Managing risks on large complex projects
PART 1: Assessing the challenge
We’re all familiar with the alarming statistics of failure rates for large projects—the kind with budgets that make your eyes water. Given the scarily low percentage of projects that achieve a successful outcome, you’d be forgiven for thinking most were run by the crew of Dad’s Army.
We know this isn’t the case. The kind of large upstream energy organizations we interact with are full of smart, experienced and highly motivated people. Nonetheless, these large complex feats of engineering often fail to deliver their promised outcomes. Often, by the time we get the call, things are going wrong. Those on the ground frequently say they had a gut feeling about upcoming failures long before issues became apparent to those higher up the chain of command.
It’s as if Captain Mainwaring is nominally in charge, blustering ineffectually as errors compound, while no one quite has the nerve to do a Private Fraser and yell, ‘We’re doomed!’ But the story is inevitably more complex than that. So what’s really going on? And how can you make your own project outcomes more predictable?
Project teams need a certain amount of optimism to believe they can manage the project to a successful conclusion. A loss of confidence can lead to a downward spiral. But, while many leaders recognize that such projects are inherently risky, they seem to believe failure only happens to others or is somehow the preserve of a particular industry sector.
Instead, they need to admit that complex projects are just that: complex. The best planning, budgeting and scheduling in the world can’t anticipate how all the variables will interact. Operations are always subject to variance and people will always make mistakes, sometimes due to excessive demands but also purely through dumb luck. Plus, some things are unknowable (the famous ‘unknown unknowns’) and you will often have to contend with events beyond your control.
What’s needed is an understanding of the scale of the challenge being undertaken and the risk management maturity of the project organization undertaking it.
Enter the Project Readiness Chart
By measuring and comparing the ‘project challenge level’ with the ‘project risk maturity level’ (the approach and various control and safeguarding measures), it visually represents the ‘gut feeling’ of outcome certainty that many are feeling. With inputs for each axis, you get a snapshot indicating the project’s predictability.
Is the outcome predictable (green), less predictable (yellow) or unpredictable (orange/red)? The single black line is the ‘jeopardy curve’. (I’ll explain its slightly odd shape in the next article.) If the readiness snapshot falls to the left of this line, the project is in jeopardy with ever increasing uncertainty about the expected outcome of the project.
In much the same way a windsock provides an appreciation of the direction and relative strength of the wind, the project readiness chart gives you an idea of your conditions at a particular point. And just as windsocks provide visual verification for pilots—who also have experience and other instrumentation—the readiness chart is intended as a gauge for experienced managers who can put the results into their own context.
For instance, a project organization undertaking an ‘extremely challenging’ project with a Project Risk Maturity (PRM) level less than 5 is just not ready to undertake a project of such scale. It’s likely to be lacking some fundamental elements to function effectively. Sometimes we see this even in big-name organizations. The project-owning company has solid processes and standards, and a sophisticated approach, but for any number of reasons this particular project team isn’t following them.
Conversely, a project organization undertaking a ‘slightly challenging’ project would predictably meet all expectations stated at project sanction even with a PRM level 2. For organizations operating at PRM levels 4 or 5, projects of this type have probably become algorithmic in nature, ‘cookie-cutter’ projects. Think about, say, the repeatability of installing numerous offshore wind turbines.
The million-dollar question, then: how do you accurately assess the level of the challenge and the project risk maturity?
To illustrate some of the aspects involved, we’ll use a timely project with relevance to everyone: the development and rollout of the Covid-19 vaccine. Against this backdrop, we’ll introduce an approach to determining whether those undertaking this large complex project can have confidence that their stated outcomes will be delivered. I should be clear, though, that we’re using the context of the pandemic to illustrate the method; we’re not attempting to use the method to second-guess the actual process of the Covid vaccine rollout.
Is this project really unprecedented?
Like all large complex projects, the global rollout of the Covid vaccine has elements similar to what’s gone before, as well as aspects unique to this endeavour. The kneejerk response to call the whole thing ‘unprecedented’ is understandable. But while the idea of vaccinating the world as quickly as possible has certainly never been attempted, does that make the project a complete mystery—totally unpredictable and unmanageable? Of course not.
We’ll focus on the UK only and not the whole global rollout, since the UK is its own project. As with any project, there are stakeholders. The project owner is the UK Government; the project managers are the Public Health bodies; Oxford University is a designer; AstraZeneca is the manufacturer (in our world, this would typically be an engineering contractor); the Army (or other organization) may be deployed for distribution; the NHS is the equivalent of ‘last-mile’ operations which may work with non-NHS organizations to set up temporary vaccine stations; and last but not least, members of the public are the customer or beneficiary of the project. Of course, many other actors have a stake in the successful delivery of a vaccine, but this covers the main roles.
Project profits over corporate aspirations
On commercial undertakings for our own clients, we believe that project profits outweigh corporate aspirations. The goal is the successful outcome of each project. And if you look after the project profits, the corporate aspirations look after themselves. Of course, some may take the opposite view, preferring to take a loss on a particular project to gain some kind of strategic advantage, whether that means claiming a stake in a new territory or, say, making the transition from drilling oil to producing renewable energy.
