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PROJECT MANAGEMENTInternational Project Management Journal

ISSN 1455-4186

PROJECT MANAGEMENTVol. 5, No. 1, 1999

Publisher: Project Management Association Finland

QUEST FOR TEAM COMPETENCE

SOFTWARE PROJECT MANAGEMENT

ORGANIZATIONAL CHANGE AS A PROJECT

FACTORS IMPEDING PROJECT MANAGEMENT LEARNING

QUEST FOR TEAM COMPETENCE

SOFTWARE PROJECT MANAGEMENT

ORGANIZATIONAL CHANGE AS A PROJECT

FACTORS IMPEDING PROJECT MANAGEMENT LEARNING

Project ManagementEditor-in-ChiefKarlos A.Artto, Helsinki University of Technology

Editorial CoordinatorsMarko Korpi-Filppula, Iiro Salkari,Helsinki University of Technology

Project Management Association FinlandPublications BoardMarko Arenius, Matti Haukka, Pia Arenius, KalleKähkönen, Aki Latvanne, Rauno Puskala

InquiriesAddress submissions and inquiries to:Karlos A.Artto, Editor-in-ChiefHelsinki University of TechnologyP.O.Box 9500, 02015 HUT, FinlandTelephone +358 9 451 4751, Facsimile +358 9 451 3665E-mail [email protected] information about the journal can also be foundfrom the Project Management Association Finland website at: http://cic.vtt.fi/pty/index2.htm

SubmissionsManuscripts should be submitted to the Editor-in-Chief inelectronic format by E-mail.

Journal PolicyThe Project Management (ISSN 1455-4186) is publishedby the Project Management Association Finland (PMAF).The mission of Project Management (PM) is to promotetheory and practice in the field of project management andproject-oriented business. It is the policy of PMAF to pub-lish one issue of PM yearly, which will be distributed free ofcharge. The main distribution channels comprise circula-tion arranged by national project management associationsto their members and distribution to the attendants of in-ternational events on project management in cooperationwith the arranging organization. The circulation of the jour-nal is 5 000 copies. The aim of PM is to reach extensivelyinterest of project management experts and professionalsworldwide in any sector both in academic world and indus-try, and this way to extend communication between all dif-ferent sectors of industries including the public sector, uni-versities and research organizations.The PM seeks articles on any aspects of project manage-ment for publication. In addition to reviewed academic ar-ticles, it welcomes papers of more practical nature. Authorsare encouraged to submit the following types of originalmanuscript: summaries of research results; surveys on cur-rent practices; critical analysis and developments of con-cepts, theories, practices, methodologies, application or pro-cedures; analyses of failure; and case studies. In the selec-tion of manuscripts primary importance will be based on thenovelty value and the extend to which they advance theknowledge on project management. Those wishing to sub-mit a paper or a case study should contact the editor-in-chief.©1999. Project Management Association Finland. All rightsreserved. No part of this publication may be reproduced,stored in a retrieval system or transmitted in any form or byany means, electronic, mechanical, photocopying, record-ing or otherwise, without the prior written permission of thepublisher. All articles in PM are the views of the authorsand are not necessary those of PMAF.

International Board ofAdvisors and ContributorsProfessor Luis Alarcon, Universidad Catolica de Chile,Chile

Professor Karlos Artto, Helsinki University of Technolo-gy, Finland

Professor David Ashley, University of California, USA

Professor John Bale, Leeds Metropolitan University, UK

Professor Juan Cano, University of Zaragoza, Spain

Professor Franco Caron, Politecnico di Milano, Italy

Professor Chris Chapman, University of Southampton,UK

Doctor David Cleland, University of Pittsburgh, USA

Doctor Nashwan Dawood, University of Teesside, UK

Professor Mats Engwall, Royal Institute of Technology,Sweden

Professor Pernille Eskerod, Southern Denmark BusinessSchool, Denmark

Professor Roger Flanagan, University of Reading, UK

Professor Carlos Formoso, Universidad Federal do RioGrande do Sul, Brazil

Doctor J. Davidson Frame, University of Management &Technology, USA

Professor Roland Gareis, University of Economics andBusiness Administration, Austria

Doctor Ari-Pekka Hameri, CERN, Switzerland

Doctor Keith Hampson, Queensland University ofTechnology, Australia

Doctor Francis Hartman, University of Calgary, Canada

Otto Husby, Control Bridge AS, Norway

Simon Indola, Nokia Telecommunications Ltd., Finland

Doctor Kalle Kähkönen, VTT Building Technology,Finland

Professor Daniel Leroy, Universite des Sciences etTechnologies de Lille, France

Marko Luhtala, Nokia Mobile Phones Ltd., Finland

Professor Rolf Lundin, Umeå Univesity, Sweden

Professor Jens Riis, Aalborg University, Denmark

Professor Asbjorn Rolstadas, Norwegian University ofScience and Technology, Norway

John Russell-Hodge, Synergy International Limited, NewZealand

Professor Rodney Turner, Erasmus University Rotterdam,The Netherlands

Veikko Välilä, Industrial Insurance Co. Ltd., Finland

Doctor Stephen Ward, University of Southampton, UK

Kim Wikström, Åbo Akademi, University, Finland

Doctor Terry Williams, Strathclyde Business School, UK

Table of Contents

Industry FocusedEditorial: Management Across the Organisation ....................................................... 4Karlos A. Artto, Editor-in-Chief, Project Management, Finland

Quest for Team Competence .................................................................................. 10Francis Hartman, University of Calgary, CanadaGreg Skulmoski, University of Calgary, Canada

Applied Project Risk Management - Introducingthe Project Risk Management Loop of Control ....................................................... 16Martin Elkjaer, PricewaterhouseCoopers, DenmarkFinn Felding, Denmark

Major Risks in ERP Implementation ...................................................................... 26Jari Välimäki, Andersen Consulting, Finland

IPMA Research: PM-Competence of the Project-oriented Society ......................... 28Roland Gareis, University of Economics and Business Administration, AustriaMartina Huemann, University of Economics and Business Administration, Austria

Software Project Management - Software by Committee ........................................ 30Matt Weisfeld, preEmptive Solutions, USAJohn Ciccozzi, United States Patent and Trademark Office, USA

Development of a Project Simulation Game............................................................ 37Juan L. Cano, University of Zaragoza, SpainMaría J. Sáenz, University of Zaragoza, Spain

ResearchThe Assessment of Client Satisfaction in the Client-ProjectManager Relationship: An Expectations - Artefact Model ....................................... 42Mike Browne, University of Ulster, Northern IrelandSean O'Donnabhain, South Africa

Organizational Change as a Project ......................................................................... 50Antti Salminen, Helsinki University of Technology, FinlandHarri Lanning, Helsinki University of Technology, Finland

Factors Impeding Project Management Learning ..................................................... 56David L. Hawk, New Jersey Institute of Technology, USAKarlos Artto, Helsinki University of Technology, Finland

A Model for Supplying with Constrained Resources inProject Management under Random Disturbances ................................................. 68V.I. Voropajev, Russian Project Management Association, RussiaS.M. Ljubkin, Russian Project Management Association, RussiaD. Golenko-Ginzburg, Ben-Gurion University of the Negev, IsraelA. Gonik, Ben-Gurion University of the Negev, Israel

A Multi-Criteria Framework for Competitive Bidding ............................................ 74E. Cagno, Department of Mechanical Engineering, Politecnico di Milano, ItalyF. Caron, Department of Mechanical Engineering, Politecnico di Milano, ItalyP. Trucco, Department of Mechanical Engineering, Politecnico di Milano, ItalyA. Perego, Department of Mechanical Engineering, Università degli Studi di Brescia, Italy

Book ReviewsManaging Change in the Workplace - a 12-step program for success ...................... 80Ralph L. Kliem and Irwin S. Ludin

Project Management: Planning and Control Techniques ......................................... 81Rory Burke

Project Management Association FinlandCorporate Members ................................................................................................ 82

Board 1999 ............................................................................................................. 83

EDITORIAL KARLOS A. ARTTO

Management Across theOrganisationKarlos A. Artto, Editor-in-Chief, Project Management

Keywords: Project Management, Project Business, Project Company, Project-oriented Company, Corporation Management, Organizational Model for ProjectManagement

A major new challenge in projectized industry will be how to organize project-oriented companies that applyprojects as their major business vehicles. There is an increasing discussion of how projects relate to manage-ment of the company as a whole. The business aspect is emphasized. This editorial provides an organizationalview on project management that widely covers aspects of managing corporate business. The organizationalmodel is a new construct that puts project management in place and links it to related management activitiesin different organizational levels.

