plenum - prof. george jergeas - the myth of predictability
TRANSCRIPT
part of the Aker group
Project 2011, Succeeding with Projects
Oslo October 20, 2011
Beyond the Myth of Predictability
Dr. George F. Jergeas PEng
Department of Civil Engineering
University of Calgary
2
Learning Objectives
■ Challenge some long-held ideas and best practices.
■ View unpredictability as a dilemma that must be continuously managed.
■ Change focus from project level to the executive level.
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George Jergeas
Introduction
■ Larger and more complex projects
■ Cost overruns & lack of predictability●Risks associated with the project’s size,
duration, technology, location, and prevailing economic conditions.
■ Projects over budget & schedule
■ Consistently 50% to 100% cost overruns
■ Client not happySlide 3
George Jergeas
Slide 4
Introduction
■ Let’s blame each other:● Engineering contractors● Vendors● Construction contractors● Workers● Clients
■ Greater challenges to executives
■ Economics suffer
■ Increase risks to investors
■ Investors (boss) lose confidence
Introduction
INVESTMENT SUMMARY
“We rate shares of [K3] a Hold. K3’s growth prospects are lacking relative to peers, and current performance continues to disappoint. K3’s next major Oil Sands project, [name], isn’t expected to produce oil until 201?, and production from the [name of development] isn’t expected until late 201?. As a result, we believe K3 will be challenged to grow its production in the near term. However, we believe these expectations are reflected in the current stock price, and we believe the industry-leading yield on the stock is attractive for investors to Hold. ….”
Slide 5
Introduction
■ Conventional approaches no longer sufficient
■ Traditional risk tools have exhausted their potential
■ Complete re-thinking of how we assess project risk, make decision and manage projects
■ Need a change in focus from the project level to the executive level ● Responsibility for strategic decision-making,
planning and organization effectiveness truly lies with the executives.
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George Jergeas
Conventional Risk Aversion
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George Jergeas
New Way of Thinking – Let Go of:
■ The old perception that uncertainty is “evil”
■ Decision-making based on deterministic values
■ Planning based on the perceived need to transfer or avoid risks.
■ Execution management based on fixed objectives.
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George Jergeas
New Way of Thinking – Focus on:
■ Becoming comfortable with uncertainty as a source of opportunity to improve business results.
■ Becoming comfortable with organization based on risk-driven competencies.
■ Becoming comfortable with decisions based on uncertain estimates.
■ Becoming comfortable with plans that accept and manage the risks that are rightfully ours.
■ Becoming comfortable with an adaptive, flexible management style.
■ Uncertainty and risk have to be expected and accepted
■ Slide 9
George Jergeas
Tunneling Concept
Neglect of Sources of Uncertainty Outside the Plan Itself
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Black Swans and Tunnel Vision
”Tunnel vision”
Feasibility Pre-FEED FEED Execution
FEED – Front end engineering design
Start of FEL
Start of production
FEL – Front end loading
Sanction/financial close
”Black Swan” strategic and contextual risks are considered outliers
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George Jergeas
Fresh Thinking
1. Extend project risk to include strategic and contextual risks
2. Define a “territory” of risks or “The Bermuda Project Risk Triangle”
3. Near-term thinking
4. Re-shaping the Governance System■Shift in mindset■PEO
5. Team alignment
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George Jergeas
1. The Extended Project Risk Model
■ No project goes exactly as planned
■ Accept deviations during project execution
■ Not sufficient to just look at Operational risk●Strategic and Contextual risks also
important
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George Jergeas
1. The Extended Project Risk Model
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George Jergeas
Operational (Project) Risks
■ Availability of resources
■ Efficiency/productivity
■ Timeliness
■ Operability
■ HSSE
■ Site related risks
■ Normal logistics risks
