Exploring contextual conditions of project uncertainties and project value opportunities

Abstract

The management of uncertainty during a project's implementation is not well understood. Following the arguments of economists, uncertainties are the cause for opportunities. This research aims to identify specific classes of opportunities and specific contextual situations under which they occur. Due to the innovative nature of this research, an exploratory study covering twenty cases was conducted. Four categories of opportunities and five classes of uncertainties were identified. All opportunities were connected with at least one uncertainty, but not every uncertainty relates to opportunities. We unveiled that project managers misperceived risks as uncertainties, and some situations were misperceived as opportunities. Linking these misperceptions to the mindsets of project managers revealed that none of the project managers with business-oriented mindsets misperceived opportunities, whereas half of those project managers with triple-constraint mindsets misperceived opportunities. Our study sheds light on a new project management paradigm and suggests future project management education needs to include a deeper exposure to business context if we want to better equip project managers for the challenge and opportunity posed by uncertainty.

Keywords: project opportunity; triple constraints paradigm; project value maximization; project uncertainty; project risk

Exploring Contextual Conditions of Project Uncertainties and Project Value Opportunities

The management of projects is faced with challenges from both risks and uncertainties. The foundation for managing project risks (known-unknowns) is the triple constraint paradigm (TC), which is the basis for identifying and quantifying the sources of variation and the analysis of tradeoffs. The project management literature has a long tradition in the area of managing project risks and it could be concluded that it is a relatively mature component of the overall project management discipline.

However, the concept of uncertainty has not yet been clearly addressed in the industry standards or in the research literature. 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. Therefore, uncertainties are not necessarily limited to negative consequences; there are positive implications as well. Some authors suggest this in hindsight (Loch, DeMeyer & Pitch 2006; Jaafari, 2001).

Classic project management offers many concepts and tools to identify project risks; however, it does not offer a basis for understanding the relationship between uncertainty and opportunity (Thiry, 2004; Siebert, 2005). 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 a buffer to mitigate these risks.

This risk management process assumes that events are known and can be quantified with some probability. Given these conditions, it is conceptually not possible to identify and treat uncertainties because they are not known at the beginning of the project. More importantly, it is not clear how to manage these unknown-unknowns. Following the classic project management logic, variation from the baseline should be avoided because it is a negative impact to the project. Applying this logic, the baseline cannot be questioned and there is no opportunity to redefine the value proposition of a project.

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. Based on twenty in-depth cases, this study explores the relationship between the perception of risks, uncertainties, opportunities, and their relation to project outcomes. It is an exploratory study to characterize opportunities and uncertainties occurring during a project implementation. It sheds light on the causes of uncertainties and their relationships with project-related opportunities. The study also considers the impact of a project manager's mindset on the perception of risks or uncertainties and the recognition and exploitation of opportunities.

Conceptual Foundation for the Case Study Approach

Uncertainty is related to unforeseeable project situations (unknown-unknowns) but it does not necessarily lead to a negative consequence. The nature and significance of value-related opportunities stemming from uncertainty on the project level are not known. However, it is known that specific project situations lead to unconventional solutions creating value for a project's stakeholders. In general, opportunities represent the potential for extraordinary value or, as Schumpeter (1934) calls it, “entrepreneurial profit.” Thus, when applied at the project level, the concept of opportunity represents a potential to create value for a project's stakeholders beyond the initial requirements or the predefined baseline.

Eckhardt and Shane (2003, p. 336), define entrepreneurial opportunities as: “…situations in which new goods, services, raw materials, markets and organizing methods can be introduced through the formation of new means, ends, or means-ends relationships.” For purposes of this study, we view opportunities with a focus on the concept of project value and define project opportunities as: Project value opportunities represent a potential to alter and/or exceed the predefined stakeholder value of a project.

Several authors (Ward, 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 because opportunities are conceptually not an alternative and variation should be avoided.