Management by ProjectsA major new challenge in projectizedindustry will be how to organize project-oriented companies that apply projectsas their major business vehicles (Arttoet. al. 1998). While companies devel-op appropriate practices in project busi-ness, other organizations e.g. in the pub-lic sector develop either their projectlevel activities to boost their temporaryefforts, or whole organization level'management by projects' related issues.'Management by projects' as an organi-zation's way to conduct its work andtasks in a project form is discussed ine.g. Turner (1993) and Gareis (1994,1996).

Managing Business by ProjectsThere is an increasing discussion of howproject management relates to manage-ment of the company as a whole. Bothindustries and the academic communi-ty has realized that projects must belinked in a concrete way to their con-text i.e., to company's strategy and en-tire management application of the cor-poration. This trend is reflected by se-lection of topics in three importantevents around the beginning of the newmillennium: Nordnet'99 conference in1999 in Helsinki, Finland; IRNOP 2000

conference in Sydney, Australia, andIPMA 2000 world congress in London,England. The whole 'Managing Busi-ness by Projects' theme selected forNordnet'99 conference relates to theorganizational business context (Artto,Kähkönen, Koskinen 1999). Similarorientation is reflected by the IRNOPconference interest areas: Globalproject collaboration; projectized com-panies; projects and strategic alliances;multi-project contexts; and working lifein a projectized society (IRNOP 2000).Further, the management across theorganization theme is also present in astream of the IPMA world congress heldin the beginning of the new millenni-um (IPMA 2000).

IntroductionThe rationale for this editorial is to con-struct a concrete description of the busi-ness setting and project managementsetting in a project-oriented company.The specific discussion is directed toconcern project companies that sell anddeliver projects to their customers.However, the description can be con-sidered as applicable to any project-ori-ented organization that conducts atleast some fraction of its operations inproject form. To provide a concrete ba-

sis of which issues project managementmust concern in order to cover the busi-ness in a project company, the paperconstructs and introduces an organiza-tional model for project management.The organizational model is a new con-struct with the purpose of positioningproject management and its links to re-lated management activities in differ-ent organizational levels.

Project business and managementof project companies is a new area withonly limited amount of reported stud-ies. The purpose of this editorial is tointroduce a new organizational modelwith appropriate company managementissues at different organizational levels.The organizational model constructedenables understanding of different lev-els and dimensions of project-orientedmanagement applications in corpora-tions. In order to enable an analysis thatcan be linked to existing organization-al levels and responsibilities in compa-nies, the paper uses the basic organiza-tional hierarchy defined in Artto,Kähkönen, Pitkänen (1999), but origi-nally associated with the performancepyramid discussion of Lynch and Cross(1991). The four-level pyramid linksstrategy and operations by translatingstrategic objectives from the top down- based on customer priorities - and

Pro j e c t Manag emen t Vo l . 5 , No .1 , 1999

measures from the bottom up. At thetop of the pyramid, a vision for the busi-ness is articulated by senior manage-ment. To supplement the organizationby projects, the organizational hierar-chy is further extended by project proc-esses at the operative level.

An organizational model is intro-duced that widely covers aspects ofmanaging corporate business. Byputting project management in place inthe organizational context, the papersimultaneously discusses the diversemore narrow but well-known interpre-tations of project management contentand related applications in companies.In order to supplement the organiza-tional view by including projects to theorganizational overview, an extendedproject process is introduced first. Thiseditorial attempts to extend the per-spective on project management fromthe conventional project managementarea in many respects.

Existing Definitions of ProjectProcessesThe project management literature in-troduces different application area spe-cific project processes - or project lifecycles (see e.g. PMBOK 1996, Chap-man, Ward 1997). The reported lifecycles are typically illustrated by projectprocesses that range from project initi-ation to project closeout. The perspec-tive is often limited to effective man-agement of project execution only.Many project companies follow thewell-known project execution contextby choosing development of projectexecution related procedures as prima-ry targets for project-oriented businessdevelopment. Development of projectexecution and project management isoften justified as development of coreprocedures for manufacturing the con-crete final deliverable that is finallyhanded over to the customer. Howev-er, for a project company that sells anddelivers projects to their customers, justmere development of project executionor project management does not suffice.The wider business-oriented perspec-tive on project process development isdiscussed in the following. Further, anorganizational model of a project com-pany is elaborated. Despite the specificdiscussion concerning project compa-nies, the organizational model can beconsidered as applicable to any project-oriented organization that conducts atleast some fraction of its operations inproject form.

Extended Project ProcessAdopting wide business-oriented per-spective on project process is essentialin any project company. The wide - orextended - perspective on project proc-ess can be illustrated by a process con-text covering pre-project phases relat-ed to project sales and marketing andpost-project phases related to after-salesservices (Artto et. al. 1998). Figure 1illustrates such extended project proc-ess that covers the project sales andmarketing and after sales services relat-ed phases relevant for the business con-text. Figure 1 also illustrates the projectmanagement process - as defined bycurrent project management standards(ISO 10006 1997, PMBOK 1996) -positioned as a parallel managementactivity for the extended project proc-ess. The figure shows the interpretationof project management limiting itself toeffective management of project execu-tion only, excluding management ofpre- or post-project phases associatedwith project sales and after-sales serv-ices.

Figure 1 emphasizes the featureof linking the extended project processtightly to the management of the organ-ization unit as the owner of the projectprocess. This feature is essential for anyproject company or other multi-projectenvironment where projects serve asvehicles for the organization's opera-tions. The full or partial ownership ofthe project process in the organizationunit requires that the organization unitapplies management processes that sup-port effective management and opera-

tions at the project level. Concerningthis supportive and direction settingrole subjected to the unit's project port-folio, recording experiences fromproject processes and learning becomeimportant issues. Figure 1 illustrates ina simplified manner by arrows the dis-semination of experiences from theproject process to the organization unitfor learning. However, the interrelationbetween the project process and theorganization unit is not a one-way streetonly: Although there are no arrows backto the project process from the organi-zation unit drawn in Figure 1, the or-ganization unit level processes must bedesigned to distribute experiences fromprevious or parallel projects to theproject process. Such distribution mightoccur in the form of company policiesor instructions, guidelines, or sugges-tions for appropriate for project relatedprocedures.

In order to adopt a wide learningloop that enables dealing with issuesthat related to the actual purpose of theproject, the customer interface plays animportant role. Linking of the projectto customer's business is essential. Thecustomer interface is better understoodif the extended project process is adopt-ed instead of using the traditional morenarrow project execution oriented def-inition for project life cycle. The ex-tended project process includes theproject sales and marketing and after-sales services phases where the actualuse of the purchased project product isthe major issue. Accordingly, it is likelythat the most relevant experiences for

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learning purposes are available in thesales and after-sales phases of theproject (or project product) where theproject's purpose is considered in termsof customer's business.

