project risk management second edition

3 Motives for formal risk management processes 33 4 An overview of generic risk management processes 55Part II Elaborating the generic process framework 77 14 Risk management initiated a

Project Risk Management Second Edition

Project Risk

Management

Processes, Techniques and Insights Second edition

Chris Chapman and Stephen Ward

School of Management, University of Southampton, UK

Telephone ( þ44) 1243 779777

Email (for orders and customer service enquiries): cs-books@wiley.co.uk

Visit our Home Page on www.wileyeurope.com or www.wiley.com

All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or emailed to permreq@wiley.co.uk, or faxed to ( þ44) 1243 770620

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold on the understanding that the Publisher is not engaged

in rendering professional services If professional advice or other expert assistance is

required, the services of a competent professional should be sought.

Other Wiley Editorial Offices

John Wiley & Sons Inc., 111 River Street, Hoboken, NJ 07030, USA

Jossey-Bass, 989 Market Street, San Francisco, CA 94103-1741, USA

Wiley-VCH Verlag GmbH, Boschstr 12, D-69469 Weinheim, Germany

John Wiley & Sons Australia Ltd, 33 Park Road, Milton, Queensland 4064, Australia

John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop #02-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons Canada Ltd, 22 Worcester Road, Etobicoke, Ontario, Canada M9W 1L1 Wiley also publishes its books in a variety of electronic formats Some content that appears

in print may not be available in electronic books.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN 0-470-85355-7

Project management by Originator, Gt Yarmouth, Norfolk (typeset in 10/12pt Garamond) Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire

This book is printed on acid-free paper responsibly manufactured from sustainable forestry

in which at least two trees are planted for each one used for paper production.

3 Motives for formal risk management processes 33

4 An overview of generic risk management processes 55Part II Elaborating the generic process framework 77

14 Risk management initiated at different stages in the project life cycle 255

15 Effective and efficient risk management 277

16 Ownership issues: a contractor perspective 323

Foreword to the first edition

All projects involve risk—the zero risk project is not worth pursuing This is notpurely intuitive but also a recognition that acceptance of some risk is likely toyield a more desirable and appropriate level of benefit in return for the resourcescommitted to the venture Risk involves both threat and opportunity Organiza-tions that better understand the nature of the risks and can manage them moreeffectively cannot only avoid unforeseen disasters but can work with tightermargins and less contingency, freeing resources for other endeavours, andseizing opportunities for advantageous investment that might otherwise be re-jected as ‘too risky’

Risk is present in every aspect of our lives; thus risk management is universalbut in most circumstances an unstructured activity, based on common sense,relevant knowledge, experience and instinct Project management has evolvedover recent years into a fully-fledged professional discipline characterized by aformalized body of knowledge and the definition of systematic processes for theexecution of a project Yet project risk management has, until recently, generallybeen considered as an ‘add-on’ instead of being integral to the effective practice

of project management

This book provides a framework for integrating risk management into themanagement of projects It explains how to do this through the definition ofgeneric risk management processes and shows how these processes can bemapped onto the stages of the project life cycle As the disciplines of formalproject management are being applied ever more widely (e.g., to the manage-ment of change within organizations) so the generic project risk managementprocesses set out here will readily find use in diverse areas of application.The main emphasis is on processes rather than analytical techniques, whichare already well documented The danger in formalized processes is that theycan become orthodox, bureaucratic, burdened with procedures, so that thepractitioner loses sight of the real aims This book provides the reader with afundamental understanding of project risk management processes but avoidsbeing overprescriptive in the description of the execution of these processes.Instead, there is positive encouragement to use these generic processes as astarting point for elaboration and adaptation to suit the circumstances of a

particular application, to innovate and experiment, to simplify and streamline thepractical implementation of the generic processes to achieve cost-effective andefficient risk management.

The notion of risk efficiency is central to the theme All risk managementprocesses consume valuable resources and can themselves constitute a risk tothe project that must be effectively managed The level of investment in riskmanagement within projects must be challenged and justified on the level ofexpected benefit to the overall project Chris Chapman and Steve Ward docu-ment numerous examples drawn from real project experience to substantiate thebenefits of a formal process-oriented approach Ultimately, project risk manage-ment is about people making decisions to try to optimize the outcome, beingproactive in evaluating risk and the possible responses, using this information tobest effect, demonstrating the need for changes in project plans, taking thenecessary action and monitoring the effects Balancing risk and expectation isone of the most challenging aspects of project management It can also beexciting and offer great satisfaction, provided the project manager is able tooperate in a climate of understanding and openness about project risk Thecultural change required in organizations to achieve this can be difficult andlengthy, but there is no doubt that it will be easier to accomplish if risk manage-ment processes are better understood and integrated into the practice of projectmanagement

This book is a welcome and timely addition to the literature on risk ment and will be of interest to all involved in project management as well asoffering new insights to the project risk analyst

manage-Peter WakelingDirector of Procurement Policy (Project Management)

Ministry of Defence (Procurement Executive)

Foreword to the second edition

The analysis of risk and the development of risk management processes havecome a long way over the last 10 years, even since the late 1990s Hence theneed for a second edition of Chapman and Ward’s Project Risk Management, firstpublished in 1997

They not only continue to push back the boundaries, Chapman has also beeninvolved in the development of work aimed at practitioners—PRAM (Associationfor Project Management) and RAMP (Institution of Civil Engineers and Faculty/Institute of Actuaries) They importantly make comparisons between their workand both PRAM and RAMP, as well as with the Project Management Institute’sPMBOK 2000 They have developed and named the generic framework SHAMPU(Shape, Harness, and Manage Project Uncertainty) process and compare it withPRAM, RAMP, and PBOK 2000 I suggest that the authors of these three will want

to use SHAMPU as a challenge to their own further thinking

Chapman and Ward say that their book is largely about how to achieveeffective and efficient risk management in the context of a single project.Determining what can be simplified, and what it is appropriate to simplify, isnot a simple matter! In their final chapter they adopt a corporate perspective onproject risk management processes Thus they mirror the work already underway by the ICE/Actuaries team who have embarked on the development ofSTRATrisk, designed to enable prime decision makers to deal more systematicallywith the most important opportunities and threats to their business

They quote Walsham who has suggested a management framework whichviews organizational change as a jointly analytical, educational and politicalprocess where important interacting dimensions are the context, content andprocess of the change They conclude by stating that ‘most project risk is gen-erated by the way different people perceive issues and react to them.’ Those of

us who have driven such projects as the Hong Kong Mass Transit Railway (verysuccessfully) and the Channel Tunnel (less so) will say ‘hear, hear’ to all of that

Professor Tony M RidleyImperial College LondonPast President, Institution of Civil Engineers

