week02 slides spring_2013

Mgt 610 Strategic Perspectives on Project Management

© Thomas Lechler 2013 For academic use only. 1

MGT610

Lecture 2

The Impact of Project Risks and

Uncertainties



Module Topics and Objectives

The role of project plans and changes

– Importance of quality of project planning.

– Recognize that plan changes and goal changes are

different.

– Analyze the impact of plan and goal changes on

project value.

– Analyze the impact of contextual factors on plan and

goal changes.


© Thomas Lechler 2013

Value PM: Core Conflict in Maximization Paradigm

Maximize

Project

Value

Prerequisite Requirement Objective

The management core problem:

– Management of change: Opportunity discovery and

exploitation.

Exploit

Opportunities

Not Exploit

Opportunities

Initial

Requirements

Met

Stakeholder

Expectations

Met PM’s

Value

Mindset

3



Plans are Nothing, Changing Plans is

Everything

The Impact of Changes on Project

Success

For academic use only. 4



Conceptual Framework of Project Planning and Changing

Efficiency Customer

Satisfct.

Goal

Changes

Plan

Changes

Quality of

Planning

Context

+

+

+

+

+

+

-

-

-

-

-

-

+

Hypothesized Relations between the Planning Variables and Success



Conceptual Framework – Variable Definitions

– Plan changes: frequency

– Goal changes: importance and frequency

– Planning quality: work breakdown, resource allocation, scheduling, budget

– Success: efficiency, customer satisfaction

– Context

• Technical Risks: demanding

• Importance: usefulness, importance for organization

• Experience: similar project

• Manpower: personnel losses or transfer

• Parallel Projects: undertaken at the same time

• Breakthrough: technological



Conceptual Framework – Variable Measurements

Scale Measures

Efficiency

(Alpha:0.86)

1. The project had come in on schedule

2. The project had come in on budget

Customer

satisfaction

(Alpha:0.81)

1. The clients were satisfied with the process by which this project

was completed

2. The clients are satisfied with the results of the project

Plan changes The project plans (schedule, personnel, budget) were often changed

Goal changes

(Alpha:0.83)

1. Project goals were often changed

2. At least one major project goal was changed considerably

Planning quality

(Alpha:0.85)

1. The entire project task (scope) was structured in work packages.

2. Every work package was allocated with a specific time allowance.

3. We knew which activities contained slack time or slack resources.

4. All work packages had a predecessor and a successor work

package (except the first and the last).

5. There was a detailed budget plan for the project.

6. The precise demand for key personnel (who, when) was specified

in the project plan



Conceptual Framework – Variable Measurements


Scale Measures

Technical risks

(Alpha:0.79)

1. The task was technically demanding.

2. The completion of the business goals included high risks.

Importance

(Alpha:0.78)

1. It was important that the results of the project could be used as

soon as possible

2. The implementation of the project was important for the

organization’s policy

3. The implementation of the project was important for the success of

the organization

Experience The projecting company had experience with the solution of similar

problems

Manpower The project team did not experience any significant personnel losses

or transfer during the project’s development

Parallel projects

The completion of the project depended on other projects,

undertaken at the same time.

Break through The project was not subject to any recent technological

breakthrough, which could have rendered it obsolete.



Empirical Findings - Sample Description

Kind of Project Absolute frequency Relative frequency

Machine tool manufacturing 25 5.6%

Plant construction 61 13.6

Building construction 30 6.7

Product development 116 25.9

Reorganization 52 11.6

Software 109 24.3

Others 55 12.3

Total 448 100.0%

Returned Questionnaires: 43%, N= 448 (257 successful, 191 unsuccessful)

Respondents: Project Leader 46%, Team 27%, Others 27%



Empirical Findings – Correlations between Contextual and

Planning Variables

Quality of

Planning

Goal

Changes

Plan

Changes

Personnel Constraints n.s. .226** .226**

Parallel Projects n.s. .202** .174**

Occurrence of Breakthrough n.s. .247** .127**

Technical Risks n.s. .175** .165**

Importance .204** n.s. n.s.

Experience .170** n.s. n.s.

**p<=0.01, n.s. – not significant



Empirical Findings – Path Model

Efficiency Customer

Satisfct.

Goal

Changes

Plan

Changes

Quality of

Planning

-.27 -.21

+.50

+.61

+.14 +.27

-.16

-.23 n.s.

n.s.



Empirical Findings – Path Model (total)

Efficiency

-.20

R2= 26%

Cust. Sati. R2= 55%

+.61

Technical

Risk

Goal

Changes

Plan

Changes

Quality of

Planning

Personnel

Constr.

Parallel

Projects

Break

through

Import.

Experie.

+.16 +.15 +.14 +.18

+.11

-.16

-.21

-.23

+.50

+.14

+.16

+.20 -.27

+.27



Empirical Findings – Effects of Success Factors

Planning Variables/ Impact on

Efficiency

Direct

Effect

Indirect

Effect

Total

Effect

Quality of Planning +.27 +.08 +.35

Goal Changes -.21 -.10 -.31

Plan Changes -.23 - -.23

Planning Variables/ Impact on

Customer Satisfaction

Direct

Effect

Indirect

Effect

Total

Effect

Quality of Planning +.14 +.25 +.39

Goal Changes -.15 -.19 -.34

Plan Changes - -.14 -.14



Goal

Changes

Empirical Findings – Calculation of Effects (Ex.)

• Indirect Effects of Goal Changes

• (+.50 * -. 23) = -.10

• = Indirect Effect -.10 ( )

• + Direct Effect -.21 ( )

• = Total Effect -.31 Efficiency

+.50

-.23

-.21

Plan

Changes



Summary of Empirical Findings

• The influences of planning and changes on project success

– The positive total effect of the variable quality of planning (+.35

and +.39) is completely overridden by the negative combined

effect of plan and goal changes (-.54 and -.48)

• The interactions between the planning variables

– The quality of planning reduces the level of goal changes (−0.27),

it does NOT affect plan changes

– Changing project goals leads to changes of project plans (0.50)

• The influences of context on the project planning activities

– Strategic importance and the level of experience of the project

team affecting only the quality of planning

– The others influence goal changes and plan changes



Summary of Empirical Findings

• Plan changes and goal changes are different!

• Goal changes will lead to plan changes

• The influence of frequent changes on project value is

significantly negative

• The quality of project planning can reduce goal changes

• The causes for changing project plans are contextual-

related



Definitions of Project Risk and Uncertainty

• Project Risk

– Project risks also known as the Known-Unknowns are

basically events, circumstances, situations or

conditions that have a potential negative impact on

meeting predefined project objectives.

• Project Uncertainty

– Unexpected and unforeseen project situations with

potential significant impact on the value of a project.




Exploratory case based interview study

• 42 case studies

• 90-minute interviews with semi-structured questionnaire

• Creation of case study protocol and database

Research Method

Project Category Frequencies

Information Systems Projects 20

Product and Service Development Projects 9

Construction Projects 4

Business & Organization Change Projects 3

Research & Development Projects 2

Project-like tasks 4

Total 42




• Stakeholder capabilities and dynamics are the most frequent source of uncertainties!

• Mergers and acquisitions and politics lead to uncertainty.

Categories of Uncertainties

Uncertainty Categories Uncertainty Sources Frequencies

Stakeholder uncertainty Inexperience, change, contracts 18

Organizational uncertainty M&A, politics, unknown legacy system 9

Technological uncertainty Tech. issues, tight specs 8

Contextual turbulences Legal, market 6

Project characteristics Unknown complexity 3

Malpractice Self induced uncertainty 2