Extended OrganizationalHierarchy with Issues forObjectives and MeasuresProject management relates to manage-ment of the company as a whole. Thepurpose of the following discussion is toenable an analysis that can easily belinked to existing organizational levelsand responsibilities in companies. Forthis purpose, we start our analysis - tobe continued in the following sections- by referring to performance pyramidillustrated by Lynch and Cross (1991).The performance pyramid is shown inFigure 2. The four-level pyramid linksstrategy and operations by translatingstrategic objectives from the top down- based on customer priorities - andmeasures from the bottom up. At thetop, a vision for the business is articu-lated by senior management. At the sec-ond level, objectives for each businessunit are defined in market and finan-cial terms. The pyramid illustrates theprincipal relationships between lowerlevel objectives to marketing and fi-nancial goals of business units atthe second level: marketmeasures are support-ed by both cus-tomer satis-f a c -

tion and flexibility, and financial objec-tives are supported by flexibility andproductivity. At the lowest base levelof the pyramid, objectives are convert-ed into specific operational criteria ofquality, delivery, cycle time, and wastefor each department. An operationalcontrol system of business operationsystems must be based on tightly definedlinkage between their objectives andmeasurements at the local operationallevel. The elements of this linkage arefound in the four principal local oper-ating performance criteria of quality, de-livery, cycle time, and waste.

Kaplan and Norton (1996) pro-vide the Balanced Scorecard manage-ment framework where the processstarts in a analogous manner with thesenior executive management teamworking together to translate its busi-ness unit's vision and strategy into spe-cific stategic objectives. The BalancedScorecard framework objectives andmeasures view organizational perform-ance from four perspectives: financial,customer, internal business process, andlearning and growth. Referring to AI-CPA (1994), Kaplan and Norton (1996,p p . 39-40) recommend that com-

panies should adopt amore balanced,

risk manage-m e n t

oriented and forward-looking approach:"To meet users' changing needs, busi-ness reporting must:- Provide more information about

plans, opportunities, risks anduncertainties

- Focus more on the factors thatcreate longer-term value �

- Better align information reportedexternally with the informationreported internally �"

Extending the OrganizationalStructure by ProjectsFigure 3 illustrates the performance pyr-amid in parallel with hierarchical organ-ization structure. The performance pyr-amid shows the relevant managementissues for each level of the organization.The organizational hierarchy is furtherextended by project processes. The ba-sic message of the figure is to provide aview on which issues (or what kind ofissues) are to be managed at which lev-els.

External delivery projects andother projects are basically owned byorganization units. The ownership ofprojects is marked in Figure 3 by arrowsthat link the project process to the or-ganization unit. The arrows indicate theorganization unit where the project be-longs to. The arrows also indicate simul-taneously the organization unit wherethe profit of an external delivery project

is accumulated to.Artto (1998) devel-ops the management

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work of a project company further; Inthe framework, projects are the basicstructural building blocks for recordingboth costs and sales income. Companyand business unit specific income state-ments can be derived by aggregatingproject income and cost information toorganization units.

Project PortfoliosThe project management discussionrelated to project contexts has mostlyfocused on managing single projects. Asthere are an increasing number of or-ganizations - e.g. project companies -with several projects in their productionlines, widening of the project manage-ment perspective to concern such amulti-project environment, is impor-tant in the future. Managing projectsin a multi-project environment auto-matically refers to management ofproject portfolios - and not just man-agement of single projects separately.

There are not many studies onproject management developments as-sociated with project portfolio aspectsin the company. This is due to the factthat project management disciplineconcentrates on successful execution ofsingle projects. Another reason is thefact that project business and manage-ment of project companies is a new area,

and there are only few publications inthis area.

As far as the project managementassociated with project portfolios is con-cerned, there might be several aspectsin analysing and making strategic choic-es associated with projects at the com-pany or business unit level. For exam-ple, for a project company operating ininternational markets, the country andarea specific local risks are importantto take into account. The country risksaffect not only one single project in thespecific country or area, but the wholeportfolio of bids and projects in thatarea. For example, for analyzing localcreditworthiness of different projectportfolio areas of a project company,Institutional Investor (see Shapiro1997) provides global country creditratings and analysis for ca. 135 coun-tries, and separate ratings for NorthAmerica, Eastern Europe, Western Eu-rope, Africa, Middle East, Asia-Pacific,and Latin America.

In addition to particular geo-graphical regions, also customers, prod-uct types, lines of business, or other im-portant aspects may serve as criteriaagainst which project portfolios shouldbe considered. For example, Kaplan andNorton (1996, p.60) provide an exam-ple of Metro Bank that chose a finan-

cial objective to increase the share ofincome arising from fee-based servicesnot only for its revenue growth poten-tial but also to reduce its current heavyreliance on income from core depositand transaction-based products. Thus,an objective to broaden revenue sourc-es associated with different project port-folios served both as a growth and riskmanagement objective for the wholebusiness.

BiddingRisk management associated with bid-ding provides an additional activity thatcan have an important relationship tothe early pre-project management phas-es. Bids represent potential or hypothet-ical projects that pose some probabilityof becoming a business contract. Thefollowing discussion about bidding andadopting a wide business perspective isadopted from Artto and Hawk (1999).

As such, risk arises in two forms:there is a threshold risk associated withthe likelihood of getting the order fromthe client, and then, if ordered by theclient, there is the risk inherent inproject execution. As is generallyknown, the probability of getting thecontract can be easily increased, by low-ering the bidding price and profit expec-tations, but this can also raise the prob-

Figure 3. Extension of the Organizational Structure by Projects

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ability of project failure in meeting fi-nancial and technical objectives. Onthe other hand, it is possible to find ar-eas of potential cost savings due to newtechnologies and other innovations,which are theoretically encouraged inlow bid strategies. Thus, the two appar-ently forms of risks are in fact closelytied to each other in the performanceand execution of the project.

It is important to keep this con-nectedness in mind in the managementof bidding activities as there are alsoimportant relationships between con-tingencies, contingency strategies, andstrategic decision making as it is associ-ated with the bid becoming a profitableproject. Project simulation and projectmodels can be helpful tools to supportrisk management in the pre-projectphase.

Project simulation and projectmodels are helpful supports to risk man-agement in the bidding and pre-projectphases. The management of whole poolof bids in a systematic way requires re-cording of bids based on bidding data-bases that provide information reflec-

tive of profit and risk expectations, aswell as the likelihood of getting the con-tract. An additional dimension is seenin bid-related considerations that arisefrom future business prospects with thecustomer in question. Such informationcan assist decisions regarding level ofeffort and types of measures appropri-ate to selling a project. This also helpsdecisions as to which resources are ap-propriately reserved for execution offuture projects that currently have onlya bid status.

Finally, having a more compre-hensive view of bidding and risk in thevery early phases of a project requiresconsidering the feasibility of a singleproject in light of the potential for fu-ture business. Figure 4 illustrates theproject as viewed in a wider business-oriented context starting from pre-bidconsiderations. The important messagein the figure is on emphasizing biddingin general and pre-bid phases as thoserelevant points in project sales and mar-keting. It should also be noted that thishelps in consideration of the potentialin a project's contribution to future busi-

ness as a whole. We should be remind-ed that only success with customers onthe long run can guarantee a chancefor successful project deliveries in thefuture. This takes us to the importanceof finding an appropriate attitude forpost-project - or after-sales - phases,where continuous customer care playsan important role. Appropriate custom-er care and good references from cus-tomers brings in new opportunities forfuture project delivery orders. It is of-ten helpful for project companies toadopt the principle that customers arebeing managed instead of just projects.

ConclusionsTo provide a concrete basis of which is-sues project management must concernin order to cover the corporate businessperspective, this editorial constructedand introduced an organizational modelfor project management in companycontext. An extended project processwas illustrated first. The extended proc-ess covers the project sales and market-ing and after sales services related phas-es. The extended project process view

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is relevant for adopting a wide view overthe business context.

