Assessing and Preparing for Project

Uncertainties

Chapter 6

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Chapter Learning Objectives

• Describe the dimensions of project uncertainty as they apply to a specific project.

• Apply a systematic process for assessing potential uncertainties and preparing for them.

• In a team setting, apply uncertainty assessment tools such as risk mapping, failure modes and effects analysis (FMEA), gut-feel, Delphi, and fishbone diagrams.

• Design contingency plans to prepare for uncertainties.

• Revise a project plan to incorporate appropriate strategies for mitigating the potential outcomes associated with unfavorable uncertainties and enhancing the potential outcomes associated with favorable uncertainties.

• Develop a plan for monitoring uncertainties during a project’s life cycle.

When you have mastered the material in this chapter, you should be able to:

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Assessing and Preparing for Project Uncertainties

“Anything that can go wrong will go wrong.”

Murphy’s Law

“Was I deceived, or did a sable cloud Turn forth her silver lining on the night?”

John Milton

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Project Uncertainties

• Project Risk: An uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives.” (Source: A Guide to the Project Management Body of Knowledge, 2008, Project Management Institute)

• Types of uncertainties:• Risk: an unfavorable uncertainty• Favorable Uncertainties: Things not currently

within the project team’s expectations that have the potential to make the project even better or open doors for valuable opportunities currently outside the scope of the project.

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Uncertainty Analysis

• What is it? Tools and processes used to increase a team’s awareness of unknowns that can affect project outcomes, and to address those uncertainties by making adjustments in the project schedule, budget, resource distribution, specifications and other project dimensions.

• When does it happen? Uncertainty assessment occurs at every stage of project planning and management, but the stage immediately following WBS development offers the best place for a productive formal assessment.

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Dimensions of Uncertainty

• Uncertainty Sources

• Uncertainty Outcomes

• Likelihood of Occurrence

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Sources of Uncertainty

• Financial

• Technical

• Business Environment

• Social

• External or Natural Environment

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Exhibit 6.1

Sources of Uncertainty

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Box 6.1

Dimensions of Uncertainty for the Boeing 787 Project

In the mid-to-late 2000s, Boeing Commercial Airplanes was in the midst of developing a new passenger jet, the 787. It was to be made from lightweight composites supported by titanium structures, a technology that had not tested it to any great extent in the commercial market. In an effort to control costs, Boeing transferred large portions of the development expense to subcontractors in several countries.

At the same time, development speed was a major priority. For example, China represented a big market for the airplane, and Boeing officials promoted it for transport of spectators and tourists during the 2008 Olympic Games. Potentially big sales to China depended on Boeing’s ability to meet the 2008 target. (Unfortunately, Boeing was unable to reach this goal.)

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Box 6.1Dimensions of Uncertainty for the Boeing 787 Project: Financial Uncertainties

Unfavorable Uncertainty ExampleA key supplier developing a critical component could go into financial default and be unable to deliver designs or build prototypes.

Favorable Uncertainty ExampleAn airplane leasing company (often major customers for commercial jetliners) couldbecome so optimistic about the 787 it would offer itself as a financial partner in thedevelopment process.

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Box 6.1Dimensions of Uncertainty for the Boeing 787 Project: Technical Uncertainties

Unfavorable Uncertainty ExampleSome informed observers warned that the 787’s composite fuselage might not hold up in a crash because its structural properties made it more brittle than aluminum, the material used historically for airplane skins.

Favorable Uncertainty ExampleBoeing might be able to use technological advances from the 787 program to leverage developments in its defense and space programs to a greater extent than initially planned.

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Box 6.1Dimensions of Uncertainty for the Boeing 787 Project: Business Environment Uncertainties

Unfavorable Uncertainty ExampleBoeing was betting on the increasing demand for point-to-point and other short-haul air travel in medium-size airplanes. If Boeing’s bet proved wrong, the company and its suppliers would not be able to recoup their huge investments (leading secondarily to a financial risk).

Favorable Uncertainty ExampleIt was possible that increasing fuel costs (certainly a high possibility that did materialize) would increase demand for fuel-efficient commercial aircraft, raising demand for the 787 beyond that initially imagined.

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Box 6.1Dimensions of Uncertainty for the Boeing 787 Project: Social Uncertainties

Unfavorable Uncertainty ExampleAirplane components were to be built in large sections, in many cases outside the United States, and assembled in the company’s Everett, Washington, facility. Union organizations objected to the new strategy because of the job losses it would produce. This could further evolve into bad public relations for the company.