Methodology

This research employs a hybrid approach, reflecting both positivist and interpretive perspectives (Kirsch, 2004) to describe the basic characteristics of opportunities and risks in project implementation. This exploratory case study was designed and conducted following the guides of Eisenhardt (1989), Yin (2003), and Corbin and Strauss (2008).

Data Collection and Sample Description

The primary means of data collection was semi-structured interviews augmented with project documentation. The interviews were conducted between July 2010 and August 2011 and resulted in 20 cases as described by 19 project managers. All interviewees were project managers of the projects under investigation. The interviews usually lasted about 90 minutes and were conducted by at least two researchers. Recordings were not allowed by our interviewees and, as a method to increase accuracy, notes taken during the interview were immediately reviewed and case write-ups were created and confirmed by the interviewees before we started our data analysis (Eisenhardt, 1989).

The case study protocol and database were created according to recommendations for establishing construct reliability and validity (Yin, 2003). The case study protocol specified the procedures and the questionnaires to collect data. The interviews included four steps. The first step gathered general information about the industry, size, and general products of the organization. During this step, the interviewees described one of the projects they managed in which they perceived unexpected events. Stakeholder structure, planned and actual budgets, schedule, and scope information are collected in this step. The interviewees were also asked about the degrees of innovativeness and complexity of the project they perceived. The second step is an open discussion with the interviewees to identify up to three major situations of project uncertainty. In the third step, the interviewees were asked to name two situations of uncertainty in which opportunities were discovered to improve the project's value. The sources of uncertainties and the means in which opportunities were discovered and exploited were discussed in detail. In the fourth step, the interviewees discussed opportunities, which were discovered but not exploited. The specific questions were modified slightly as the interviews progressed. For example, initially project managers were confused by the concept of uncertainty and we added explanations to clarify the question.

Data Analysis

The study followed the suggested protocols for improving analysis speed and identifying needed adjustments to the data collection procedures by overlapping data collection and analysis. (Eisenhardt, 1989; Corbin & Strauss, 2008) Debriefing meetings were arranged as soon as possible after the case write-up accuracy was confirmed by the interviewee. All relevant researchers participated in the debriefing where the essential constructs of this study, uncertainty and opportunity, were interpreted and in some cases required clarification from the interviewee. The resulting report recorded the project managers' perceptions of the project and the researchers' perceptions of the mindset classification for each project manager. The report also included the sources of uncertainty, and discovered opportunities and any malpractice or mismanagement in the project.

The case write-ups and interpretation reports were coded following a multistep coding process by Corbin and Strauss (2008): open coding, axial coding, and selective coding. On completion of an interview, open coding was conducted for each opportunity and uncertainty situation and was iteratively conducted for each case. Axial coding was taken to classify previously identified concepts into categories at the completion of ten cases. The findings in the first round of interviews then guided but did not limit the analysis for the next round in order to confirm and complement existing findings. A selective coding process was used to integrate and refine those findings to create the theoretical contribution of this study. A cross-case analysis was conducted and included in the following result section.

Case Data

The investigated projects were categorized as described in Table 1. The schedule objectives of the projects range from 8 months (Case 2) to 36 months (Case 1), with a range of budget objectives between US$500,000 (Case 7) and US$ 69 million (Case 5). Twelve projects were claimed to be highly complex; five had a medium complexity; and three were low complexity, with percentages of 60%, 25%, and 15%, respectively.

Table 1: Project categories of cases.

Project Opportunities

From the twenty cases, several opportunities were identified and classified (Table 2). The results show that opportunities were identified and exploited in only 13 projects. Opportunities have many different characteristics but all represent a potential for significant increase in value to a project under the condition of significant change. Basically, when exploited, they lead to a redefinition of a project's initial baseline. They represent various means for adding value to a project, such as implementing new technologies, new processes, or identifying new projects for the future.

The first category of opportunities identified in our cases is technical innovation. Case 5 illustrates an opportunity to meet a new regulatory requirement through the development of an inexpensive testing solution during project implementation.

The second category is related to opportunities in implementation process. For example, in Case 13 constrained resources led to the development of a common build process that will save time, money, and decrease post-deployment issues. These opportunities often lead to new procedures to be used beyond the actual project.

