceive the concept of opportunity.
The situations related to uncertainties during project implementation vary widely across the 41 cases. In general, these situations were classified into six categories. The category having the most project uncertainty is related to project stakeholders. About 38% of the identified situations are related to specific characteristics or activities of project stakeholders. Other categories of uncertainties are linked to the organizational and the external contexts in which projects are implemented. Specific project characteristics and mismanagement are events related to uncertainties. In particular, mismanagement is a category of uncertainty that was surprising. In these cases uncertainties were caused by improper management procedures that neglected common project management standards.
Perceptions and Misperceptions of Opportunities
Project opportunities provide the potential to exceed the predefined stakeholder value of a project during that project's implementation. Opportunities have many different characteristics, but all represent a potential for the significant value increase of a project. Basically, when exploited, opportunities can lead to the redefinition of a project's initial baseline. These opportunities represent various means for adding value to a project, such as implementing new technologies or processes, or identifying new projects for the future. Since uncertainty may be a precursor to opportunity, the ability to recognize it is the first small step to the eventual possibility of improving upon the project's initial anticipated value.
The identification of opportunities is a more common process than we expected; there were only 4 projects (9.5%) where no opportunity was identified. One opportunity was identified in 15 projects (36%) and multiple opportunities were identified in 7 (17%) projects. Based on the different opportunities identified in the case studies, four distinct opportunity categories were identified.
The results support the idea that opportunities could be related to situations of uncertainty. While not all projects were related to opportunities, opportunities were only identified in situations of uncertainty. The more surprising result of this case analysis is that at least one misperceived opportunity was identified in 20 projects (47%) at least one misperceived opportunity.
Stakeholders Involved in Opportunity Identification
Not every situation of uncertainty automatically leads to an opportunity, and the identification of opportunities is not self-evident. It is a highly creative process that takes place in the midst of an uncertain situation and is accompanied by deadlines and budget pressure, etc.. However, the process does not end with the creation and identification of opportunities; it ultimately concludes with their exploitation. This is not self-evident either, since the exploitation of opportunities requires significant project changes which could impact the various stakeholders in different ways.
Opportunities are often identified during the implementation stage of a project. The cases indicate that once an opportunity is identified, the possibility that it will be exploited is quite high. An important question is “who identifies opportunities in situations of uncertainty?” We identified four different stakeholder groups who were involved in the discovery and recognition of value opportunities.
|Board of directors||3|
|Project steering committee||1|
The numbers paint a clear picture. Project managers are most often involved in identifying a value-enhancing opportunity.
Implication for Project Management Education
While the nuances between risk and uncertainty become more discernible, the content and methodology for educating project managers and their teams must be revised to include techniques for identifying and differentiating between risk and uncertainty. First and foremost, educational initiatives need to address the nuances between the two concepts. Project managers need to be able to identify both risks and uncertainties and then apply a business-oriented approach to evaluate the alternatives rather than applying the constraint methodologies in order to constrain variance from the baseline. This requires an educational focus to transition from a process orientation to business orientation that analyzes the business value associated with the potential changes to the baseline in an uncertain environment. Analysis and business skills are extremely valuable to project managers who are interested in taking a more strategic outlook toward their projects.
Classical project management training is built on the foundation of processes and routines. The emphasis on constraint management rather than opportunity and value management reduces the implementation of a project to a “to do” list, while disregarding the potential for leveraging uncertainty as a positive context for value creation. Some of the “soft skills” or business skills such as negotiation or managing conflict have only recently been discussed as auxiliary content, however, the main focus remains on the structured, repeatable processes identified within A Guide to the Project Management Body of Knowledge (PMBOK® Guide). The strategic transition initiatives that will elevate the project manager's role and provide the potential for enhanced business value are:
- Introduce the discovery and exploitation of opportunity to project management.
- Augment process knowledge with business knowledge.
- Integrate academic business disciplines into project management.
Changes in Practice
The cases that were analyzed force the examination of how risk and uncertainty impact the potential for business value opportunity with emphasis on the question: What does the differentiation between risk and uncertainty mean for the current practices of project management?
The results indicate that the classical project management process-based standards do not sufficiently address the more fluid management techniques needed for situations of uncertainty, nor do they speak to the potential for enhanced value and the tools needed for assessment and analysis. Project sponsors need to determine how closely to align the management techniques with the triple-constraint methodology. The prioritization between budget and time constraints will have to be assessed against the value possibilities associated with the exploration of an uncertain environment and the degree of willingness to modify the initial baseline.
Preparedness is a critical element for management, but, with uncertainty, that luxury does not exist. Therefore project managers will need enhanced skills to extract value from the opportunities embedded within uncertainty. These skills include:
- Flexible management expertise to quickly assess situations and identify opportunities,
- Ability to analyze the impact of the change, and
- Ability to communicate the potential value of the opportunity.
The findings demonstrate the important differences between the management of risk and the management of uncertainty. The practical insights of this research offer project managers and business sponsors the basic foundation of a business perspective for managing projects. Uncertainty does not occur on a daily basis, and its management requires a very different set of tools and mindset. First, it requires the relinquishment of the baseline view and the ability and authority to question the project's fundamental value proposition. Second, it requires a business perspective to identify opportunities for maximizing project value that could sacrifice significant project goals, such as significantly extending the budget or schedule, or changing the scope. Third, it requires leadership skills to moderate and lead the discussions with the various stakeholders in order to successfully exploit an identified opportunity.
Organizations that choose to look for the value hidden in the cloud of uncertainty will need to rely on front-line project managers who will most often be the first to identify those opportunities—if indeed they are encouraged and trained as to the means of value assessment and analysis. Projects provide a rich environment for both risks and uncertainties, and while classic project management provides a deep and broad array of tools and techniques for managing risks, it does not address the methodology and tools necessary for dealing with uncertainty. Embracing uncertainty is not for the faint of heart, however, in order to capture the value that is now slipping through the cracks in floorboards, it must no longer be our enemy.
©2013, Thomas Lechler
Originally published as a part of 2013 PMI Global Congress Proceedings – New Orleans, Louisiana, USA