Favorable Uncertainty ExampleIt is possible organized consumer-advocacy groups could become increasingly vocal about the inconveniences of hub-to-hub travel. If passengers see the 787 as part of a potential remedy to the problem, they might initiate public campaigns that would positively influence airline purchase decisions.

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Box 6.1Dimensions of Uncertainty for the Boeing 787 Project: Uncertainties Associated with External or Natural Environment

Unfavorable Uncertainty ExampleThe Seattle area, home to the Boeing Commercial Airplanes group and the final assembly site for the 787, sits near a major geological fault. The fault is considered ripe for a devastating earthquake that could seriously damage Boeing’s operations and facilities in the area, making it difficult or impossible to meet production schedules.

Favorable Uncertainty ExampleIn the process of preparing facilities for a big quake, Boeing might discover protective structural remedies it could patent and sell to other companies. Or, in creating a recovery plan for an earthquake, Boeing might develop strategies and processes that would be useful for responding to other types of disasters.

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Likelihood of Occurrence

“Prediction is very difficult, especially about the future.”

Niels Bohr

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Exhibit 6.2

Traditional Risk Matrix Showing Relationships between Likelihood and Impact: Space Shuttle Example

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Exhibit 6.3

Uncertainty Matrix Showing both Favorable and Unfavorable Uncertainties

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Exhibit 6.4

Project Uncertainty Assessment Process

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Exhibit 6.5

Uncertainty Responses

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Exhibit 6.6

Monitoring Project Uncertainties

In the mid-to-late 2000s, Boeing Commercial Airplanes was in the midst of developing a (230–350) passenger jet, the 787. It was to be made from

lightweight composites supported by titanium structures, a technology that had not tested it to any great extent in the commercial market. In an effort to control costs, Boeing transferred large portions of the development expense

to subcontractors in several countries. Above are two uncertainties associated with the project and how each might be monitored.

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Tools for Assessing Project Uncertainties

• Risk Mapping

• Failure Modes and Effects Analysis (FMEA)

• The Gut-Feel Method

• The Delphi Method

• Fishbone Diagrams

• Simulation6-21

Exhibit 6.7

Team-Based FMEA Process for Project Uncertainty Assessment

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Exhibit 6.8Sample FMEA Results for Project to Create an Irrigation System and Landscape the Grounds Surrounding a Residential Hospital for Medically Fragile Children

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Exhibit 6.9

Sample Rating Criteria for FMEA

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Exhibit 6.10Gut-Feel Method for Uncertainty Assessment

continued

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Exhibit 6.10Gut-Feel Method for Uncertainty Assessment

continued

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Exhibit 6.10Gut-Feel Method for Uncertainty Assessment

continued

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Exhibit 6.10Gut-Feel Method for Uncertainty Assessment

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Exhibit 6.11

Gut-Feel Structure and Appearance after Dot Voting

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Exhibit 6.12

Examples of Relevant Uncertainties Identified through the Gut-Feel Method

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Exhibit 6.13

Gut-Feel Process: Team in Action

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Exhibit 6.14

Risk-Response Matrix

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Exhibit 6.15The Delphi Method for Uncertainty Assessment with Virtual Teams

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Exhibit 6.16

Fishbone Diagram for Risk Causes

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Simulation• Simulation: An approach for tackling project

uncertainties. “Representation of the operation or features of one process or system through the use on another.” (Source: American Heritage College Dictionary)

• Simulation Applications for Project Uncertainty• Physical Mock-ups• Dress Rehearsals• Tabletop Exercises• Market Tests and Clinical Trials• Technical Simulation• System Dynamics Modeling• Monte Carlo Simulation

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Exhibit 6.17

Expanded Perspective on Simulation for Project Management

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Exhibit 6.18

Sample Risk/Uncertainty Log for a Student Orientation Session

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Chapter Summary• Projects present potential unknowns – both unfavorable risks

and favorable uncertainties – for which the team must prepare.

• Many tools are available for assessing potential project surprises, and all consider likelihood and impact of outcomes.

• The project team must decide on actions to prepare for or respond to uncertainties, adjust the project plan accordingly, assign responsibility for managing them, and set up methods to monitor them.

• Qualitative tools for uncertainty assessment (such as risk mapping, FMEA, gut-feel, Delphi, fishbone diagramming, tabletop exercises, dry runs, and dress rehearsals) engage team members in interactive, visually based processes that can generate a wide range of possible uncertainties.

• Quantitative models for uncertainty assessment have their place, especially when there is sufficient historical information for making numerical parameters reasonably valid.

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