The third category is project business opportunity. The project described in Case 1 faced uncertainty when the original business sponsor was no longer involved in the project. The new business owner created additional business opportunities by opening leads into other agencies and broadening the audience for the project output.

The fourth category is future project business opportunity. In several cases, opportunities were identified that could generate value beyond the project. For example, in Case 7, the project manager recognized the business value of the knowledge that was being gathered from the project and, if properly managed, could be applied to future projects. In another case (Case 16), the solution to a software problem that developed during implementation was applied to the customer service area of the company to improve efficiency.

Table 2: Identified opportunities.

Sources of Project Uncertainties

Thirty-three uncertainties (unknown-unknowns) were perceived by our interviewees, in which twelve perceived uncertainties in ten projects were actually risks rather than uncertainties. These sources of uncertainties were classified into six categories (Table 3).

Contextual turbulences include changes that impact the project, such as external legal issues, dynamic markets, and regulatory uncertainty. For example, Case 3 encountered the uncertainties associated with a dynamic business market in a software application project. The changes in the market made some applications obsolete and required the addition of new applications. In Case 5, the original requirement needed adjustment due to changes in the regulations that required a different method of providing evidence of compliance.

Stakeholders are also main sources of uncertainties. For example, customer-induced changes in Case 5 were required when the customer did not comply with the procedures previously agreed on. Vendors could also create uncertainty, as in Case 9, where the vendor failed to deliver product on a timely basis. The ownership of the project in Case 1 was uncertain after the project sponsor retired.

Technological uncertainties are the third category. Even well-developed technical specifications can fall victim to unknown-unknowns. In Case 19, during the preliminary test phase, a particular technical functionality issue could not be solved by the specification as stated. A unique component was needed to meet the end-user's requirements.

Organizational uncertainties are represented by the fourth category. Organizational changes could lead to project uncertainties. A corporate merger in Case 10 created a level of redundancy in the project, which made the roles and responsibilities of the groups involved in the project unclear. It was impossible to plan for this redundancy, because the project team had no knowledge of the pending merger and that the company being acquired was involved in a similar project.

Project uncertainty is also a category that creates an ambiguous environment for project teams. The projects under investigation provided examples of unrecognized complexity (Case 11 and Case 18).

Malpractice. We identified instances in which the absence or lack of adherence to project management standards created an environment of uncertainty; these situations were categorized as malpractice. For example, in Case 7, the lack of root cause data surrounding the company's instrument problems was the result of the absence of a tracking mechanism; therefore, creating a lengthy and more costly root cause analysis process when a problem occurred.

Table 3: Identified sources of uncertainties.

Identified Misperceptions

Misperceived Opportunities. Several opportunities and situations of uncertainties reported by the interviewees were determined to be misperceptions in the data analysis phase (Table 4).

We have identified three categories of misperceived opportunities:

1. One is project as an opportunity, which means the project itself was claimed to be the opportunity. In Case 18, the project was driven by the CEO and represented a strategic business opportunity. The project itself created value for the company, but no opportunity was identified during the project implementation.

2. Another misperceived opportunity was what we call a self-evident opportunity, which is represented in Case 2 and Case 10. In both cases, the opportunity was offered by the externalities and was obviously better than the alternatives; there was no need for the project team to search for opportunities and there was no choice or alternative.

3. The third category describes opportunities that were not opportunities at all. For example, in Case 6 the management team did not connect opportunity with value. They considered the addition of a playground area to a park an opportunity because it was offered by a not-for-profit organization. However, the target customers of the project were fishermen and the value of the playground to them was questionable.

Misperceived Uncertainties. Using our definitions, unknown-unknowns are uncertainties but known-unknowns are risks. However, as Table 4 shows, project managers of 10 out of 20 cases confused these two different concepts and typically mistook risks as uncertainties. For example, in Case 2, the interviewee described three situations of uncertainty, all of which we classified in the data analysis phase as perceived risks. The need for certain processes to accommodate depth-related construction, debris removal, and potential shut down due to environmental issues are typical construction situations that should be considered as “known unknowns.” The project manager in Case 11 perceived insufficient resources from the vendor as a source of uncertainty; however, in this large-scale IT project, resources committed to the project were always limited, making the situation a risk, not an uncertainty.