Projects motivating this book

The projects that motivated initial development of many of the ideas in this bookwere primarily large engineering projects in the energy sector: large-scale Arcticpipelines in the far north of North America in the mid-1970s, BP’s North Seaprojects from the mid-1970s to the early 1980s, and a range of Canadian and USenergy projects in the early 1980s In this period the initial focus was ‘the project’

in engineering and technical terms, although the questions addressed rangedfrom effective planning and unbiased cost estimation to effective contractualand insurance arrangements and appropriate technical choices in relation tothe management of environmental issues and related approval processes.The projects that motivated evolution of these ideas from the mid-1980s to thepresent (August 2003) involved considerable diversification: defence projects(naval platforms, weapon systems, and information systems), civil informationsystems, nuclear power station decommissioning, nuclear waste disposal, deepmining, water supply system security, commodity trading (coffee and chocolate),property management, research and development management, civil engineeringconstruction management systems, electric utility long-term and medium-termcorporate planning, electric utility generation unit construction and installation

or enhancement, commercial aircraft construction, the construction of ChannelTunnel rolling stock, and the risk and benefit management of a major branchbanking information systems project, to mention a few that are used directly orindirectly as examples in this book In this period the focus was on what aspects

of project risk management are portable, in the sense that they apply to gardensheds and nuclear power stations, and in what way do ideas have to be tailored

to the circumstances, in the sense that garden sheds and nuclear power stationsrequire some clear differences in approach

The reader may be concerned with projects with features well beyond ourexperience, but we believe that most of what we have to say is still directlyrelevant, provided the projects of concern involve enough uncertainty to makeformal consideration of that uncertainty and associated risk worthwhile Even ifthis condition is not satisfied, informal or intuitive project risk management willbenefit indirectly from some of the insights offered

What this book is about

This book makes no attempt to cover all aspects of project management.However, it addresses project risk management as a process that is an ‘add-in’

to the project management process as a whole, rather than an ‘add-on’ The need

to integrate these processes is central to the argument and to the basic positionadopted by this book

The need to start to understand project risk management by understandingprocesses is also central to our case The details of models or techniques orcomputer software are important, but they are not of direct concern here.Senior managers who want to make intelligent use of risk management pro-cesses without depending on their risk analysts need to understand most of thisbook (the exceptions are signposted) Those who wish to participate effectively

in risk management processes also need to understand most of this book Thosewho wish to lead risk management processes need to understand this book indepth and a wide range of additional literature on technique, model and methoddesign, and computer software

A very important message emphasized here is that project risk management inthe context of any particular project can be viewed as a project in its own right,

as part of a multiproject environment concerned with all other aspects of projectmanagement, such as planning resources, building teams, quality management,and so on An immediate implication of this view is a need to ‘plan the riskmanagement process’ as part of a process of ‘planning the project planningprocess’ In the absence of another source of quality audit for project manage-ment, this also implies using the risk management process to make sure all otherdesirable aspects of project management are in place A more subtle andfar-reaching implication is that everything we know about project management

in general, and multiproject management in particular, applies to the project riskmanagement process itself

There is an inevitable circularity in the ideal structure for such a book, largelybecause of the iterative nature of risk management processes The authors haverestructured it several times to avoid approaches that overtly failed We believethe present structure works, but the reader will have to be the judge A range ofdifferent approaches to this book might be suggested, from ‘work your waythrough each chapter in detail before going on to the next’, to ‘skim thewhole book and then go back to the bits of most interest’ We leave thereaders to judge what best suits their inclinations, with a few hints we hopeare useful

The layout of this book

The book is in three parts Part I sets the scene and introduces a generic riskmanagement process Part II examines each phase of this process in detail Part

III addresses assumptions used in Part II and considers modifications to thegeneric process in order to achieve efficiency as well as effectiveness, ‘closingthe loop’.

Part I Setting the scene (Chapters 1 –4)

Chapter 1 identifies the need for a broad approach to project risk management.One feature of this breadth is addressing opportunities as well as threats Another

is addressing uncertainty, including ambiguity, wherever it matters A third is aconcern for the roots of uncertainty in terms of a project’s six W s: the who(parties), why (motives), what (design), whichway (activities), wherewithal(resources), and when (timing) questions

Chapter 2 considers the implications of the Project Life Cycle (PLC), using aneight-stage framework This helps to clarify the context in which risk manage-ment operates and a range of project management issues that risk managementneeds to address For example, the nature of the process used to manage projectrisk should be driven by when in the PLC it is used

Chapter 3 describes the key motives for formal Risk Management Processes(RMPs) These include the benefits of documentation, the value of quantitativeanalysis that facilitates distinguishing between targets, expectations, and commit-ments, the pursuit of risk efficient ways of carrying out a project, and relatedculture changes Effective exploitation of risk efficiency implies highly proactiverisk management that takes an integrated and holistic approach to opportunityand threat management with respect to all six W s

Chapter 4 outlines the nine-phase generic process framework employed todiscuss RMPs This framework is compared with a number of other publishedframeworks, as a basis for understanding the transferable nature of the conceptsdeveloped in the rest of this book for users of alternative RMP frameworks and

as a basis for understanding the choices available when developing RMP works for particular organizations

frame-Part II Elaborating the generic process (Chapters 5 –13)

Part II elaborates the nine-phase generic process of Chapter 4, one chapter perphase The elaborations are a distillation of processes we have found effectiveand efficient in practice This is ‘theory grounded in practice’, in the sense that it

is an attempt to provide a systematic and ordered description of what has to bedone in what order to achieve the deliverables each phase should produce It is

a model of an idealized process, intended to provide an understanding of thenature of risk management processes This model needs to be adapted to thespecific terrain of specific studies to be useful Examples are provided to helplink the idealized process back to the practice they are based on, to facilitatetheir application in practice

Much of what most experienced professional risk analysts do is craft, based oncraft skills learned the hard way by experience Part II is an attempt to explainsystematically as much as we can in a particular generic process context, indicat-ing along the way areas where craft skills are particularly important Somespecific technique is also provided, but technique in terms of the ‘nuts andbolts’ or mechanics of processes is not the focus of this book.