Project business and managementof project companies is a new area withonly limited amount of reported stud-ies.

In general, the novelty of the dis-cussion in this editorial lies in the fol-lowing aspects. The literature onproject management does not provideany analogous wide organizational man-agement level framework. Project man-agement literature and standards do notdefine similar extended project process-es with sales and after-sales aspectsclearly included to emphasize the busi-ness context. Instead, the implicit sug-gestion in project management litera-ture is that project management proc-esses would be applied in the executionof the project rather than putting theproject management to the manage-ment context as a whole. In any suc-cessful project company, projects shouldstrongly relate to phases of doing busi-ness with projects by selling and deliv-ering them with appropriate customercare, rather than just executing projectsefficiently.

For development of project busi-ness in a project company, it is essen-tial to adopt a wider perspective whereboth the organizational context of thecompany organization is considered,and the project process is extended toinclude all project phases relevant forselling and delivering projects to cus-tomers.

From the project business view-point, learning from experiences andproject failures for future projects isimportant: Knowledge transfer amongprojects should be guaranteed.

The management discussion re-lated to project contexts has mostly fo-cused on managing single projects. Asthere are an increasing number of or-ganizations - e.g. project companies -with several projects in their productionlines, widening of the project manage-ment perspective to concern such amulti-project environment is importantin the future. This automatically refersto management of project portfolios -and not just management of singleprojects separately.

Concerning project company'sactivities, bids represent potential orhypothetical projects with some proba-bility of them turning into a contract.As such, risk arises in two forms: thereis a threshold risk associated with the

likelihood of getting the order from theclient, and then, if ordered by the cli-ent, there is the risk inherent in projectexecution.

A more comprehensive view ofbidding and risk in the very early phas-es was presented, where the project wasviewed in a wider business-orientedcontext starting from pre-bid consider-ations. The important message was toemphasize bidding in general and pre-bid phases as those relevant pointswhere a project's contribution to futurebusiness as a whole must be considered.Further, besides considerations and de-cisions made in the bidding phase, alsocontinuous customer care at post-project phases plays an important rolefor future business. It is often helpful forproject companies to adopt the princi-ple that customers are being managedinstead of just projects.

ReferencesAICPA 1994. American Institute of Certified Public

Accountants, Special Committee forFinancial Reporting. Improving BusinessReporting - A Customer Focus: Meeting theInformation Needs of Investors andCreditors, New York, NY, 9 Pages.

Artto, K. A., 1998. Management of Finances andProfitability in Project Companies, ProjectManagement, Vol. 4, No. 1. Pages 62-69

Artto K. A., Hawk D. L., 1999.Industry Models ofRisk Management and their Future. ProjectManagement Institute PMI'99, Symposiumand Seminars, Philadelphia, Pennsylvania,October, 1999 (forthcoming)

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Karlos A. ArttoEditor-in-Chief, Project Management

c/o Helsinki University of Technology(HUT), Finland

Department of Industrial ManagementP.O. Box 9500FIN-02015 HUT, Finland

Fax +358 9 451 3665Tel +359 9 451 4751E-mail [email protected]

This paper reviews recent developments in project management competency (PMC). The evolution of Com-petency Movement is briefly traced to that of managerial competency. Much of the research surrounding pro-ject manager competency has its roots in managerial competency research. Generally, many of the authors whowrite about PMC suggest that if competency is improved, then the likelihood of project success is also impro-ved. However, one area that has been neglected is that of team competence. It is the project team that performsthe majority of project work yet has been neglected in much of the project management research.

CATEGORY: INDUSTRY PRACTICE AND RESEARCH

Quest for Team Competence

Francis Hartman, University of Calgary, CanadaGreg Skulmoski, University of Calgary, Canada

Keywords: Project Management Competency, PMC, Team Competence

IntroductionProject management is an evolving dis-cipline where its participants are in-creasingly interested in the competen-cy of its project managers (Kerzner,1996; Morris, 1998). Some have relat-ed project management competence toproject management effectiveness(Crawford, 1998); and project success(Jiang et al. 1996; and Lechler, 1998).However, project management compe-tence research has been narrowly fo-cused on project management skills -such as communication - and on thecompetence of the project manager.Soft competencies like traits and behav-iors of both individuals and the team asa whole have received very little atten-tion.

CompetenceMany disciplines are concerned aboutcompetence. The engineering profes-sion is concerned with improving theskills of its graduates as they enter theworkforce (Anonymous, 1994, Led-some, 1994 and Nelson, 1994). As well,business knowledge and skills like To-tal Quality Management and Just InTime practices are increasingly impor-tant to engineers (Hutchin, 1992). En-gineers are also working toward main-taining and improving the profession-alism of their discipline through com-petency-based qualifications (Lloyd,

1994). The engineering profession hasrecognized the importance of compe-tence and is very active in its develop-ment.

Other disciplines, such as medi-cal services are also working to improvethe competency of their members.Many health care managers are inter-ested in improving their knowledge andskills in the use of medical informationsystems (Mordue, et al. 1997). Techni-cal personnel such as diagnostic medi-cal sonographers are representative ofthe health care profession interested incompetence (Curry, 1997, and DeLange, 1997).

Managerial CompetenceOne of the disciplines that has a longhistory of studying competence is thatof business and management. Scientif-ic management focused on task efficien-cy (Taylor, 1911, and Gilbreth, 1911).McClelland's research was on theachievement motive which can lead tosuperior performance (1961). The com-petence motive was identified by Whiterefers to man's capacity to interact ef-fectively with his environment (1959).Boyatzis (1982), and Spencer and Spen-cer (1993) rigorously studied manage-rial competence. They presented a mul-tidimensional model of competencethat goes beyond simple skills andknowledge.

Competence has been related to

a firm's competitiveness (Nyhan, 1998),achieving the organisation's objectives(Tate, 1997), successfully dealing withchange (Dingle, 1995), improving thefirm's competitive advantage (Lei, 1997,and Hogg, 1993), and improving theorganisation's performance (Martin, etal., 1994). Besides linking competenceto outcomes, many have suggested thatcompetence theories can be applied toimprove human resource managementprocesses.

When competence is understoodby those in the firm, they can use thisunderstanding to guide recruitment,skill assessment and development activ-ities (Rowe, 1995). Human resourceallocation decisions can be based onwhether considered competencies arecore to the strategic direction of the firm(Lepak et al. 1999). The firm can alsouse competency-based assessmentmethods to better understand requiredcompetencies (Boyatzis, et al. 1995,Guinn, 1996, and Chiu, et al. 1999).Many have recommended that trainingcould be improved if linked to compe-tence (Denton, 1995, and Strebler,1995). Others have implemented com-petency-based compensation systemslinked to achieving business objectives(Ashton, 1996) or competencies dis-played (Jahja, et al. 1997).

While competency-based humanresource management has gained mo-mentum, it is not without its critics.


Some have suggested that managerialperformance can not be adequatelymeasured; and since the measurementof managerial performance is based oncompetence, competence-based hu-man resource management is funda-mentally flawed (Robotham, et al.1996). Competency-based manage-ment development has been criticizedfor the possibility that it encouragesconformity in the managerial ranks(Macfarlane, et al. 1994). The Compe-tency Movement has also been criti-cized for not being context sensitive todifferent business strategies (Munro, etal. 1994) and ignoring the social con-text in favor of the technical compo-nent of work performance (Mansfield,1993). Jubb and Robotham recommendthat it is time to stop competency-basedtraining and re-evaluate its approach(1997). Others have suggested thatmanagerial competence research hasbeen narrowly focused, fragmented andconfusing (Stuart, et al. 1997). Howev-er, one of the most serious criticismsmight be that the competence focus hasbeen on manager skills and technicalknowledge. Others have shown thattechnical knowledge and skills are buttwo characteristics of the multidimen-sionality of competence (Boyatzis,1982, and Spencer, et al. 1993). Thus,while there seems to be great promisefrom implementing competence-basedhuman resource practices, there aremany hazards as well.