However, even if your organization consciously prioritizes a long-term vision, we believe you should still do everything in your power to make that strategic project as profitable as possible; or, to put it another way, prevent value erosion. Given that the vaccine rollout is responding to a public health emergency and the high expectations of the wider population, we would phrase this choice as project value over political aspirations.
The overall responsibility lies with government (central or devolved) as project owner. Impacts from risks and uncertainty erode value on a project. Project failure may arise from a single catastrophic event, such as the Deepwater Horizon oil-spill disaster in 2010. In the case of the vaccine rollout, the catastrophic event was the pandemic itself. And we can only hope that nothing further hinders the project to return the world to some kind of normality. But the risk that supply lines, for example, become further disrupted should be considered.
Alternatively, a variety of impacts may accumulate leading to a project’s ‘death by a thousand cuts’. In the commercial project world, this can manifest as loss of market capital value from a drop in share price for publicly traded organizations, as well as a loss of profits, ongoing dispute resolution proceedings, lawsuits, fines and the like.
A related impact is reputational damage, which is as important for companies as for politicians. Clearly, a failure to deliver vaccines within the timeframes set out has a huge bearing on public confidence. The vaccine prevents death and serious illness among the most vulnerable sectors of society and therefore any value erosion, manifesting as delay, carries a high price in terms of public health, pressure on the health services, and quality of life regarding social mixing restrictions and economic recovery. Stakeholder expectations are, therefore, high with all actors feeling the pressure to get it right.
Defining the level of the challenge
Large complex projects are typically comprised of smaller projects, some of which are significant undertakings in their own right. This is true for the vaccination programme which has similar project phases to a large complex feat of engineering: design-develop-approve, manufacture, distribute and administer (with ‘distribute’ and ‘administer’ replacing the assembly, commissioning and startup in the upstream energy world). The complexity of the project will change over time, which contributes to the scale of the challenge of the undertaking. This is different for each ‘subproject’ and project phase. In the next article in this series, we’ll look at risks in the four main elements: Design, Make, Distribute, Administer.
Here, we’ll consider some of the variables that define the project challenge.
Innovation: Has this project ever been done before? Is it a ‘moon shot’ that may not work? A year ago, there was doubt that a vaccine was even possible against a novel coronavirus. Fairly early on, scientists became confident they could create one.
Familiarity: How comfortable are the players in their roles? The drug companies know how to make a vaccine once the recipe is known, for example. Other aspects of the project may introduce novelty, such as turning leisure centres or places of worship into vaccination stations. And initial novelty turns into familiarity over time.
Technical difficulty: This plays out over a number of areas. An obvious one is in the speed demanded of the approval process for the drug trials.
Geography: Scientists working on the vaccine have been spread all over the world and testing has happened in Brazil, South Africa and elsewhere. And the rollout has to happen nationwide without asking the public to travel too far.
Interfaces: This is the most insidious and underestimated aspect. How to manage communication between key stakeholders, all subgroups down to every doctor’s office, and the population at large? The left hand needs to know what the right is doing; transparency is necessary, but leaks can lead to Chinese whispers of misinformation and public panic. In the energy world, a large pipeline project presents similar issues with the public. But every large project has myriad interfaces that you ignore at your peril.
Experience with contractors: Projects never work like well-oiled machines; you always have the human factor. But if the various stakeholder teams have never worked together, the risk of miscommunication increases.
Tightness: We talk of large projects being tightly or loosely coupled. If something happens in one area, what are the knock-on effects? Is there time to recover or will the whole thing tumble like a domino rally? While the race to develop a vaccine was high stakes for the drug companies, this aspect was an R&D project with an accelerated but unpredictable timeline. Once there was a vaccine to test, the pressure moved to the Government to deliver it into the arms of a waiting nation as quickly as possible. How the Government manages expectations (‘We’ll deliver X million doses per week!’ versus ‘We’re still developing our complete rollout timetable’) makes a difference to the project’s coupling and the likelihood of forced errors.
With all these variables in play, how would you judge the challenge level (the y-axis of our Readiness Chart) for each of the four project phases: Design, Make, Distribute, Administer. And is the overall project really an unprecedented moon shot, or is it ‘merely’ highly challenging?
Once you ascertain the challenge you’re facing, you’ll want to know if your project organization has the capability to achieve the project goals in a way that maximizes your project profits. The vaccine rollout, of course, is about maximizing the value to all of us. It’s a real-life large project unveiling before our eyes. And we’re all invested in it.
In the next article, we’ll look more deeply at the challenge level of the four phases and introduce the elements of project risk maturity.
Read the other articles in the series:
» Part 1: Assessing the Challenge
» Part 2: Comparing challenge levels across phases
» Part 3: Elements of project risk maturity
___________________________________________
If you like this article, sign up for The Readiness Review: fresh insights for managing risk on energy projects, every Thursday.
Learn more about our Foresight Services for risk management.
___________________________________________