MODELING OF LARGE PROJECTS
This chapter presents an integrated approach to the conceptualization, planning, andimplementation of large, complex projects. The perspective is on the whole project lifecycle, which includes creation, denition, initiation, planning and documentation, execution,commissioning and start-up, operation, and recycling. (The operation phase is consideredonly in terms of managerial decisions that need to be taken during the preceding phases.)On most large projects it is not possible to separate the projects end product from that ofproject delivery and management activities (PMCC, 2001; Brook, 2000; Forsberg and Mooz,1996); thus, any reference to the project life cycle is taken to imply both product and projectlife cycles.
Generally speaking, the project life cycle can be divided into three distinct phases: theproject strategic (promotion) phase (all activities up to and including project approval andfunding), the project implementation phase (comprising initiation, planning, detailed design,documentation, execution, and commissioning activities), and the project operation phase(including operation and eventual recycling). Some authors divide the life cycle into twophases only: development and operation. The former includes all activities prior to the start-up and operation phase; the latter includes the utilization phase, including project recycling.It is worth emphasizing that the project as whole is the focus, not the functions of individualplayers within the project life cycle.
Examples of large projects are aerospace, defense, mining, infrastructure, large telecom-munication systems, large software, power, and transportation schemesall must be rec-ognized in terms of their complexity and managed accordingly. Thus, one would expect tosee a similar approach to the management of this class of projects regardless of their industry,yet this is not necessarily the case. For example, in aerospace and defense projects, typically,the emphasis has been on systems engineering and procurement functions; in the construc-
The Wiley Guide to Managing Projects. Edited by Peter W. G. Morris and Jeffrey K. PintoCopyright 2004 John Wiley & Sons, Inc.
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tion industry, the emphasis has been on contract and resource management; software andinformation systems projects have tended to be approached from a technical perspective.
This chapter portrays the complex and uncertain internal and external environments withinwhich large projects are typically developed and implemented. A broad classication ofproject types (in terms of both the characteristics of these projects and their environmentalcomplexity) is presented and the position of capital projects highlighted. The chapter willshow that project strategies must relate to project types and environmental complexity (un-certainty). While an integrative framework is needed to manage the evolution of the projectconcept, management of risks and uncertainty will have to guide the entire process ( Jaafari,2001). This discussion leads to the presentation of a framework appropriate for modelinglarge projects. The critical criteria for successful management of these projects are high-lighted and their realization through the adoption of appropriate strategies is demonstrated.The chapter presents a brief overview of techniques that aid the quantitative and qualitativemanagement of large projects. It emphasizes the need for a holistic approach as far aspossible.
Characteristics of Large Projects
There is no universal denition for large projects. Complexity is a common feature in theseprojects. Complexity stems from two sources: the projects external environment and thecomplex make-up of the project itself. Miller and Lessard (2001) state: Large engineeringprojects are high-stakes games characterized by substantial irreversible commitments, skewedreward structures in case of success, and high probabilities of failure. The environmentalcomplexity is normally created because of the changing market and regulatory regimesimpacting both implementation and operation of these projects. Project complexity can beunderstood in terms of relevant interlocking subsystems of hardware, software, of project-specic and temporary human and social systems, of related technical and technologicalsystems, of nancial and managerial systems, of specialized expertise and information sets,and so on that are typically created and managed to realize the project objectives ( Jaafari,2001; Yeo, 1995; Yeo and Tiong, 2000). The cost to promote these projects up to theimplementation point is high, of the order of 5 to 10 percent of the total capital expenditure(Merna et al., 1993; McCarthy, 1991). A recent study by Hobbs and Miller (1998) puts thefront-end costs up to 30 percent of total costs. Risks are high and the project delivery methodis normally shaped to achieve a reasonable outcome in respect of the promoters and com-munity objectives (Hobbs and Miller, 1998; Wang and Tiong, 2000). Many infrastructureprojects are nowadays delivered under build-own-operate (BOO) arrangements (see thechapters by Turner and by Ive). In the resources and industrial sectors, projects are normallyfully owned and operated by the private sector.
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The risk prole on large projects is complex. Some risks arise from the clash of social,political, and commercial interests and values of project promoters and those of the widerstakeholders that surface during the project development phase. Others relate to projectfunctionality and tness for purpose. A third set relate to project delivery dynamics. Oftenthere is a window of opportunity in which a project can be favorably launched, as delaysmay see either the project concept becoming less relevant or even obsolete, or competitorsmoving in to ll the market need. Major projects are often dependent on novel technologiesand innovative solutions; this in itself is a major source of risk.
Miller and Lessard (2001) classied risks on large engineering projects as market-related,technical risks and institutional/sovereign risks. See also Yeo and Tiong (2000).
Exposure to risks can change with time; new risks can be encountered and seeminglyunimportant risks pose new threats. On the positive side, there can be opportunities, too,that may provide conditions for improving the projects base value (Miller and Lessard,2001). This narrative suggests that risk management must inform all decisions and guide allstrategies adopted for the creation and delivery of these projects. Hobbs and Miller (1998)undertook a study of a sample of 60 projects in 4 continents (31 power, 5 petroleum, 20urban infrastructure, and 4 technology projects). They found that the front-end part of theproject life cycle was particularly risky. This phase was often marred by serious setbacksthat put projects as a whole at risk. Some key ndings by these authors have been sum-marized in the following list to shed light on the dynamics of capital projects worldwide:
No distinct phases (e.g., feasibility studies, design, and construction) could be identiedon these projects; instead, a series of milestones were found to be common. In addition,a front-end part (referred to as the strategic phase in this chapter) could be distinguishedfrom the engineering-procurement-construction (EPC) part (refered to as the implementationphase);
There were wide variations in terms of the length of time taken to develop the projectsin the sample to the point of implementation: 55 percent took more than ve years.Projects that had shorter front ends were required to fulll urgent needs.