There are many parallels betweenbusiness and project management re-search. Leadership, teamwork, success,risk, alignment and communication aresome of the topic areas that have beenexamined by both project managementand business researchers. However,business has long been looking at com-petence and those in the project man-agement community only recently havebegun to research competence.

Project Participant CompetenceCompetencies are commonly used byorganizations and others to help guidedecision-making regarding its humanresources. Some simply define compe-tence as skills plus knowledge (Brown,1993). Parry suggests that a competenceis a group of related knowledge, skills,and attitudes that influences perform-ance (Parry, 1996). Ayer and Duncan(1998) expand the definition of com-petency to refer to a single specific, ob-servable behavior or characteristic that

leads to superior performance. Boyatzis(1982) adds to the concept of compe-tence the individual's motives, traits,and one's self-image or social role. Spen-cer and Spencer define competency asan "underlying characteristic of an in-dividual that is causally related to cri-terion-referenced effective and/or supe-rior performance in a job or situation"(1993, p. 9). (Criterion referenced im-plies that the competency actually pre-dicts performance which is measurableand objective.)

The Infancy of Project ManagementCompetenceCurrently, there is very little rigorousresearch surrounding project managercompetence. (Notable extant excep-tions include Blackburn, 1998; Craw-ford, 1998; Morris et al. 1998, and PMI,1999a). Lynn Crawford is in the finalstages of a major research project todetermine, among other things, compe-tency profiles and competency stand-ards for effective project personnel(Crawford, 1997). However, much ofthe practitioner literature surroundingproject management competence issimplistic, anecdotal or theoretical. Wedo not know which competencies aremost important for task performanceand project success. One can only cometo the conclusions that project manage-ment competence is not well under-stood. Further, the necessary competen-cies required for excellent performanceby project participants, instead of theproject manager, have not yet beenidentified and validated.

Competence is not only multidi-mensional, but also its focus and philo-sophical underpinnings can also be di-vergent. Blackburn (1998) delineatescompetence into two movements: be-havior and standards schools. Bothschools differ in their focus, purpose andorientation. Others write about a "qual-ified project manager" (Goldsmith,1997) or the "capability" of an organi-zation's people (Curtis et al. 1997).

Modeling Project ManagementCompetenceOne very simplistic model of projectparticipant competence uses a familiarinput-process-output framework (Skul-moski, 1999). While it is recognizedthat such a model likely does not por-tray the complexity of project partici-pant competence, it provides a struc-tured model to begin understandingproject human resource allocation con-

siderations. The benefits of input-proc-ess-output frameworks for analysinghuman resource allocations for the firmhave been recognized elsewhere (Gri-nold, et al. 1977, and Correa, et al.1999). One can assess competence ofothers or one's self by examining inputs,processes and outputs. Input competen-cies are extremely varied and includeknowledge, skills, traits, motives, self-image, social role, and behaviors.

Specific knowledge may be con-tained in AACE International's Certi-fication Study Guide (AACE Interna-tional, 1998) or in PMI's PMBOKGuide (Project Management Institute,1999b). Certification from either ofthese organizations demonstrates thatthe candidate has acquired specificknowledge and skills related to costengineering and project managementrespectively. Skills may include the abil-ity to determine the critical path(s) ina network.

A trait is a characteristic way inwhich a person responds to a set of stim-uli (Boyatzis, 1982). For example, peo-ple who believe they have control overtheir future have the trait of efficacy. Inprojects, when these people encountera problem, they take the initiative todiscover solutions. They do not wait forsomeone else to fix the problem or ex-pect luck to take care of it.

Motives, on the other hand, drivebehavior (Boyatzis, 1982). For example,people who are motivated to improveor compete against a standard are saidto have the achievement motive. Whenpeople with a high achievement motiveare given measurable objectives in theproject setting, they are more likely towork to achieve the objectives.

Another dimension of competen-cy is a person's self-image (Boyatzis,1982). This refers to a person's percep-tion of himself or herself. A self-imageof competence will likely facilitate aperson's work in a novel project eventhough the person has not previouslyperformed the task. Social role is a per-son's perception of the social norms andbehaviors that are acceptable to thegroup or organizations to which he orshe belongs. Professionalism, punctual-ity for meetings, and preparedness areall behaviors that may be required bythe norms of a particular project team.Thus input competencies are varied,multi-dimensional and broader thansimply skills and knowledge.

Process competencies have beenextensively examined in the project

management discipline. Many havecommented on the nature and use ofparticular processes which contribute toproject success (Gareis et al. 1998; vanOnna, 1998; and, Thamhain, 1998).Both the AACE International's Certi-fication Study Guide and the PMI'sPMBOK Guide contain processeswhich contribute to project success.Examples of project management proc-esses include planning, controlling andclosing a project (van Onna, 1998).

Outputs make up the final dimen-sion of project management compe-tence. Sattler and Neights call for per-formance-based project managementcompetencies but do not provide assess-ment metrics (Sattler et al. 1998). Out-puts can include project performancemetrics such as budget and schedulecompliance and project success crite-ria like customer satisfaction. An addi-tional dimension is added to this mod-el: contingency variables. Contingencyvariables are factors (i.e. project size,technical complexity, public visibility,etc.) that may affect which competen-cies are most likely to have the greatestinfluence on successful outcomes (Dun-can, 1998).

Perhaps the most developed out-put-based competency standards arethose developed by the Australian In-stitute of Project Management (AIPM,1996). These standards contain, amongother data, performance criteria whichspecify outcomes that demonstrate

competent performance. Table 1 illus-trates a partial list of performance cri-teria for time management (AIPM,1996). The assessor then determineswhether there is evidence the candidatedisplays or has displayed the requiredperformance-based competencies.

For example, the candidatewould be required to prove that he orshe involved the appropriate stakehold-ers to develop the project schedule.Thus the focus is on performance rath-er than on the acquisition of knowledgeor the ability to follow a project man-agement process. Performance-basedcompetence is promising but lacks em-pirical support. That is, we do not knowwhich performance-based project man-agement competencies contribute mostto project success. Lechler (1998) hasconcluded that project activities suchas planning and control have a relative-ly small influence on project outcomeswhen compared with the human sideof project management. Therefore,more work is required to better under-stand performance-based project man-agement competencies.

The Project Management Insti-tute is currently researching compe-tence in their Project ManagementCompetence project lead by Dr. JanetSzumal (PMI, 1999a).The purpose ofthis project is to develop a frameworkthat will help direct project managersin their professional development. Theframework will detail the clusters of

knowledge, skills, abilities, and otherpersonal characteristics that are likelyto be relevant to most, if not all, typesof projects. A Preliminary Project Man-ager Competencies Framework (Figure1) has been provisionally developed andis in the process of being validated (Szu-mal, 1999).

Project manager competenciesmay include, but are not limited toskills, knowledge, attitudes, abilities,behaviours, and personality. The projectmanager's competencies are influencedby past experiences (such as life experi-ences, formal education, training andwork experiences). These competenciesthen influence project manager taskperformance. Project manager perform-ance is the degree to which expecta-tions are met regarding the project man-ager's responsibilities, duties and func-tions. Project performance includesoutcomes such as customer and stake-holder satisfaction, goal achievement,quality of deliverables, and team lead-ership and direction. The strength ofthe relationship between task perform-ance and competencies are mediated bycontingency variables (for exampleproject size and complexity). Thisframework is very much influenced bythe work of Boyatzis (1982), and Spen-cer and Spencer (1993). What is un-known is if this project manager com-petence model will be appropriate forthe project participant.