Part III Closing the loop (Chapters 14 –17)

Part II makes a number of assumptions about application context to facilitate adescription of the nine-phase generic framework outlined in Chapter 4 Part IIIaddresses relaxing these assumptions However, other ‘unfinished business’ alsohas to be addressed, concerned with designing and operating efficient andeffective risk management processes

Chapter 14 explores the implications of initiating a risk management process

at different stages in a project’s life cycle

Chapter 15 considers making risk management processes efficient as well aseffective, providing two extended examples to illustrate what is involved inpractice

Chapter 16 addresses uncertainty and risk ownership issues, considering acontractor’s perspective, and the need to align client and contractor motivation.Chapter 17 takes a corporate perspective of project risk managementprocesses and considers what is involved in establishing and sustaining anorganizational project risk management capability

As its title suggests, the emphasis of this book is processes, in terms of theinsight necessary to use risk management processes effectively and developefficiency in doing so It uses examples to focus on very specific lessons pro-vided by practice These examples may be viewed as the basis for, or evidence

of, ‘theory grounded in practice’, or they may be viewed as ‘war stories with amoral’, depending on the reader’s preferences

Changes for the second edition

The basic structure for the second edition in terms of chapters is the same as forthe first edition, except that the contents of Chapters 15 and 16 have beenreversed However, the text has been substantially revised throughout, andthere has been some rearrangement of material between chapters An importantaspect of these revisions has been to take an uncertainty management perspec-tive that addresses uncertainty associated with ambiguity in a wide variety offorms and considers opportunity management as well as threat management

This is necessary for the achievement of really effective risk management andreflects recent developments in best practice.

Chapters 1, 3, 4 and 15 contain new material Chapter 1 has been extendedwith new sections on the nature of uncertainty in projects Chapter 3 nowincludes an extended explanation of the nature of risk efficiency and an asso-ciated operational definition of ‘risk’ Chapter 4 is largely new material Afterintroducing a particular generic risk management process framework, a historicalperspective is provided to clarify the origins of this framework Subsequent newsections compare this process framework with other published frameworks in-cluding those adopted by the US Project Management Institute (PMI) and the UKAssociation for Project Management (APM) Chapter 15 is a recasting of Chapter

16 of the first edition with a focus on making risk management processesefficient as well as effective Most of the chapter is new material in the form

of two extended examples to illustrate what is involved when adapting genericprocesses to specific applications when efficiency as well as effectiveness needs

to be addressed

The PRAM Guide complements this book Both books have a very similargeneric process chapter (outlined in Chapter 4 of this book, Chapter 3 in thePRAM Guide, both drafted by Chapman), describing the generic process in terms

of nine phases, a characterization that we believe works well in conceptual andpractical operational terms The support of that characterization by the organiza-tions represented by more than a hundred people active in the APM SIG onProject Risk Management was the basis of this belief, but the nine-phase structurehas worked well when developing this book and in practical applications sincethe first edition If readers prefer other structures, the nine phases used here willmap onto all those the authors are aware of, with two specific examples of suchmapping discussed in Chapter 4

Members of the APM SIG on Project Risk Management who were involved inthe working party that contributed to the generic process definition described

in Chapter 4 (and their organizations at that time) are: Paul Best (Frazer-Nash),Adrian Cowderoy (City University, Business Computing), Valerie Evans (MoD-PE), Ron Gerdes (BMT Reliability Consultants Ltd), Keith Gray (British Aerospace(Dynamics)), Steve Grey (ICL), Heather Groom (British Aerospace (Dynamics)),Ross Hayes (University of Birmingham, Civil Engineering), David Hillson (HVRConsulting Services Ltd), Paul Jobling (Mouchel Management Ltd), Mark Latham

(BAeSEMA), Martin Mays (CORDA, BAeSEMA), Ken Newland (Quintec ates Ltd), Catriona Norris (TBV Schal), Grahame Owen (IBM (UK) Ltd), PhilipRawlings (Eurolog), Francis Scarff (CCTA), Peter Simon (PMP), Martin Thomas(4D Management Consultancy), and David Vose (DVRA) We would particularlylike to thank Peter Simon (chair of the working party) and his co-editors of thePRAM Guide, David Hillson and Ken Newland.

Associ-The second edition of this book has also benefited from Chapman’s ment in Risk Analysis and Management for Projects (RAMP) Guide (Simon, 1998and Lewin, 2002) Chris Lewin (Unilever plc), Mike Nichols (The Nichols Group),and Luke Watts (Strategic Thought) deserve particular thanks in this context TheRAMP Guide also complements this book, although the generic processes aresomewhat different, as described in Chapter 4

involve-Most of Chapter 2 is reprinted from the International Journal of ProjectManagement, Volume 13, S C Ward and C B Chapman, ‘A risk managementperspective on the project life cycle, pages 145–149, Copyright (1995), with kindpermission from Elsevier, PO Box 800, Oxford OX5 1GB, UK

Chapter 15 uses material reprinted from the International Journal of ProjectManagement, Volume 18, C B Chapman and S C Ward, ‘Estimation and evalu-ation of uncertainty: A minimalist first pass approach’, pages 369–383; with kindpermission from Elsevier, PO Box 800, Oxford OX5 IGB, UK It also usesmaterial from a forthcoming paper in the Journal of the Operational ResearchSociety, C B Chapman and S C Ward, ‘Constructively simple estimating: Aproject management example’, Copyright (2003), with kind permission fromPalgrave, Brunel Road, Basingstoke RG21 6XS, UK

Chapter 16 uses material reprinted from the International Journal of ProjectManagement, Volume 12, S C Ward and C B Chapman, ‘Choosing contractorpayment terms’, pages 216–221, Copyright (1994); Volume 9, S C Ward, C B.Chapman, and B Curtis, ‘On the allocation of risk in construction projects’, pages140–147, Copyright (1991); and Volume 9, S C Ward and C B Chapman, ‘Extend-ing the use of risk analysis in project management’, pages 117–123, Copyright(1991), with kind permission from Elsevier, PO Box 800, Oxford OX5 1GB, UK.Figures 8.2, 11.5 and 11.6 are reproduced from C B Chapman, D F Cooperand M J Page, Management for Engineers, John Wiley & Sons Figures 8.3 and14.1 are reproduced by permission of the Operational Research Society, SeymourHouse, 12 Edward Street, Birmingham B1 2RX, UK

The authors would like to acknowledge the contributions of a large number ofcolleagues we have worked for and with over a number of years It would beinappropriate to list them and their contributions, but we would like to expressour gratitude We would also like to thank referees who suggested changes tothe first edition: Martin Hopkinson (HVR Consulting Services Ltd), Ken Newland(Quintec Associates Ltd), Professor Mike Pidd (University of Lancaster), PhilipRawlings (Euro Log Ltd) and Alan Walker (Prime Minister’s Office of PublicService Reforms) We apologize to them for failing to take any advice weshould have Only the errors and omissions are entirely our own

Part I

Setting the scene

Part I (Chapters 1–4) sets the scene, introducing concepts used throughout therest of the book

Chapter 1 identifies the need for a broad approach to project risk ment One feature of this breadth is addressing opportunities as well as threats.Another is addressing uncertainty, including ambiguity, wherever it matters Athird is a concern for the roots of uncertainty in terms of a project’s six W s: thewho (parties), why (motives), what (design), whichway (activities), wherewithal(resources), and when (timing) questions

manage-Chapter 2 considers the implications of the project life cycle (PLC), using aneight stage framework This helps to clarify the context in which risk manage-ment operates and a range of project management issues that risk managementneeds to address For example, the nature of the process used to manage projectrisk should be driven by when in the PLC it is used