The promotion phase was found to be a dynamic play, which, in addition to thoseinvolved in more technical aspects of the project, saw participation of communities af-fected, environmental organizations, pressure groups, nancial institutions, politicians,regulators, and government agencies.
The decisions made during the front-end and the institutional, organizational, and -nancial framework that were put in place by and large controlled the success or failureof these projects and profoundly inuenced the implementation stage.
Some projects in the sample had a dened technical solution right from the outset, whilefor others the technical solution either evolved along the path or was deliberately heldoff until late to accommodate changes until the implementation stage
The inuence of the environmental, social, political, and community aspects on the sam-ple projects were found to be increasing. This is largely because large projects epitomizethe current profound restructuring of the institutions of society and government machin-ery. The principles of social equity, privatization, user pay, sustainable development, legal
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legitimacy, and community ownership all exert varying degrees of inuence on the cre-ation and execution of large projects.
According to Hobbs and Miller (1988):
In recent years, the process has become much more complex. This increase incomplexity is due to several factors including: the globalisation of competition, the trendtoward deregulation, the changing role of governments under dual inuences of freemarket doctrine and debt loads that prohibit further borrowing, and the actions of thepressure groups locally and internationally. In their search for solutions in this highlycomplex context, organisations have developed highly complex solutions which ofteninclude some form of coalition building. Often the initiators of projects do not have all thepolitical, social, technical, nancial and organisational resources and skills that are neededto deal with the multiple risks that the highly complex context presents. Therefore, theysearch for partners who can bring needed resources or skills, or that can control orsupport various risks. In the process of searching for a feasible solution, the skills ofmanaging political and social interfaces, of organisational and nancial engineering, and ofdeal-making were often critical.
Planning in this context is very difcult. A deductive and linear plan to get to a solution isnot workable because the solution is not identiable at the outset, in fact, the problem isnot usually well dened at this stage. At the outset, it is not obvious who the importantplayers will be, and there is some trial and error in the search for partners and solutionsto the many problems posed by the project. The activities of risk identication, analysis,mitigation and partitioning among players dominate the process. Negotiations are constantthroughout this phase. Further, if the process was not complex and unpredictable enough,it is highly likely that during the search for a solution, a new problem will materialise andsend the project off track at least once.
Evidence from other sources is just as revealing; Jaafari and Schub (1990) carried out a eldstudy of large and complex projects in Germany and concluded that the development ofsuch projects was substantially impacted by the resolution of risks and uncertainties. Theseauthors showed that risks were not only increased by a poor choice of concept at the outsetbut also by community demands, changing regulations, political and social forces, and dy-namics of the project environment itself. Morris and Hough (1987) have also shown thecomplexity and dynamics of these inuences in their case studies of a number of large andcomplex projects executed in the United Kingdom.
This brief review is intended to show that project conceptualization and implementationis a complex, dynamic, and evolving process; that it should be managed on the basis of aset of objectives, which themselves would be subject to change, on a fully uid and exiblebasis ( Jaafari, 2001; Chaaya and Jaafari, 2001; Jaafari, 2000, Miller and Lessard, 2001; Yeoand Tiong, 2000; Morris and Hough, 1987). Further, that a holistic and integrative frame-
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FIGURE 13.1. CLASSIFICATION OF PROJECTS IN TERMS OF PROJECT ANDENVIRONMENTAL COMPLEXITY.
work is needed in which not only planning and proactive management of technical andnancial factors receive attention but equally the social, environmental, political, and com-munity aspects are placed at the center of attention (Jaafari, 2001; Jaafari and Manivong,2000; Miller and Lessard, 2001). The objectives chosen should embrace the projects viabilityin its broadest sense, over its entire life and should facilitate management of the processusing continuous risk and uncertainty resolution within a uid and exible managementframework. This is very much an open-systems approach to the management of large proj-ects of this nature (Yeo, 1995). Scott (1992) states that systems are interdependent activitieslinking shifting coalitions of participants; the systems are embedded independent on con-tinuing exchanges with and constituted bythe environments in which they operate. Fora more detailed understanding of complex systems theory refer to Scott (1992). See alsowww.brint.com/Systems.htm.
Environmental Complexity and Inuence on Strategic Direction ofLarge Projects
Large projects occupy the complex side of the project population space (Figure 13.1). Nu-merous forces impact project environments; viz (a) increased demand from owners and
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customers for solutions that deliver denitive advantage to them along their business objec-tives; (b) operation of markets, which nowadays shift a lot in a chaotic manner; (c) rapidrate of change in the underlying technology and scale of operation, which in many instancesrequire novel solutions; (d) the inuence of the regulatory bodies, who tend to aim for zero-risk solutions; (e) the information technology revolution enabling global collaboration andstreamlined managerial processes; and (f) rising inuence of community and pressure groups(Miller and Lessard, 2001; Jaafari, 2001; PMCC, 2001; Dixon, 2000).
As an example of environmental complexity, the following is an excerpt from Byersand Williams (2000). This excerpt illustrates the complex commercial and regulatory envi-ronment for electrical utility industries in the United States.
As the world-wide economy evolves, electric utility companies in the United States andmost industrialized nations of the world are under increasing pressure. In the U.S.,deregulation of the electric utility industry has led to signicant business and managementchanges. Corporate reorganizations, staff downsizing, outsourcing of services, andreengineering of business processes have had a profound impact on the industry.
The traditionally conservative U.S. electric utility industry, which had previouslyconsidered itself almost impervious to outside inuences, was fe...