Table 1.

Figure 1.


CertificationMany professional organizations relat-ed to project management offer com-petence-based certification programs.The AACE International is a good ex-ample of a professional organizationthat has a well-established certificationprogram. The purpose of any profession-al certification program is to providerecognition of the capabilities of an in-dividual in a professional area. Certifi-cation from AACE International "indi-cates demonstrable expertise in themost current skills and knowledge ofcost engineering." (AACE Internation-al, 1998) The Project Management In-stitute (PMI) also has a certificationprogram similar to that of the AACEInternational (PMI, 1999c). The Asso-ciation for Project Management is a UKbased organization dedicated to the ad-vancement of the project managementdiscipline that also has a certificationprogram: Certified Project Manager(APM, 1998).

Finally, there are the AustralianNational Competency Standards forProject Management. Project partici-pants can become certified at one ofthree levels of project managementcompetence (Australian Institute ofProject Management, 1995). The ma-jor difference between the Australianproject management certification andothers is that the Australian model as-sesses performance or outcomes thatdemonstrate competence. The othermodels assess inputs such passing a cer-tification examination on some specif-ic body of knowledge. There is increas-ing interest in output competencies andcertification based on performance(Sattler et al. 1998). Clearly, under-standing output competencies betterposition the practitioner to deliver suc-cessful projects. Project managementcompetence is like dentistry: a patientis not as concerned whether the den-tist has the best tools or methods. In-stead, the patient is most concernedabout outcomes: that the toothache hasgone away. Project management com-petence is a global concern where manynational professional organizations cer-tify its members. One question that hasnot been thoroughly answered is whichcompetencies most contribute toproject success? Another question thatneeds to be answered is does existingcertification schemes signify true com-petence? As well, which competenciesshould be reflected in a project man-

agement participant certificationscheme?

Practical IssuesAbove we have discussed the issuesaround certification and competence,as discussed in the literature. Little ofthis material deals directly with individ-uals who work in a project team, butare not - or do not see themselves as -part of the project's management. So weneed to consider two issues: What doesproject management competence meanin practical terms, then what does thismean to the members of a project team?

Practical Issues of CompetenceThere seems to be a clear pattern in theliterature surrounding the definition ofproject management competence thatis emerging. The trend is towards a bal-ance of knowledge and output-basedcompetence. Some of the knowledgeand output is based on process. Basedon this extrapolation, and with someminor reshuffling, we can see that thereis a need to address three components.- Tools to help manage a project

well- Processes that allow us to pick the

right tools and use them effective-ly

- Knowledge (experience andlearning derived) that provides thesafeguards against failure andpromotes more reliable success.

This three-part model is consist-ent with the elements seen in estab-lished and regulated professions such asmedical doctors, engineers, lawyers andaccountants. In these professions, in-duction is based on distinct steps thatstart with rigorous "technical" educa-tion. Following a grounding in the the-ory - usually but not exclusively devel-oped through a university based educa-tion at the bachelors or masters degreelevel - there is an internship period inthe workplace. During this time thebudding professional learns the process-es and gains the wisdom needed to prac-tice independently. Finally there is a testof some sort. This final stage varies inintensity and focus from one professionto another and between jurisdictions orcountries. The end result is that theprofession typically polices its member-ship through admission following a rig-orous training program. It then normal-ly is self-managing in terms of on-goingcompetence and professional develop-ment, as well as conduct of the profes-

sion itself. There is no direct or compa-rable equivalent in project managementtoday.

The practical implication of thisis that, in the absence of such a rigor-ous standard, we need to define com-petence at different levels. These lev-els are currently being influenced to alarge extent by interests of establishedpractitioners who may be disenfran-chised by a certification model similarto other professions in its rigor. Thismeans that the lowest common denom-inator is often the default standard. Theterm standard here is used loosely, as fewformal ones exist. None exist interna-tionally, few (notably Australia throughAIPM, United Kingdom through APMand United States through PMI) existat the national level and there are anumber of standards or policies withincompanies.

The current situation is fragment-ed. This is being addressed by a groupof researchers and practitioners at theinternational level. Many of the expertsin this field identified above are partic-ipants. With the successful establish-ment of a baseline or benchmark forassessing competence of the projectmanager, we will have a basis on whichto develop the competence needs forindividual members of the project team.Some of these competencies can beidentified without such a foundation onwhich to build, as we can use the ex-tensive body of knowledge that existson team effectiveness and other aspectsof project and business management.

Competence for the individual projectteam memberThe competence of team members canbe considered from two perspectives.One view is of the skills needed for ef-fective project team performance. Theother view is from the practical appli-cation of project management princi-ples to real projects.

Highly effective teams need sev-en ingredients to achieve exceptionallevels of performance. These seven el-ements are based on empirical observa-tion in the implementation of SMARTProject Management on over a hundredprojects. The implementation wasbased on use of a set of tools for projectmanagement combined with a series ofprocesses designed to concurrently planthe project and build the team. Supple-mentary knowledge was used in a work-shop style to add awareness of commonproject planning and delivery problems.

Note the three elements of tools, proc-esses and knowledge that this con-tained.

These seven elements for effec-tive teams are as follows:1. Open communication: this is all

about not hiding agendas andensuring that there is enoughinformation available to the teammembers for them to be able tofully contribute to the project.

2. Ownership of work: this attributehas to do with leadership style andthe empowerment of the team.Specifically, the individual teammembers need to have a degree ofcontrol over the work they do, andsome influence on the methods tobe used.

3. Risk-taking: a propensity to takerisk allows team members a degreeof freedom that enables othercritical things to take place. Oneaspect of this is that problems indelivering the project belong tothe whole team, not one person orgroup within the team.

4. Creativity: this is the ability tosolve problems with minimalrestriction. The competence hereis one that starts with the projectsponsor or owner who needs todefine the objectives of the projectin terms of what is to be achievedand what the problem is, not whatthe solution is and how to arriveat the solution. This is partly acultural shift and partly one ofprocess and partly an issue ofawareness by the owner and theproject team.

5. Fun: this is all about recognition,reward and management ofstakeholder expectations.

6. Tribalism: the best teams havetheir own code of behavior,hierarchy, traditions, language andother tribal attributes.

7. Trust: this is the confidence ofindividual team members in eachothers capabilities and in theteam's commitment to the successof the project as well as the abilityto rely on each other during thedelivery process.

Implementation of effectiveproject management with project teamson these numerous projects has alwaysbeen more effective where the entireteam has had the benefit of training incertain key elements of project manage-

ment. The objective of this training hasbeen to achieve the following:1. A common language2. Shared understanding of what the

project is to achieve and what themanagement of that projectentails

3. Basic planning skills4. Basic risk management and

mitigation skills5. Project administration and

reporting needs6. Alignment on how the team will

develop any other needed skills7. Awareness of what each specialist

or function contributes to, andneeds from, the rest of the teamand the success of the project.

Generally, when this training wasprovided to the entire core team for theproject (completed over two or threedays), the teams and their projects wereconsistently successful. There was noconsistency in the results on the teamswhere this basic training was not pro-vided. A discernible correlation be-tween consistent success and trainingwith the above seven objectives wasnoted.

Conclusions andRecommendationsThe competence of a team is far morecomplex that this paper might suggest.The paper serves two purposes. First itidentifies and provides a framework toconsider the need for team competencein project management as well as theneed for such competence by manage-ment. Second, it identifies at least at acursory level, the type of competencethat might be needed to improve thereliability and predictability of a suc-cessful project.