Chapter 3 describes the key motives for formal risk management processes(RMPs) These include the benefits of documentation, the value of quantitativeanalysis that facilitates distinguishing between targets, expectations, and commit-ments, the pursuit of risk efficient ways of carrying out a project, and relatedculture changes Effective exploitation of risk efficiency implies highly proactiverisk management that takes an integrated and holistic approach to opportunityand threat management with respect to all six W s

Chapter 4 outlines the nine phase generic process framework employed todiscuss RMPs This framework is compared with a number of other publishedframeworks, as a basis for understanding the transferable nature of the conceptsdeveloped in the rest of this book for users of alternative RMP frameworks and

as a basis for understanding the choices available when developing RMP works for particular organizations

frame-Uncertainty, risk, and their management

an endeavour in which human, material and financial resources areorganised in a novel way, to undertake a unique scope of work of givenspecification, within constraints of cost and time, so as to achieve unitary,beneficial change, through the delivery of quantified and qualitativeobjectives—Turner (1992)

This definition highlights the change-inducing nature of projects, the need toorganize a variety of resources under significant constraints, and the centralrole of objectives in project definition It also suggests inherent uncertaintyrelated to novel organization and a unique scope of work, which requiresattention as a central part of effective project management

Much good project management practice can be thought of as effective certainty management For example, good practice in planning, co-ordination,setting milestones, and change control procedures seeks to manage uncertaintydirectly However, most texts on project management do not consider the wayuncertainty management should be integrated with project management moregenerally, in terms of a wide view of what a co-ordinated approach to proactiveand reactive uncertainty management can achieve

un-Threats and opportunities

A simplistic focus on project success and uncertainty about achieving it can lead

to uncertainty and risk being defined in terms of ‘threats to success’ in a purely

negative sense For example, suppose success for a project is measured solely interms of realized cost relative to some target or commitment Then both ‘un-certainty’ and ‘risk’ might be defined in terms of the threat to success posed by agiven plan in terms of the size of possible cost overruns and their likelihood.From this perspective it can be a natural step to regard risk management asessentially about removing or reducing the possibility of underperformance.This is extremely unfortunate, because it results in a very limited appreciation

of project uncertainty and the potential benefits of project risk management.Often it can be just as important to appreciate the positive side of uncertainty,which may present opportunities rather than threats Two examples may help toillustrate this point

Example 1.1 Capturing the benefits of ‘fair weather’

North Sea offshore pipe laying involves significant uncertainty associatedwith weather Relative to expected (average) performance, long periods ofbad weather can have significant sustained impact It is important to recog-nize and deal with this ‘threat’ It is also very important to recognize thatthe weather may be exceptionally kind, providing a counterbalancing op-portunity Making sure supplies of pipe can cope with very rapid pipelaying is essential, for obvious reasons Also important is the need toshift following activities forward, if possible, if the whole pipeline is fin-ished early If this is not done, ‘swings and roundabouts’ are just ‘swings’:the bad luck is accumulated, but the good luck is wasted, a ratchet effectinducing significant unanticipated delay as a project progresses

Example 1.2 A threat resolved creates an opportunity

The team responsible for a UK combined cycle gas turbine electricityproject were concerned about the threat to their project’s completiontime associated with various approvals processes that involved importantnovel issues Gas was to be provided on a take-or-pay contract in whichgas supply would be guaranteed from an agreed date, but gas not requiredfrom that date would have to be paid for anyway This made any delayrelative to the commitment operating date very expensive, the cost of suchunused gas being in effect a project cost The only response identified was

to move the whole project forward three months in time (starting threemonths earlier and finishing three months earlier) and arrange for standardBritish Gas supplies for testing purposes if the project actually finishedthree months early Using British Gas supplies for testing was a non-trivial change, because its gas composition was different, requiring differenttesting procedures and gas turbine contract differences This responsewould deal with planning delays, the motivation for first suggesting it,

but it would also deal with any other reasons for delay, including those notidentified Further, it provided a very high degree of confidence that thecombined cycle gas turbine plant would be operational very shortly afterthe main gas supply initiation date But, of special importance here, thisresponse made it practical to maintain the strategy of using British Gassupplies for testing, but move the whole project (this time including themain gas supply availability date) back in time (starting and finishing later)

in order to time the take-or-pay contract date to coincide directly with thebeginning of the peak winter demand period, improving the corporate cashflow position The opportunity to improve the cash flow position in thisway, while maintaining confidence with respect to the take-or-pay contractfor gas, was deemed to be a key impact of the risk management process.The search for a way to resolve a threat was extended to the identification

of a related but separate opportunity, and the opportunity was the keybenefit of the process

These two examples illustrate the importance of opportunities as well as threats,the first in cost terms at an activity level, the second in cost and revenue terms at

a project level In the first example, if the implications of good luck are notseized and only bad luck is captured, the accumulated effect is reasonablyobvious once the mechanism is understood, and it should be clear that thisapplies to all activities in all projects The second example illustrates the benefits

of creative, positive thinking, which looks beyond merely overcoming or izing a problem to associated opportunities This aspect of problem solving ismore subtle and is not widely understood, but it can be very important, in directterms and from a morale point of view High morale is as central to good riskmanagement as it is to the management of teams in general If a project teambecomes immersed in nothing but attempting to neutralize threats, the ensuingdoom and gloom can destroy the project Systematic searches for opportunities,and a management team willing to respond to opportunities identified by thoseworking for them at all levels (which may have implications well beyond theremit of the discoverer), can provide the basis for systematic building of morale

neutral-In any given decision situation both threats and opportunities are usuallyinvolved, and both should be managed A focus on one should never beallowed to eliminate concern for the other Moreover, opportunities and threatscan sometimes be treated separately, but they are seldom independent, just astwo sides of the same coin can only be examined one at a time, but they are notindependent when it comes to tossing the coin Courses of action are oftenavailable that reduce or neutralize potential threats and simultaneously offeropportunities for positive improvements in performance It is rarely advisable

to concentrate on reducing threats without considering associated opportunities,just as it is inadvisable to pursue opportunities without regard for the associatedthreats

Threats and opportunities 5

Recognizing this, guides published by the US Project Management Institute(PMI) and the UK Association for Project Management (APM) have adopted abroad view of risk in terms of threats and opportunities Their definitions of riskare very similar, as follows:

Risk—an uncertain event or condition that, if it occurs, has a positive ornegative effect on a project objective—PMI (2000, p 127)

Risk—an uncertain event or set of circumstances that, should it occur, willhave an effect on the achievement of the project’s objectives—APM (1997,