Project management
Corporate management
Environment
Operational risks
Explore
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George Jergeas
Strategic (Enterprise) Risks
■ The project lifecycle
■ Maturity at project sanction
■ The project execution strategy
■ Changes to project objectives
■ Acceptance of project business risk exposure
■ Organizational Alignment
■ JV issues
Project management
Corporate management
Environment
Deliver
Strategic risks
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George Jergeas
Contextual (Global) Risks
■ Project location
■ Business practices
■ Market conditions
■ Culture
■ Geopolitics
■ Public opposition
Project management
Corporate management
Environment
Contextual risks
Adapt
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Visibility, Accountability, Ability to Manage
Strategic and Contextual Risks are addressed by executive / management decisions
Operational are addressed by the project team who have the authority to make the necessary decisions and have clear accountability for results
George Jergeas
Three Buckets for Project Risks
■Contingency: for the Operational Risks● 40% of the total
■Scope Allowance: for the Strategic Risks●47% of the total
■Management Reserve: for the Contextual Risks●13% of the total
■Numbers above MUST be tested and verifiedSlide 19
Reasons for Changes: Owners Response
Main Reasons for Late Change Requests
47%
13%
40% Changes in Understanding of BusinessNeeds
Market / Business Changes
Technical Aspects Not Fully Understood
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2. Define a Territory of Risks
■ The Bermuda Project Risk Triangle● The overlapping of corporate, project and
environment creates an “ocean” containing operational, strategic and contextual risks.
■ To navigate in the triangle requires new knowledge to take a three legged journey●Explore●Adapt●Deliver
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The Bermuda Project Risk Triangle
Project management
Corporate management
Environment
Contextual risk
Operational risk
Explore
Deliver
Strategic risk
Adapt
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START
George Jergeas
4. Reshaping Governance System
■Shifts in Mindset
■The Project Executive Officer
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4. Re-shaping Governance System
■ Shift in mindset:● Moving from risk aversion to risk navigation● Looking for the opportunities created by
uncertainty in decisions● Postponing decisions for improved quality
(reduced risk)● Exploring and capitalizing strategic and
contextual risks● Training project managers in risk understanding ● Trusting and empowering PMs in their ability to
make good decisionsSlide 25
George Jergeas
4. Re-shaping Governance System
■ Shift in mindset:■ Project leaders will have to make a shift in their mind set:
● From projects as deliverables to a means to enhance project business value
● From uncertainties as “evil” to acknowledging the project as being unique and uncertain
● From projects as known tasks to be accomplished in known environments to embracing a continuum of known-unknown tasks to be executed in unfamiliar and often turbulent locations and business environments
● From deviations from project baselines as inaccurate planning or inappropriate control to acknowledgement of deviations as being the rule and not the exception
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4. Re-shaping Governance System
■ Shift in mindset may be achieved by: ● Disrupting the sense of comfort with the status quo
(explorative behaviour)● Providing the tools, techniques and frameworks to meet
emerging business needs (adaptive behaviour)● Heightening skills for self-reflection by creating
awareness of the participants’ leadership behaviours, and accountability for change and personal growth (delivery-oriented behaviour)
● Helping participants move along the leadership path and be in the appropriate place for the current context (integrative behaviour)
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George Jergeas
4. Re-shaping Governance System
■ The Project Executive Officer (PEO)● Projects are temporary organization.
■ The size and complexity and financial exposure of a major capital project make such an endeavor similar to the operation of the corporation.
● Managing major capital project cannot solely be reduced to a manager leading a project team.