Significant effort is still needed todetermine what project managementcompetence entails. There is a needtoo, to extend this to understanding theneed for project management compe-tence at the team member level, asthere is some need to train or educateall team members. The extent to whichproject management competence needsto percolate to individual members of ateam is not understood. This need aris-es out of the requirement to balanceeffectiveness of the team with the costand time required for the necessary skilltraining needed to achieve it.

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Project Management Institute. 1996. Standards.(www.pmi.org/standards/ active.htm). July1996.

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Francis Hartman,PhD, PEng

Chair and Director ofProject ManagementThe University ofCalgary

Room ENF 2622500 University Drive NWCalgary, AB, Canada, T2N 1N4Fax +403 282 7026

Greg Skulmoski, BEd,MBA

The University ofCalgary

Room ENF 2622500 University DriveNW

Calgary, AB, Canada, T2N 1N4Fax +403 282 7026

CATEGORY: INDUSTRY CASES AND PRACTISE

Applied Project Risk Management- Introducing the Project RiskManagement Loop of ControlMartin Elkjaer, PricewaterhouseCoopers, DenmarkFinn Felding, Denmark

Keywords: Risk, Project Risk Management, International Projects

The purpose of the article is to present an alternative comprehensive concept for performing project riskmanagement in large-scale projects, and to demonstrate its application through examples in a hypotheticalcase. The case argues that risks can be managed by the suggested concept, leading to lower costs and shorterimplementation for all parties and thereby increasing the credibility of international project management.

IntroductionWithin the project environment manycompanies perform a sort of risk analy-sis that tend to be more crisis manage-ment of risks as they occur. A lack ofadequate project risk management is afact in many large-scale projects. Inter-national projects are full of risks. Riskscan only be prevented by identifyingtheir sources and managing them sys-tematically. Risk elimination is a pre-requisite.

The article deals with the appli-cation of a concept named the ProjectRisk Management Loop of Control.The aim of this article is to present acomprehensive and workable conceptfor project risk management techniquesand demonstrate their application in areal international project managementenvironment. The advantages of usingthe Project Risk Management Loop ofControl are:

- Baselining for a systematicallywork approach.

- Controlling critical risks.- Ensuring use of experience.- Exchanging information

between project participants.Achievement of the advantages

above are illustrated in a case study. Theapplication of the methods in the

project Risk Management Loop of Con-trol is related especially to internation-al projects that transfer process knowhow, equipment design and plant engi-neering from a domestic company to anoverseas project environment. Eventhough the article describes the appli-cation of the project risk managementin an international constructionproject, it can be applied to other com-plex and large-scale projects as well.

The paper describes the phases ofthe concept Project Risk ManagementLoop of Control (PRM Loop of Con-trol), and how it can assist managementin better decision making. The aim ofthe concept is to prevent risks from ac-tually happening. Further, if risks occur,the model assists management with asystematic approach for reducing andcontrolling risks.

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The Project RiskManagement Loop ofControlThe development of the PRM Loop ofControl is based on an analysis of pre-viously published risk managementprocesses (Chapman,1997, Del Canoand de la Cruz, 1998, Godfrey, 1996,Isaac, 1995, Murray, 1998, Wideman,1992, Turner, 1993). The PRM Loop ofControl is a comprehensive model con-sisting of simple and applicable meth-ods (Elkjaer, 1998). The PRM Loop ofControl illustrates a dynamic and con-tinuous process. It is a process whererisks are continuously reassessed untilthey are prevented, reduced or accept-ed. The PRM Loop of Control, illustrat-ed below in Figure 1, can be divided intofour different phases: identification, as-sessment, response, and monitoring.

It is recommended to perform aPRM Loop of Control at the end of eachproject stage or when required by ma-jor change of circumstances. A naturalpart of a beginning of a new stage, saysite mobilisation, is a new round of riskidentification, assessment etc. as dictat-ed by the PRM Loop of Control.

The Identification phaseThe first phase of the PRM Loop ofControl is identification of potentialrisks. The identification phase is themost critical to a successful risk man-agement approach; risks that are notdetected can not be managed.

There are some basic techniquesfor identifying risks. Interviewing keyproject staff and specialists is one of theobvious methods that can indicatewhere problems or unwanted events arehidden. Another well-known tech-nique is brainstorming and creativity.Through workshops the project groupreach a list with potential and currentrisks. An other method is the using ofexperience of similar projects.

Checklists are valuable for cov-ering all areas in a project environment.There are many checklists available(Turner, 1993, Zhi, 1995, Lichtenberg,1989). In order to apply risk manage-ment in project management it is im-portant to classify and characterise risksin such a way, that users are providedwith a unified classification system thatfacilitates appropriate communicationand decision making.

The checklist below in Table 1 isbased on experience from internation-al overseas construction projects. The

MAIN GROUP GROUP CLASS CATEGORYA. PROJECT 1. TECHNOLOGY 1.1 Raw material quality

1.2 Packing materials1.3 Proces technology1.4 Quality Assurance1.5 Safety1.6 Environmental Protection1.7 Process Equipment1.8 Auxillary Equipment1.9 Transport Eqipment1.10 Utility Supply & Equipment

2. PROJECT 2.1 Location & Plant Site2.2 Access to raw materials2.3 Access to utilities2.4 Availability of operating staff2.5 Availability of maintenace staff2.6 Logistics for plant operation2.7 Marketing & distribution of finished product2.8 Project Finance2.9 Project Approvals & Permits2.10 Other Project Risks

B. PARTNERS 3. OWNER/ 3.1 ShareholdersOPERATOR 3.2 Management

3.3 Project Management3.4 Technical Management3.5 Financial Management3.6 Market position3.7 Financial position3.8 Change Readiness

4. CONSULTANTS 4.1 Ownership4.2 Management4.3 Project Management4.4 Technical Competence4.5 Industry Competence4.6 Technology Experience4.7 Local Experience

5. SUPPLIERS/ 5.1 OwnershipCONTRACTORS 5.2 Management

5.3 Financial position5.4 Project Management5.5 Technical Competence5.6 Industry Competence5.7 Technology Experience5.8 Local Experience

6. CONTRACTUAL 6.1 Contract enforcementISSUES 6.2 Scope of work

6.3 Design requirements and approvals6.4 Equipment requirements and specifications6.5 Variation procedure6.6 Installation approval6.7 Precommissioning procedure6.8 Commissioning scope & procedure6.9 Acceptance testing scope & procedure6.10 Warranty obligation & procedure6.11 Documentation requirements6.12 Process guarantees6.13 Payments & security6.14 Time schedule6.15 Liquidated damages6.16 Contractual risk allocation6.17 Disputes & settlements6.18 Codes & standards6.19 Other:

C. POLITICAL- 7. PROJECT 6.1 Political SituationECONOMIC COUNTRY 6.2 Economic Situation

6.3 Labour Situation6.4 Legal Situation6.5 Industry Situation6.6 Logistic Situation6.7 Market of Finished Product6.8 Construction Industry6.9 Codes and Standards

8. REGIONAL 7.1 Political SituationFACTORS 7.2 Economic Situation

7.3 Labour Situation7.4 Legal Situation7.5 Industry Situation7.6 Logistic Situation7.7 Market of Finished Product7.8 Construction Industry

9. GLOBAL 8.1 Energy Supply/PricesFACTORS 8.2 Raw Material Supply/Prices

8.3 Financial Situation8.4 Process Technology8.5 Market of Finished Product8.6 Competition

Table 1. Checklist

Monitor Action Plans

Emergency PlansStandby

Degree of influence

Deg

ree

of p

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Risk D

Risk A

Risk C

Risk B

Low High

Low

Hig

h

fective to completely eliminate a risk.For elimination as well as reductionaction plans are made in order to pre-vent the risks from influencing theproject in a negative direction.