Table 4: Misperceived uncertainties and opportunities.

Discussion

The primary focus of this exploratory study was to first provide insights and to establish a basis for further studies on the relationship between uncertainty and opportunity during a project implementation; but our case analyses also document confusion surrounding the meaning of uncertainty.

The following discussion addresses both issues. First, we analyze the relationship between uncertainties and opportunities occurring during the implementation of projects. Second, we analyze potential causes for the identified misperceptions of uncertainties and opportunities.

The Relationship between Uncertainties and Opportunities

In reviewing the perceived uncertainties and opportunities identified in Table 5, it is clear that the influence of opportunities is wide and deep. Significant aspects of the project (e.g., schedule, budget, quality, financial returns, non-financial returns, stakeholder satisfaction, and shareholder satisfaction) are all potential benefactors of the opportunity realized from uncertainty. The incremental value embedded in these opportunities is particularly critical in business environments. The practical aspect of this research provides a means of identifying and exploiting lost value as a means of maximizing rather than merely optimizing the business value of a project.

As Table 5 shows, most of the real opportunities are related to real uncertainties. For example, the unknown ownership of the project in Case 1 motivated the project team to proactively seek a new project owner. Their networking efforts with contacts in different federal government agencies resulted in the identification of a new owner who would bring the project to the attention of a larger audience. In Case 5, a new regulatory requirement would have increased the project cost by US$2 million for the needed compliance testing. The regulatory environment represents considerable uncertainty in many projects and led to the opportunity to develop a testing solution, which could provide the framework for effective yet inexpensive testing on current and future projects.

In Case 11 and Case 12, the project managers have correctly identified uncertainties and discovered and exploited opportunities. For example, in Case 12, it was the tight technical specifications that made the project team outsource some of the engineering work from the organization to a third party as an opportunity to lower overhead expenses charged to the project's budget, resulting in a 50% reduction in labor charges. Another special case is Case 13. In this case, the standardized process was the opportunity to increase efficiency. Although real uncertainties were identified, the opportunity was not driven by uncertainty or external pressure. It was driven by value maximization pursued by senior management as a means of standardizing testing rather than continuing to do expensive customized tests.

Case 2 and Case 10 show us that real opportunities are connected with real uncertainties, whether the real opportunity or uncertainty is perceived by the project manager or not. For Case 2, no real uncertainties were identified by the project manager but a real opportunity was exploited, which was the redesign of the concrete access platform that reduced the duration of the project. The driver for identifying the opportunity was customer complaints misperceived as uncertainty by the project manager.

The review of the cases indicates that opportunities are always related to uncertainties; therefore, if a project manager perceives uncertainties correctly, there might be a good possibility to identify an opportunity that would add value to the company. Based on this discussion, we can draw two propositions for future investigations:

Proposition 1: Opportunity could be discovered or created from uncertainties in project settings.

Proposition 2: Project managers who can perceive uncertainties have a higher likelihood to discover and explore opportunities.

Table 5: The perceived uncertainties and opportunities.

The Relationship between Project Manager's Mindset and Perceptions of Uncertainty and Opportunity

In this section, we explore the question of why misperceptions of situations of uncertainty and opportunity occurred among the interviewees. What are the underlying causes for misconceptions? We propose that a project manager's mindset may contribute to his or her perceptions of uncertainties and opportunities and further influence the discovery of opportunities.