● In a project there are many leaders and at the top is the PEO● PEO is accountable for the results of what the organization produces● Reporting to the PEO are managers accountable for the physical
parts of the project (project managers) and managers for project functions (functional managers)
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Lea
der
ship
str
uct
ure
of
a te
mp
ora
ry o
rgan
izat
ion
PEO
Subproject leaders
Functional leaders
Team leaders
Self leadership
Principal (owner)
CEO
External stake-
holders
Project sponsor
Agent (project organization)
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4. Re-shaping Governance System
■ The Management Role of the PEO● PEO represents senior management● Possesses the skills and experience needed to manage the
owner’s role in the project.● Maintains direct access to the people making key decisions.● Is vested with authority to take day-to-day executive action.● Sees the project through to completion.● Selects the right people● Requires professional advice:
■ Strategy for project design and construction■ Strategy for project monitoring and proactive approach to avoid
claims and disputes■ Strategy for teamwork
● The PEO is a LeaderSlide 30
Six Areas for PEO Leadership, Organization and Strategy
■ Project leadership fundamentals
■ Project team composition and development
■ Setting project vision and follow through
■ Seeking corporate commitment
■ Influencing project external stakeholders
■ Project leadership navigation
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5. Team Alignment
■ Team Alignment Programs:●Project chartering and teambuilding●Monitoring team performance●Issue resolution and dispute
management●Tailored training●Management coaching
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5. Team Alignment
■ Project Chartering and Teambuilding● Sets achievable, yet challenging, goals and objectives● Defines criteria for measuring success ● Identifies critical success factors ● Identifies risks and response plans● Aligns stakeholders● Identifies lines of communication● Develops project team performance evaluation /health
check tools● Develops a dispute/issue resolution mechanism● Agrees on team ground rules
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Health Check Date: Name: Firm:
COMMUNICATION
1 Communications are… difficult, guarded 1 2 3 4 5 open, up-front
2 Information flow is… restricted 1 2 3 4 5 free, open
3 Timeliness of information is… late 1 2 3 4 5 on-time
WORKING RELATIONSHIPS
4 Cooperation between parties is… poor, detached 1 2 3 4 5 good, unreserved
5 Issues and concerns are… ignored 1 2 3 4 5 dealt with quickly
6 Responses to issues become… personal 1 2 3 4 5 project problems
7 Disputes are addressed… ineffectively 1 2 3 4 5 efficiently
8 Problems are resolved by… senior management 1 2 3 4 5 lowest level
TECHNICAL REQUIREMENTS
9 Safety performance is… not acceptable 1 2 3 4 5 acceptable
10 Overall quality is… not acceptable 1 2 3 4 5 acceptable
11 Value for money is not acceptable 1 2 3 4 5 acceptable
STAKEHOLDER & EXTERNAL ISSUES
12 Public complaints are… frequent 1 2 3 4 5 infrequent
Please list examples for point 1 – 12 above that you rated 1 or 2 ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
George Jergeas
Health Check
Average of All Responses
1
2
3
4
5
6
7
8
9
10
11
125,0
4,0
3,0
2,0
1,0
0,0
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Health Check
Average Response by Organization
1
2
3
4
5
6
7
8
9
10
11
125,0
4,0
3,0
2,0
1,0
0,0
Contractor
Owner
Engineer
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Issue Resolution and Dispute Management Mechanism
Solution to issue offered by those who are directly involved with the issue. If solution agreed, advise team members of issue and the agreed solution. If issue not resolved, go to Stage Two.
Solution to issue offered by Project Engineers.Advise team members of issue and agreed solution.If solution to issue cannot be agreed to, go to Stage Three.
Solution to issue offered by Project Managers.Advise team members of issue and agreed solution.If solution cannot be found, PMs escalate problem to be resolved by designated senior management.
Stage OneWithin 2 days-At Site Level
Stage TwoWithin 3 days-At Project Engineer
Stage ThreeWithin 5 days-At PM Level
Issue becomes apparent
Stage FourAt corporate level with PEO
Solution to issue offered by the PEO and executives.If issue is not resolved at this level, any party may then take specified dispute recourse through the contract.
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Reference
“Risk Navigation Strategies for Major Capital Projects: Beyond the Myth of Predictability”
by
Per Willy Hetland, George Jergeas, Asbjorn Rolstadas, Dick Westney
July 2011
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