Uncertainty about anything that matters as a starting point

While we warmly endorsed the PMI and APM definitions with respect to theirbreadth in terms of threats and opportunities, we strongly resist the very re-stricted and limiting focus on ‘events’, ‘conditions,’ or ‘circumstances’, whichcause effects on the achievement of project objectives Rather than a focus onthe occurrence or not of an event, condition, or set of circumstances, it isimportant to take uncertainty about anything that matters as the starting pointfor risk management purposes, defining uncertainty in a simple ‘lack of certainty’sense Uncertainty management is not just about managing perceived threats,opportunities, and their implications; it is about identifying and managing allthe many sources of uncertainty that give rise to and shape our perceptions ofthreats and opportunities It implies exploring and understanding the origins ofproject uncertainty before seeking to manage it, with no preconceptions aboutwhat is desirable or undesirable Key concerns are understanding where andwhy uncertainty is important in a given project context, and where it is not.This is a significant change in emphasis compared with most project riskmanagement processes

It could be argued that this starting point means we are talking about ‘risk anduncertainty management’ or just ‘uncertainty management’ (including riskmanagement), not ‘risk management’ That is the direction we are taking(Chapman and Ward, 2002; Ward and Chapman, 2003), but the term ‘projectrisk management’ is too well established to be replaced widely in the near termand is retained for this book Our publisher was understandably reluctant tochange the title of a second edition while the first edition (Chapman andWard, 1997) had sales that were very healthy and stable, one example of theinertia involved But increasing the emphasis on opportunity management in anuncertainty management context is a key feature of this edition relative to thefirst.

Uncertainty in projects

The scope for uncertainty in any project is considerable, and most projectmanagement activities are concerned with managing uncertainty from the earlieststages of the Project Life Cycle (PLC), clarifying what can be done, deciding what

is to be done, and ensuring that it gets done Uncertainty is in part about

‘variability’ in relation to performance measures like cost, duration, or ‘quality’

It is also about ‘ambiguity’ associated with lack of clarity because of the iour of relevant project players, lack of data, lack of detail, lack of structure toconsider issues, working and framing assumptions being used to consider theissues, known and unknown sources of bias, and ignorance about how mucheffort it is worth expending to clarify the situation

behav-In a project context these aspects of uncertainty can be present throughout thePLC, but they are particularly evident in the pre-execution stages, when theycontribute to uncertainty in five areas:

1 variability associated with estimates;

2 uncertainty about the basis of estimates;

3 uncertainty about design and logistics;

4 uncertainty about objectives and priorities;

5 uncertainty about fundamental relationships between project parties

All these areas of uncertainty are important, but generally they become morefundamentally important to project performance as we go down the list Potentialfor variability is the dominant issue at the top of the list, but ambiguity becomesthe dominant underlying issue toward the bottom of the list Uncertainty aboutvariability associated with estimates involves the other four areas: each of theminvolving dependencies on later areas in this list

Uncertainty in projects 7

Variability associated with estimates

An obvious area of uncertainty is the size of project parameters such as time,cost, and quality related to particular activities For example, we may not knowhow much time and effort will be required to complete a particular activity Thecauses of this uncertainty might include one or more of the following:

lack of a clear specification of what is required;

novelty or lack of experience of this particular activity;

complexity in terms of the number of influencing factors and the number ofinterdependencies;

limited analysis of the processes involved in the activity;

possible occurrence of particular events or conditions that might affect theactivity

Only the last of these items is directly related to specific events or conditions asreferred to in the PMI (2000) and APM (1997) definitions of ‘risk’ The othersources of uncertainty arise from a lack of understanding of what is involved.Because they are less obviously described as threats or opportunities, they may

be missed unless a broad view of uncertainty management is adopted

Uncertainty about the basis of estimates

The quality of estimates depends on: who produced them, what form they are in;why, how, and when they were produced; from what resources and experiencebase; and what assumptions underpin them The need to note assumptions aboutresources, choices, and methods of working is well understood if not always fullyoperationalized Most of the time estimates ignore, or assume away, the existence

of uncertainty that relates to three basic sources: ‘known unknowns’, ‘unknownunknowns’, and ‘bias’ (Chapman and Ward, 2002) All three of these sources ofuncertainty can have a very substantial impact on estimates, and this needs to berecognized and managed

Uncertainty about design and logistics

In the conception stage of the PLC the nature of the project deliverable and theprocess for producing it are fundamental uncertainties In principle, much of thisuncertainty is removed in pre-execution stages of the PLC by attempting tospecify what is to be done, how, when, and by whom, and at what cost Inpractice, a significant amount of this uncertainty may remain unresolved throughmuch of the PLC The nature of design and logistics assumptions and associateduncertainty may drive some of the uncertainty about the basis of estimates

Uncertainty about objectives and priorities

Major difficulties arise in projects if there is uncertainty about project objectives,the relative priorities between objectives, and acceptable trade-offs These diffi-culties are compounded if this uncertainty extends to the objectives and motives

of the different project parties and the trade-offs parties are prepared to makebetween their objectives A key issue is: ‘do all parties understand their respon-sibilities and the expectations of other parties in clearly defined terms, which linkobjectives to planned activities?’ ‘Value management’ has been introduced toencompass this (Green, 2001) The need to do so is perhaps indicative of aperceived failure of risk management practices However approached, risk man-agement and value management need joint integration into project management

Uncertainty about fundamental relationships between project parties

The relationships between the various parties may be complex, even if they lookquite simple The involvement of multiple parties in a project introduces un-certainty arising from ambiguity in respect of (Ward, 1999):

specification of responsibilities;

perceptions of roles and responsibilities;

communication across interfaces;

the capability of parties;

formal contractual conditions and their effects;

informal understandings on top of, or instead of, formal contracts;

mechanisms for co-ordination and control

Ambiguity about roles and responsibilities for bearing and managing related uncertainty can be crucial This ambiguity ought to be systematicallyaddressed in any project, not just in those involving formal contracts betweendifferent organizations Contractor organizations are often more aware of thissource of ambiguity than their clients, although the full scope of the threatsand opportunities that this ambiguity generates for each party in any contract(e.g., via claims) may not always be fully appreciated until rather late in the day.For example, interpretations of risk apportionment implied by standard contractclauses may differ between contracting parties (Hartman and Snelgrove, 1996;Hartman et al., 1997) The nature of assumptions about contractual relationshipsand associated uncertainty may drive uncertainty about objectives and prioritieswith further knock-on effects If a ‘fair weather partnership’ cracks when thegoing gets tough, everything else comes apart, and lost opportunities may bethe biggest casualty

project-Uncertainty in projects 9

The six W s framework for the roots

of uncertainty

In the authors’ experience the initial motivation for applying formal risk ment usually arises because of concerns about design and logistics issues inmajor projects that involve the large-scale use of new and untried technology.However, the most important issues that risk management helps to resolve areusually related to objectives and relationships between project parties Forexample, a common issue in most projects is: ‘do we know what we aretrying to achieve in clearly defined terms, which link objectives to plannedactivities?’ It is important to understand why this situation arises and torespond effectively in any project context

manage-A convenient starting point is consideration of the project definition processportrayed in Figure 1.1 There are six basic questions that need to be addressed:

1 who who are the parties ultimately involved? (parties);

2 why what do the parties want to achieve? (motives);

3 what what is it the parties are interested in? (design);

4 whichway how is it to be done? (activities);

5 wherewithal what resources are required? (resources);

6 when when does it have to be done? (timetable).For convenience we refer to these question areas as ‘the six W s’, using thedesignations in parentheses as well as the W labels for clarity when appropriate.While somewhat contrived, this terminology helps to remind us of the need toconsider all six aspects of a project, reinforced by the Rudyard Kipling quoteused to open this chapter

The flow lines in Figure 1.1 show the influences on project definition that arethe roots of uncertainty In the context of roots of uncertainty, these arrows can

be interpreted as indicating the knock-on effects of uncertainty in each entity AsFigure 1.1 shows, the roots of uncertainty may extend back to the basic purpose

of the project and even the identity of the relevant parties Any uncertaintyassociated with entities earlier in the cycles portrayed by the diagram are offundamental importance later In the earliest stage of a project, during concep-tion, uncertainty is at its greatest The purpose for which the project is requiredand the parties who will be involved may not be clear

As indicated in Figure 1.1, ‘project initiators’ are a subset of the who, the

‘project parties ultimately involved’ Project initiators kick the whole processoff One or more project initiators first identify the basic purpose of theproject, or intended benefit from it, the why or motives for the project Thesemotives will usually include profit, involving revenue and cost, along with ‘othermotives’ Initially, the nature of these motives will be defined, but they will not

be quantified as objectives That is, in terms of the mission–goals–objectiveshierarchy often used to move from an overall mission statement to quantified

objectives, the initial focus of the why may be on mission and broadly definedgoals.

Why, in terms of the initial conception of purpose, drives the initial what, thedesign The design—be it a building, other physical product, service, orprocess—drives the initial activity-based plans, associated plan-based resourceallocations, and plan-based timetable, the initial whichway, wherewithal, andwhen Subsequently, there is significant feedforward and feedback along thewhichway–wherewithal–when dimensions and some feedback to the what Thewhichway–wherewithal–when entities then feed back into quantification of cost,possibly revenue and other motives, and why in terms of a more developed,measured definition These considerations may relate to capital cost only or morecomplex, through-life performance criteria This can involve related feedback tothe who, with changes of a still more fundamental nature involving the project

Figure 1.1—The project definition processThe six W s framework for the roots of uncertainty 11

initiators, ‘later players’, and ‘other interested parties’ As the project evolves itmay be appropriate to bring in further later players, enlarging the who (e.g., tobanks for resource reasons) It may also become appropriate to consider otherinterested parties who are not direct players (e.g., regulators).

In each case the feedback loops result in subsequent feedforward, which mayresult in fundamental changes to the what, whichway, wherewithal, or when.This brief description of the project definition process in terms of the six W sinvolved is an oversimplification for many projects, but it is sufficiently complex

to highlight the nature of important roots of uncertainty in projects In particular,

if we recognize that the what, whichway, and wherewithal together describe thequality of a project and ignore revenue and other motives, then the lower part ofFigure 1.1 corresponds to the well-known cost–time–quality triad The limitedperspective inherent in the simple cost–time–quality triad is then apparent fromthe expansion of this triad by Figure 1.1 Further, Figure 1.1 provides a usefuloperational basis for addressing cost–time–quality trade-offs

The scope of project risk management

Efficient and effective project management requires appropriate management ofall the sources of uncertainty outlined above Risk Management Processes (RMPs)that adopt a simplistic focus on threats will not address many of these sources ofuncertainty RMPs concerned with threats and opportunities using the APM(1997) or PMI (2000) definitions of ‘risk’ will do better, but will still tend to befocused on uncertain events, conditions, or circumstances This does notfacilitate consideration of aspects of variability that are driven by underlyingambiguity To address uncertainty in both variability and ambiguity terms weneed to adopt a more explicit focus on uncertainty management Uncertaintyabout anything that matters has to be the starting point for holistic and integratedproject risk management

To this end it is useful to define ‘risk’ as an uncertain effect on projectperformance rather than as a cause of an (uncertain) effect on project perform-ance Such a definition of project ‘risk’ is ‘the implications of uncertainty aboutthe level of project performance achievable’ However, this definition on its own

is not an effective operational alternative to those provided by the PMI or APM

We provide it here as a short form of a more complete operational definitionprovided in Chapter 3 What this short-form definition attempts to clarify now isthat managing project risk must start with managing sources of project uncer-tainty about achievable performance that matter Opportunities and threats arepart of the sources of uncertainty that matter, but they are not risk per se in ourterms Similarly, uncertain events, conditions, or circumstances that may have aneffect (positive or negative) on project objectives are part of the sources ofuncertainty that matter, but they are not risk per se in our terms Why uncertaintymatters is not a simple issue, but Chapter 3 outlines key aspects of what is

involved; the rest of this book illustrates what is involved in more detail, andChapman and Ward (2002) elaborate further.

To realize in practical terms the advantages of this wider perspective, it isessential to see project risk management as an important extension of conven-tional project planning, with the potential to influence project design as well asactivity-based plans on a routine basis, occasionally influencing very basic issueslike the nature of the project parties and their objectives for the project There aremany ways to classify ‘plans’ In general we will associate ‘plans’ with all six W s,sometimes identifying ‘activity-based plans’, ‘plan-based resource allocations’,and so on, as indicated in Figure 1.1 For the present purposes it is useful todistinguish ‘base’ plans and ‘contingency’ plans

‘Base plans’ are target scenarios, a portrayal of how we would like a project to

go, incorporating proactive responses to uncertainty identified by proactive RMPplanning Base plans provide a basis for project preparation, execution, andcontrol Underlying the base plan in activity terms is a design, which may beworth identifying as a ‘base design’ if changes are anticipated Base plans inactivity terms imply base plans in resource allocation terms and associatedbase plan timetables It may be useful to associate the who and why with baseplans explicitly too, if changes are anticipated

Control involves responding to threats and opportunities, and revising formance targets where appropriate ‘Contingency plans’ are a second level ofplan, a portrayal of how we would like to respond to threats or opportunitiesassociated with a base plan, incorporating reactive responses to uncertaintyidentified by proactive RMP planning Where uncertainty presents potentialfuture threats or opportunities, risk management seeks to modify the futureincidence and quality of threats or opportunities and their possible impact onproject performance via proactive planning in terms of base plans and con-tingency plans This does not mean that reactive planning will not be necessary

per-or that all possible out-turns will have been predicted It means that proactiveplanning will have been carried out to an extent that allows reactive planning tocope without nasty surprises most of the time Reactive risk management,responding to the control function, sometimes without contingency plans inplace, should be reasonably panic-free, without a need for crisis managementmost of the time A degree of crisis management may be essential even in thecontext of very effective and comprehensive risk management, but relatively fewcrises should come totally ‘out of the blue’ To illustrate these points, consideranother example, building on Example 1.1

Example 1.3 Effective contingency planning for a

pipe-laying problemOffshore oil or gas pipe laying in the North Sea in the 1970s involved anumber of serious sources of uncertainty If no proactive planning had

The scope of project risk management 13

been undertaken, the potential for overwhelming crisis management wasobvious.