Using the participants' answers about contextual details of the identified uncertainties and discovered opportunities, we categorized the mindsets of the project managers. For example, we asked the interviewees questions, such as: How they managed the specific situation of uncertainty, what decisions they made, who was involved in the decision-making process, and how the decisions affected the project outcomes. We also asked questions regarding how they tried to create project value. Did they try to adhere to the triple constraints or did they ask questions to create value beyond the predefined baseline? Based on the contextual information and the role they took in the project, we classified them as either project managers with a triple constraint mindset or a business-oriented mindset. Triple constraint minded project managers (TC PMs) are those who adhere to the triple constraints as defined by classic project management, whereas project managers with a business-oriented mindset (BO PMs) tend to make decisions from a business perspective and pursue a path that would lead to higher levels of project value than originally planned.

In this study, six (30%) of the project managers were categorized as BO PMs. Traits, including their business level understanding, their knowledge of the financial impact of their decisions, and their level of interaction with the business unit are indicators for the business orientation categorization. We considered thirteen (70%) project managers to be triple constraint minded. These project managers exhibited traits, such as a focus on meeting the timeline with little or no variance. They were apt to look for budget or schedule-adhering solutions to meet the specified requirements.

Looking at the influence of mindset on perceptions of uncertainty and opportunity as seen in Table 6, it is of note that all of the projects with BO PMs identified opportunities within the context of uncertainty. We could not identify any instances of misperception of opportunity in the BO PM group; however, 50% of the project managers with a TC mindset misperceived opportunities. BO PMs were often the party that identified opportunities. For this group, 67% of all opportunities were identified by project managers or the project team, and 33% were identified by senior management or involved project steering committees. In cases with TC PMs, only 29% were identified by project managers or the project teams, but 70% were identified by project external constituencies, such as senior managers or clients.

Our cross-case analysis provides a third proposition:

Proposition 3: Project managers who have business-oriented mindsets are more likely to identify real opportunities than those TC project managers.

Table 6: Relationships between Project Manager's Mindset and Perceptions of Uncertainty and Opportunity

*Note: misper. stands for misperception

Implications for Project Management Practice and Research

The results of the case analyses provide several implications for project practice and research. The lack of a clear distinction between risk and uncertainty in classic project management allows for misperceptions and consequently leads to a loss of value opportunity at the project and enterprise levels. Project managers are familiar with risk management, which aims to minimize variation around baseline by analyzing sources of risks. However, project management standards do not explicitly address the identification of uncertainties that define the vantage point for opportunities, which could lead to a significant change of the value proposition of a project. In contrast to risks, uncertainties cannot be avoided and need to be managed differently. The first step to recognizing this opportunity is identification of the potential sources of uncertainty. Our study identified six categories of uncertainty sources: (1) contextual turbulences, which include external legal issues, market dynamics, and regulatory change; (2) stakeholders uncertainty, such as customer or vendor inability to complete deliverables and changes of stakeholders' needs; (3) technological uncertainty; (4) organizational uncertainty, such as organizational changes or incompatibility of management system; (5) project uncertainty such as unknown project complexity; and (6) malpractice defined as those situations with the absence or lack of adherence to good project management practices.

Second, once uncertainty is identified, management of it could lead to an increased value proposition for the project and the enterprise. The management perspective can be changed from the classic risk management goal of simply minimizing variation from the baseline to that of maximizing project value. Adhering to a baseline that was defined without the knowledge of uncertainty could lead to neglecting opportunities, forsaken value opportunities, and could consequently even lead to project failure.

Third, the focus of managing uncertainty during project implementation is opportunity identification and exploitation. Our study identified four classes of opportunities: (1) technological opportunity, such as technical innovation or alternative technologies; (2) implementation process opportunity, such as standard processes to be used across projects to improve efficiency; (3) project business opportunity, such as early market penetration or new market solution; and (4) future project business opportunity, which could create values beyond the current project such as new contracts. These categories help project managers to review a larger range of potential opportunities and consider all possible means of exploitation.

The results indicate a need for an alternative project management paradigm and demonstrate that the maximization of project value interacts with the recognition and exploitation of opportunities occurring during a project's implementation. When project managers identify opportunities, they need to communicate with key stakeholders to facilitate the discussion concerning the alternatives and decision to exploit opportunities. Therefore, we suggest that it is mainly the project manager's responsibility to identify opportunities, while it is also necessary for senior managers to encourage and support the project manager's authority to engage in value-enhancing opportunity identification and exploitation.

