Introduction
According to professors and researchers De Meyer, Loch and T. Pich (2002), a project is “a unique interrelated set of tasks with a beginning, an end and a well-defined outcome”. This commonly accepted definition assumes that every individual can identify the tasks of a well-understood or routine project. Most projects have an inevitable aspect that even the most proficient managers find it difficult to cope with, and that is uncertainty. With the use of decision milestones, managers expect outcomes, while risk management allows them to prevent disasters. The result they want to ensure is that everyone is making the desired product, and sequential iteration is avoided. However, projects do end up with overflowing budgets, overrun schedules and compromised specifications, or even worse, they just die. Uncertainty analysis is paramount to any project, regardless of its size, from a children’s birthday party to implementing a new IT system companywide. Even with the most competent uncertainty analysis, some events will still disrupt the natural flow of events and come as surprises. Nevertheless, if a team has conducted a careful plan and has included as many eventualities as possible, it is more likely they will have both the resources and time to deal with the things that they were unable to anticipate more adequately.
Human Biases in Uncertainty Assessment
Human biases can affect the ability of teams and individuals alike to see future possibilities clearly. The most common instance is that people overestimate the likelihood of particular risk-types while underestimating the likelihood of others (Brown & Hyer, 2009). Uncertainty assessments are also affected by people’s overconfidence or under-confidence. For example, if an incident has been in the news (e.g. child abduction, hurricane, plane crash), people tend to overestimate its likelihood. Retrievability is another factor that affects project uncertainty analysis. Retrievability includes the error in judgement based on memory structures (Brown & Hyer, 2009). For example, an expert programmer with high-end technical skills is more likely to think about what could go wrong in a software project on a technical aspect, rather than social risks (e.g. stakeholder resistance), among others, because technical issues are within his or her field of expertise. Other than that, people tend to rely on cognitive biases to make statistical inferences as to how random event patterns should appear (Brown & Hyer, 2009). This means that they tend to believe that in the project environment, a string of bad luck will balance somehow, underestimating the potential of something unwanted will linger on. Overestimating of the likelihood of conjunctive events to happen and overconfidence in estimates are two more factors that play a role in project uncertainty analysis (Brown & Hyer, 2009).
Sources of Positive and Negative Project Uncertainty
According to Brown and Hyer (2009), project uncertainty has many perspectives in regards the sources. However, most of them fit in five uncertainty sources, which include the financial, technical, business environment, social and external/natural environment (p.170). Favourable uncertainty in the financial sector includes any economic conditions, both outside and inside the organization that could improve the project’s viability. In the technical uncertainty source, a technical break-through could occur that could positively change the project’s course. When talking about the business environment, one refers to a possible regulatory, political or market condition that could bring more positive and more attractive results than the ones anticipates, from the project. Furthermore, any support that has not been expected from a stakeholder group (either outside or inside the organization) that could allow the project to advance further is a social project uncertainty source. Finally, any acts of nature that can make the project’s execution easier are listed as external/natural environment project uncertainty sources that favour the project. Such examples of acts of nature include weather pattern changes or a disease epidemic, to name just a few that act favourably towards the implementation of the project (Brown and Hyer, 2009).
The aforementioned five project uncertainty sources can also have an unfavorable result in the project. For example, there may be financial conditions that pose a threat to the project’s success, or a technical difficulty may arise that will negatively impact the project’s course. The same applies to any potential change in the business environment or the natural environment that could make the project’s outcomes less favourable and attractive than anticipated. Finally, a stakeholder’s interference in the project may challenge the project. Each of these types of uncertainty requires a different management approach.
Uncertainty and the Strategy of an Enterprise
Milliken (1987) identifies three main categories of uncertainty, one of which is effect uncertainty and is closely related to the inability of decision-makers to comprehend the impact of events. It is a category that encourages the analysis of the environment, in terms of opportunities and threats, in which the judgment of the administrators is critical. If administrators concentrate and argue more on how, and if, their organization might be affected by the environmental alterations, then it has a negative impact on strategic planning. Outlining opportunities and risks (threats) is a paramount aspect of the process. Another type of uncertainty is response uncertainty and is experienced when decision-makers try to gather all the information they can assess a range of strategic responses, in order to cope with a problem. Usually, they focus on how competitors, business partners or any other organizations going through the same situation as they, have dealt with that same situation and implement the actions taken (Milliken, 1987).
Some theorists claim that there is a direct relationship or a correspondence, between the organization’s structure and project environment, with the first associating with the effectiveness and the profitability of the organization. Thus, project uncertainty that derives from the organization’s environment, is an important factor influencing the structure (e.g. values, goals, policies, internal hierarchy, frequency network, and communication style) and performance of a firm (Perminova, 2011). For example, organizations that operate in high uncertain environments avoid internal boundaries with denser communication networks. A study has shown “communication as part of the integration processes help to resolve internal conflicts and achieve competitive success for the whole organization” (Perminova, 2011 p.54).