The pipes laid in the North Sea at this time were constructed fromsections of rigid steel pipe coated with concrete, welded to the pipeline

on the lay barge, then eased over the stern of the barge by taking up thetension on sets of bow anchors, maintaining a smooth S shape of pipebetween the barge and the ocean floor As bow anchors approachedthe lay barge, they were picked up by tugs, carried ahead, and reset.Improperly controlled lowering of new pipeline sections could result in apipe buckle—a key pipe-laying threat Excessive waves greatly increasedthis threat Barges were classified or designated to indicate maximum safewave heights for working (e.g., 3 metre or 1.6 metre) In the face ofexcessive wave heights the operators would put a ‘cap’ on the open end

of the pipe and lower it to the ocean floor, retrieving it when the wavesreduced These lowering and lifting operations could themselves lead tobuckles

The base plan for laying pipe assumed no major sources of uncertainty(opportunities or threats) would be realized, only minor day-to-day varia-tions in performance that could be expected to average out

The potential opportunity provided by unusually good weather and thepotential threat posed by unusually bad weather were assessed by directreference to historical weather records Control was exercised by monitor-ing progress relative to the base plan, aggregating all reasons for beingearly or late, until a significant departure from the base plan was identified

A control response could be triggered by an accumulation of minor culties or the realization of a major threat like a pipe buckle Once the needfor a control response had been identified and an appropriate responseselected reflecting the nature of the realized threats or opportunities, theassociated response became part of the revised base plan

diffi-Effective comprehensive contingency planning ensured that the mostcrucial prior actions necessary to implement the preferred revisions tothe base plan would be in place if it was cost-effective to put them inplace The implications of not putting them in place were understoodwhen making a decision not to do so

Should a pipe buckle occur, there would be a potential need for tional pipe This had to be ordered well in advance of starting the pipelaying if a delay associated with awaiting delivery were to be avoided.Effective contingency planning needed to ensure that enough pipe wasavailable most of the time However, it would not have been cost-effective

addi-to ensure buckles never led addi-to a shortage of pipe Nor would it have beencost-effective to undertake detailed planning to deal with all the knock-oneffects of a pipe buckle

Proactive risk management needs to be embedded in both base plans and tingency plans Further, proactive and reactive planning are not alternatives, theyare complementary aspects of planning as a whole, with proactive contingencyplanning supporting reactive contingency planning when this is cost-effective.Similarly, crisis management is not an alternative to risk management; it is aconsequence of risk management failure Nevertheless, even the most effectiverisk management must fail on occasions if it is to remain cost-effective on theaverage Only if risk management fails completely, or is simply not addressed,will crisis management become the dominant management mode.

con-Project risk management is usually associated with the development andevaluation of contingency plans supporting activity-based plans, but effectiveproject risk management will be instrumental in the development of baseplans and contingency plans for all six W s Really effective risk managementwill strongly influence design and may significantly influence motives andparties It will certainly influence basic timing and resource allocation plans.Planning and risk management in this sense are integrated and holistic

Treating project management and project risk management as closely coupledprocesses is central to the approach taken in this book In practice, some sep-aration may be essential because different people and organizations may beinvolved, and other differences are important However, the separability should

be limited, to avoid imposing constraints that can prove very expensive This isanother key aspect of an integrated and holistic approach

The scope of project risk management 15

The project life cycle

2

The moving finger writes; and, having writ, moves on: nor all thy piety nor wit shalllure it back to cancel half a line, nor all thy tears wash out a word of it.—EdwardFitzgerald

Introduction

An appreciation of the potential for risk management in projects has to begrounded on a clear understanding of the nature and scope of decisionmaking involved in project management A natural framework for examiningthese decisions is the project life cycle (PLC) A structured view of the PLC isalso important to provide a framework for looking ahead for sources of uncer-tainty that are seeded earlier and for understanding how the risk managementprocess (RMP) ought to change as the PLC unfolds In order to focus on thestructure of the PLC, much of this chapter will consider a single project inisolation, but it ends with a short discussion of the implications of a multiprojectenvironment

Eight stages

The PLC is a convenient way of conceptualizing the generic structure of projectsover time It is often described in terms of four phases, using terms like con-ceptualization, planning, execution, and termination (Adams and Barndt, 1988).Alternative phraseology may be used, such as formation, build-up, main pro-gramme, and phase-out (Thamhain and Wileman, 1975), but the underlyingphases identified are essentially the same These phases are commonly described

in a manner emphasizing the extent to which they differ in terms of the level ofresources employed (Adams and Barndt, 1988), the degree of definition, the level

of conflict (Thamhain and Wileman, 1975), the rate of expenditure, and so on.This can help to show how management attention to the factor being consideredneeds to vary over the life of the project Useful recent references to the PLCliterature include Bonnai et al (2002) and Tummala and Burchett (1999)

A similar argument applies to sources of uncertainty and their management.However, an appreciation of the scope for risk management and how toapproach it requires consideration of the differences between phases of thePLC in a greater level of detail than the typical four phase structure Table 2.1

breaks down the typical four phase characterization of the PLC into eight stages.

We use the term ‘stage’ rather than ‘phase’ to emphasize the difference and toreserve the word ‘phase’ for the decomposition of the RMP Table 2.1 also breakseach stage into steps The breakdown into eight stages goes some way towardhighlighting sources of uncertainty and facilitating their management However,the still more detailed description of the PLC provided by steps is useful to

Table 2.1—Phases, stages, and steps in the project life cycle (PLC)

Phases Stages Steps

conceptualization conceive trigger event

the product concept capture

clarification of purposeconcept elaborationconcept evaluationplanning design basic design

the product development of performance criteriastrategically design development

design evaluationplan basic activity and resource-based plansthe execution development of targets and milestonesstrategically plan development

plan evaluationallocate basic design and activity-based plan detailresources development of resource allocation criteriatactically allocation development

allocation evaluationexecution execute co-ordinate and control

production monitor progress

modification of targets and milestonesallocation modification

control evaluationtermination deliver basic deliverable verification

the product deliverable modification

modification of performance criteriadeliver evaluation

review basic reviewthe process review development

review evaluationsupport basic maintenance and liability perceptionthe product development of support criteria

support perception developmentsupport evaluation

underline where particular sources of uncertainty arise in the PLC and how riskmanagement might be most effective In the early stages these steps imply aprocess of gradually increasing detail and a focus on the nature of a product orservice deliverable, as distinct from the later focus on its delivery and then itsoperation.