The situations we identified as related to uncertainty and opportunities have one commonality: they can only be evaluated within a business context. When uncertainty is discovered at the project level, a project manager needs to be able to consider the potential opportunities and evaluate the alternatives that would create the business value from the uncertain environment. Interestingly, the study led to an unexpected insight about the perception of uncertainty and opportunity from the perspective of the project manager. Many interviewees had problems identifying uncertainties and they often confused the concept of risk with uncertainty. The cases indicate that mindset may play an important role in the perception of uncertainty and opportunity. Project managers with a business-oriented mindset were more often able to identify uncertainties and, more importantly, opportunities. Further studies are needed, but the evidence from the cases suggests that selecting or hiring project managers with a business perspective is an important factor not only for project success but for maximizing the project's value to the enterprise. The education and training models for project managers may need to increase the business context in which these theories are taught. Teaching methodologies that rely solely on the tools and techniques of classic project management are not sufficient to enable project managers to identify situations of uncertainty, assess opportunity alternatives, and make consistent decisions that increase project and enterprise value. Education needs to create a business mindset instead of simply reinforcing only the technical mindset, which seeks to stay within constraint boundaries.

This study has several theoretical consequences for the existing classic project management paradigm, which overlooks the concept of opportunities while supporting the management of risk by requiring a stable baseline. It is therefore conceptually difficult to differentiate between risk and uncertainty. Opportunity does not explicitly exist because it is directly related to uncertainties in project settings (H1, H2). Opportunity is a dependent variable and is only as valuable as the ability of the project manager and the team to unleash the opportunity from the uncertainty.

Our study contributes to the development of an alternative project management paradigm, in which project managers should be equipped with a business perspective. Our cases suggest that these project managers are more likely to identify opportunities than project managers who rely on the classical project management paradigm (H3). The connection between uncertainty and opportunity supports our efforts to integrate the fundamental theoretical arguments of entrepreneurship research into the discourse of project management research. This integration permits a better explanation of specific phenomena in project management. The importance of the right fit between the project manager and the type of project is supported in our findings. Projects with higher levels of uncertainty should be managed by business-oriented project managers who seem to be more apt to perceive real opportunities. Finally, our study suggests that malpractice interferes with the concepts of risk and uncertainty management and have to be considered as a source for variation in data samples.

In summary, this research offers some important insights for practitioners about how to manage project uncertainty during a project's implementation and contributes to the development of an alternative project management paradigm in the discourse of project management research.

Limitations and Outlook

This study makes several significant contributions to project uncertainty management, but it also comes with limitations that should be addressed by future research. First, the size of the sample in this study is not sufficient for statistical comparison between the TC project managers and BO project managers. Case study research, in general, is not designed as a tool to test hypotheses. In this instance, an exploratory study was required to examine an under-researched but increasingly important phenomenon in project management practice and raise more granular questions for future investigation, but our results should be addressed with larger samples of data. Second, industry and project type are not highly diversified, with 60% of our cases representing new product development projects and IT projects, thereby limiting the generalizability of our study. Third, project documents from each case were not available to augment our data. Fourth, the data represent the single perspective of the project manager, which can be biased by accidentally forgotten details or by oversight. Although we attempted to overcome this weakness by having the contacts review a report of their interview, it does not resolve the single-perspective issue. All of these methods have been recommended by others to ensure rigor in case study research (Dube & Paré, 2003). Other stakeholders, like senior managers and clients should be included in further analyses.

Our findings provided some suggestions for further research. We have proposed three hypotheses related to the management of uncertainty. These hypotheses need to be investigated in different contexts and further tested by empirical study. For the empirical purpose, a valid and reliable measurement model for project manager mindsets is needed. In addition, we found project manager mindsets are only one important factor to influencing their perceptions, but other factors may exist and need to be investigated. Moreover, additional research is called for to differentiate between risk and uncertainty and integrate the concepts of opportunities and explicit management of change.