Uncertainty and Risk Management
Many projects tend to have high variability in the use of control techniques and formal planning. These variations can affect project management. Most managers apply critical thinking, which although it is useful in the planning phase, variations in performance, cost, or schedule may cause the critical path to change during the execution of the project. This is common among projects with high task complexity. Provided the variable remains in acceptable ranges, the project manager can to simulate various scenarios of timing (e.g. tracked performance variable-days behind or ahead of schedule used analogously to a Statistical Process Control chart), with no further action necessary (De Meyer, Loch & Pich, 2001). In the instances when tracked performance fails, then problem analysis should be performed to determine preventive actions and assignable causes and bring the project to its original purpose of creation.
Project managers can develop alternative paths of actions if they can identify foreseen risks. Although the critical thinking path can also be utilized to develop the plan of the project, it is significant to identify the influence of foreseen risks as alternative project plan. Most managers usually chart a safe course of action, rather than identifying foreseen risks as represented in a decision tree, which urges the project manager to consider the impact of early decisions on following risks, hence later decisions (De Meyer, Loch & Pich, 2001). They do whatever it takes to execute the charted course of action successfully; yet, project teams are often hesitant towards opting for multiple project goals and parallel approaches. The reason project teams are not so willing to provide the aforementioned is because their workload will most likely increase and implementing multiple project targets will require more investments. For example, when Nopane, a painkiller drug, was to be launched, the management and scientists neglected to document the side effects of the drug, which could have made the impact on its success more manageable. On the contrary, the pressure to launch the product according to the original schedule, made decision-makers ignore valuable information that played a crucial role in creating a successful product (De Meyer, Loch & Pich, 2001). Finally, the way project management approaches formal contracts is also affected by foreseen risks. Through anticipating risks, the project team can “proactively write in the contingencies reflecting these risks [] [which means] staking out a claim before other stakeholders had even thought about the potential risks and opportunities” (De Meyer, Loch & Pich, 2001 p.9).
Unforeseen risks raise the difficulty level in contingency planning, because it is impossible to anticipate all influence factors, which leaves the project team in constant alert, in case new influence factors appear that will force the team to re-plan the project. This may require the adoption of new problem-solving and even a redefinition of the objectives and course of action of the project (De Meyer, Loch & Pich, 2001). Therefore, the project manager is called to identify threats or new alternatives quickly, which could include scouting of relevant technologies and markets, to execute the project. Perhaps, new partners are required, too; so, the project manager needs to have a powerful relations network, outside and inside the organization. Although predicting the occurrence of an event is practically impossible, just knowing that an unforeseen event may occur, even without knowing what exactly it is, can provide responses. For example, the research group of Best Pharma, a pharmaceutical company, wanted to pursuit research of central nervous system drug. They had to decide which of the several possible options available best suit their needs: a serotonin-based molecule or a calcium-based one. They decided to focus on the first. However, one of the researchers found a previous project’s statistics that showed extremely high non-anticipated indications. It could not be possible to anticipate these indications, but with these past statistics, the researchers were able to estimate the chance of such occurrence (De Meyer, Loch & Pich, 2001).
Uncertainty and Stakeholder Management
Ward and Chapman (2008) emphasize on the relationship between uncertainty and stakeholder. They argue that stakeholder management should have an active approach, based on project analysis. Project analysis positions the project on a hard-soft framework that is based on a sevenfold of parameters, which include project permeability, number of solution options and goal clarity (Ward and Chapman, 2008). They also mention the connection between uncertainty/stakeholder and the project’s phase in the lifecycle, which, for the majority of projects means that they are on the soft side early in their lifecycle, with uncertainty and stakeholders playing a crucial role. However, later on in their lifecycle, projects are on the hard side. Stakeholder analysis involves the establishment of a communication strategy or plan, given that a god communication with stakeholders is a significant part of stakeholder management.
A project’s uncertainty can be strongly influenced in cases when its output will be handed over to operations, once it is complete. Therefore, the relationship between the line organization of future users and the project team plays a significant role in the project’s success. It has become obvious that management is entitled to a heavy job, and that s to ensure there is good cooperation between the operations management and project (Ward and Chapman, 2008).
Conclusion
References:
Brown, Karen, Hyer, Nancy (2009). Managing Projects: A Team-Based Approach, Chapter 6: Assessing and Preparing for Project Uncertainties. McGraw-Hill/Irwin. ISBN-10: 0077356454.
De Meyer, A., Lcoh, C., and Pich, M., (2001). Uncertainty and Project Management: Beyond the Critical Path Mentality. INSEAD. Retrieved Sep. 29, 2014 from: http://www.insead.edu/facultyresearch/research/doc.cfm?did=907
Milliken, F. (1987) Three Types of Perceived Uncertainty about the Environment: State, effect, and response uncertainty, Academy of Management Review, 12(1): 133—143.
Perminova, Olga (2011). Managing Uncertainty in Projects. Åbo Akademi University Press. ISBN-97851-765-568-2.
Ward, S., & Chapman, C. (2008). Stakeholders and Uncertainty Management in Projects. Construction Management and Economics, 26(6), 563 - 577.