The conceive stage

It is useful to think of the conceive stage as part of an innovation process anddraw on ideas from Lemaitre and Stenier’s description of the innovation process(Lemaitre and Stenier, 1988), although the scope of our conceive stage is some-what different The conceive stage involves identifying a deliverable to be pro-duced and the benefits expected from the deliverable It begins with a ‘triggerevent’ (Lyles, 1981), when a member of an initiating organization perceives anopportunity or need At this point the project deliverable may be only a vagueidea, and some initial development may be associated with the ‘concept capture’step ‘Clarification of purpose’ involving the identification of relevant perform-ance objectives and their relative importance is another key step in the conceivestage This step may be problematic to the extent that different views about theappropriate objectives are held by influential stakeholders who try to negotiatemutually acceptable objectives Objectives at this stage are likely to be ill defined

or developed as aspirational constraints (e.g., latest completion date, minimumlevels of functionality, maximum cost, and so on) Before the concept can bedeveloped further, in a ‘concept elaboration’ step, sufficient political support forthe idea must be obtained and resources allocated to allow the idea to be refinedand made more explicit Other individuals, organizations, or potential stake-holders may become involved Support at this stage may be passive, merelyallowing conceptualization to proceed, rather than an expression of positiveapproval of the project The focus of this stage is early cycles through the sixWs’s framework of Figure 1.1

Eventually, an evaluation of the project concept and objectives as defined todate becomes necessary—the ‘concept evaluation’ step in Table 2.1 Evaluationhere (and later) is not simply a go/no-go decision, but a go/no-go/maybe deci-sion A go decision takes the process into the the next stage A no-go decisioncauses it to stop A maybe decision involves iteration through one or moreprevious steps The basic process threat in this stage is moving on to designbefore the project concept and objectives have crystallized, and before effectiveconcept evaluation Underlying this threat is a failure to foresee ‘concept killer’threats that reveal themselves later in the process and ‘concept maker’ opportu-nities that may be lost without trace The basic process opportunity in this stage

is finding all the concept maker opportunities for the projects that otherwisemight not be proceeded with and all the concept killer threats for projectsbest rejected

The design stage

A go decision in the conceive stage initiates a ‘basic design’ at a strategic level inthe first step of the design stage, giving form to the deliverable of the project.The focus of this stage is giving substance to the what entity, although loopsthrough the other five W s will be involved This usually requires a step increase

in the effort or resources involved ‘Development of performance criteria’ builds

on the basic design and project objectives For many projects this involvesrefining project objectives, but it may involve the identification of additionalobjectives and further negotiation where pluralistic views persist This stepinfluences ‘design development’, which leads to ‘design evaluation’ using thedeveloped performance criteria to assess the current design in go/no-go/maybeterms As in the concept stage, no-go will end the process A maybe evaluation ismost likely to lead to iteration through one or more development steps, but iffundamental difficulties not anticipated in the concept stage are encountered, theloop may go back to the concept stage Go takes the process on to the planstage The basic process threat at this stage is moving on to the plan stage beforeeffective design development and evaluation at a strategic level is complete.Underlying this risk is a failure to foresee ‘design breaker’ threats that might

be designed out and that reveal themselves later in the process, and ‘designmaker’ opportunities that may be lost and never found The basic processopportunity in this stage is finding and resolving all the design breaker threatsand finding and capturing all the design maker opportunities Decomposition ofthe Table 2.1 ‘planning phase’ into design, plan, and allocate stages serves tofocus the management of this and related subsequent threats and opportunities

The plan stage

A go decision in the design stage initiates formal capture and development ofbasic activity and resource based plans at a strategic level, indicating how thedesign will be executed (whichway), what resources are required in broad terms(wherewithal), and how long it will take (when) The focus of this stage is thesethree Ws, but loops through the other three will be involved Yet more indi-viduals and organizations may become involved ‘Development of targets andmilestones’ involves determining specific targets for producing the projectdeliverable, typically in terms of cost and time, but sometimes in terms ofresource usage or other considerations as well ‘Plan development’ follows andleads to ‘plan evaluation’ in go/no-go/maybe terms A maybe decision mayrequire further development of targets and milestones within the plan stage,but more fundamental difficulties may take the process back to design develop-ment or even concept elaboration The basic process threat at this stage ismoving on to the allocate stage before effective development and evaluation

of the plans in terms of all six W s at a strategic level, and both ‘maker’ and

‘breaker’ threats at a strategic planning level underlie this The basic processopportunity is avoiding the breakers and capturing the makers.

The allocate stage

A go decision in the plan stage takes the process on to the allocate stage and adetailed allocation of internal resources and contracts to achieve the plan Theallocate stage is a significant task involving decisions about project organization,identification of appropriate participants, and allocation of tasks between them.Resource allocation with a view to project implementation requires much moredetail than earlier stages needed The detail of the what (design) drives the detail

of the whichway (activities), which drives the detail of the wherewithal(resources), which drives the detail of the when (timing), with iterative, inter-active loops The who may also require redefinition

Either implicitly or explicitly the allocation stage involves the allocation ofexecution uncertainty and risk between participants Risk and uncertainty alloca-tion is an important source of process uncertainty because it can significantlyinfluence the behaviour of participants and hence impact on project perform-ance, and how best to do it is itself very uncertain In particular, allocation ofexecution and termination phase uncertainty influences the extent and manner inwhich such uncertainties are managed This warrants careful consideration of thebasis for allocating tasks, uncertainty, and risk in the ‘development of resourceallocation criteria’ step

‘Allocation development’ necessarily involves revising detailed design andplanning in order to allocate tasks unless this whole stage is contracted outalong with the balance of the project Contracts and subcontractual structuresmay require development Again, the nature of the issues changes with thechange of stage, and the level of effort may escalate As in the earlier projectstages, development during this stage is followed by ‘allocation evaluation’ Amaybe decision that goes back to the plan, design, or even conceive stage isextremely unwelcome, and a no-go decision will be seen as a serious disaster inmany cases If the ‘devil is in the detail’, earlier evaluation steps will be seen tohave failed at this stage The basic process threats and opportunities revolvearound augmenting effective strategic plans with the detail essential to makeexecution a success

The rationale for separate design, plan, and

allocate stages

Possible arguments against decomposition of the Table 2.1 ‘planning phase’ intodesign, plan, and allocate stages is their interdependent nature and the need toiterate within this phase We believe that the importance of this dependence andthe process threats and opportunities it generates is highlighted by their separa-