TransferTransferring risk is the last option. Pass-ing risks on to other parties are typicaldone in the contractual phase, whererisk management can help in definingwho are most capable of managing aspecific risk. Transferring risks does notnecessary mean, that they are reducedor properly handled. Hence, the riskmanager must not assume that thoserisks are out of business.

Murray, 1998, Wideman, 1992, Turner,1993).

AcceptanceWhen accepting a risk one normallydoes nothing because the costs of elim-ination are too prohibitive or the like-lihood or impact of a risk is too small.Acceptance should only be chosen ifimpact is relatively insignificant. Whenaccepting a risk the response is normallyto make an allowance for it by adding acontingency in the budget or in timeschedule.

ReductionReduction or mitigation requires imme-diate action thatwill either re-duce the likeli-hood or the po-tential impact.One has to con-sider the cost ofthe reductioncompared to thesavings or bene-fit in doing so.

EliminationE l i m i n a t i o nmeans total re-moval of risks. Ifa risk is unac-ceptable i.e. itmust never hap-pen because ofits impact, thenprevention is es-sential. It is usu-ally not cost ef-

structure of the checklist is based on theliterature (Klakegg, Lichtenberg, 1989,Zhi, 1995). Each group in the checklistis divided into categories. For each cat-egory a number of questions has beenformulated in order to reveal potentialrisks. Further analysis based on ques-tions will in such case confirm or ne-gate the existence of risks. The risk po-tential only disappear when it can beensured by a solution to the question.

The Assessment phaseRisk can be quantified through a sepa-rate assessment of probability and im-pact. The standard perception of quan-tification is that probability multipliesimpact result in the risk level (Wide-man, 1992). The risk level can be meas-ured in quantified or qualified units.The PRM Loop of Control suggest asimple procedure for quantifying. A sub-jective assessment of impact and prob-ability in either linguistic degrees and/or a rating in percent or monetary unitscan be used. The suggested degrees arelisted below in Table 2 and 3 in five cat-egories and the conversion to quanti-fied units is also shown to assist the as-sessment.

No. Linguistic degree Quantified unit

1 Unusual 0-1%

2 Most rare 1-2%

3 Rare 2-5%

4 Moderate 5-10%

5 Frequent >10%

Table 2. The probability scale

No. Linguistic degree Quantified unit

1 Marginal <10% of CM

2 Serious 10-50% of CM

3 Most serious 50-100% of CM

4 Critical 100-500% of CM

5 Catastrophic >500% of CM

Table 3. The impact scale. (CM standsfor Contribution Margin)

For selecting the most importantrisks, risk mapping is a practical tool.The risk mapping is illustrated below inFigure 2. The identified risks are as-sessed in two dimensions and the scalesrefer to the degrees in Tables 2 and 3.The risk mapping figure outlines sug-gestions for risk strategies.

The Response phaseThe purpose of the response phase ischoosing a risk strategy. The four possi-ble risk strategies are briefly discussedbelow (Godfrey, 1996, Isaac, 1995,

Degree of impact

Risk E Risk E Risk E Risk E

Deg

ree

of p

roba

bilit

y

Risk A

1 2 3 4 5 1

2

3

4

5

Risk C

Risk B

Risk D

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Figure 2. Risk mapping

Figure 3. Risk guidelines.


There are two dimentions inchoosing an appropriate attitude to therisk (Elkjaer, 1998). The first dimensionis the degree of predictability. Some risksare impossible to predict i.e. it is un-known where and when in the project,they might occur. The second dimen-sion is the degree of influence, whichmeans that project managers have dif-ferent degree of influence to control therisks. For instance a risk can be very dif-ficult to handle because it is not withineach own scope, and therefore the de-gree of influence is low. The two dimen-sions are integrated and four guidelinesfor responding to risks are then possi-ble. The Risk guidelines are illustratedin Figure 3 with random placed risks.

Stand byStand by means that the project man-ager can do little to prevent the riskoccurring. It is the worst and a most in-tolerable situation. There are basicallytwo options for the project manager.Either to accept the situation, becausethe impact is low or increase influenceby negotiation and/or increase predict-ability by further investigation.

MonitorMonitor seems to be a passive response,however it is important to observe whenand where risk could occur. Risks in themonitor area have a low degree of in-fluence either because no one can in-fluence them or because the influencerests with another party. Any possibleprecaution to reduce the impact shouldbe considered. In the case of influenceresting with another party risk prevent-ing negotiations are a possibility.

Emergency PlansWith emergency plans influence is pos-sible, but predictability is low. These areoften called "Plan B", because they rep-resent an alternative plan for an unu-sual situation. Emergency plans have acontingency character and are onlyimplemented if certain events occur. Ifpossible predictability should be im-proved, whereby the risk is moved to-wards the action plan area.

Action PlansFor risks that can be influenced andwhich are highly predictable, a proac-tive approach is possible. Therefore thePRM Loop of Control concept suggestsuse of action plans - in case of such risks.

The essential in managing impor-

tant risks is to clarify those risks thatcan be managed proactively and thoserisks that are not manageable. Risks thatare placed in the monitor or emergen-cy plan areas ought to be managed ei-ther by making risks more predictable,or making them more possible to influ-ence.

The Monitoring phaseThe last phase of the PRM Loop ofControl is monitoring. By monitoringrisks are documented and continuous-ly reassessed in order to ensure properaction for prevention. Therefore theresponsibility is defined for each risk. Inthe monitoring phase the most impor-tant issue is to keep up an updated planfor the potential risks. The plan is calledthe Project Risk Management Plan.The plan should be designed in consist-ence with the elements in every phaseof the PRM Loop of Control. Theproject risk management plan can con-sists of three documents, which are thePortfolio Risk Survey, the Project RiskPlan and Risk Tracking Reports. Theproject risk management plan is illus-

trated in Figure 4 below:The portfolio risk survey should

be reviewed monthly at executive man-agement meetings based on the infor-mation from project managers. An ex-ample of the portfolio risk survey is il-lustrated in Table 4 below.

The project risk plan is a projectmanager tool for monitoring the signif-icant risks at project level. It is preparedby the project manager and should bereviewed monthly at project statusmeetings. The structure of the projectrisk plan is related to the portfolio risksurvey.

For more information about spe-cific risks, reference is made to RiskTracking Reports. These are made forthe most important risks. The reportsfollow risks through the project life cy-cle until they are adequately reducedor out of business. Table 5 illustrates anexample of a risk tracking report.

The level of documentationneeds to be carefully considered. Forsimplicity the project risk managementplan contains only at the maximum offive risk tracking reports depending on

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Figure 4. Project Risk Management Plan

Table 4. The Portfolio Risk Survey

the scope and complexity of the project,and only those risks are continually re-vised and reconsidered at managementmeetings. An overview of the criticalrisks is documented in the project riskmanagement plan.

An important part of the moni-toring phase is the opportunity to trans-fer experience from one project to an-other. The action plans could be docu-mented in a database. The documen-tation can be valuable for the nextprojects where similar problems mightoccur. By doing so the PRM Loop ofControl becomes a dynamic tool forcontinuous improvement of the port-folio of projects and hence the wholeorganisation.

Case StudyThe case study is hypothetical. How-ever it is based on real project experi-ences (Felding and Kristensen, 1992).The risks presented are realistic for aninternational plant project. The partiesare experienced and possess a rationalattitude to risk management. The casedescription follows the below men-tioned project stages and each situationemphasizes the different phases of thePRM Loop of Control.

- Project Development &Tendering (1. situation)

- Engineering & Procurement (2.situation)

- Construction (3. situation)

- Commissioning & Acceptance(4. situation)

- Operation & Maintenance (5.situation)

1. Situation: ProjectDevelopment & Tendering

A medium-sized Danish foodmanufacturing company has decided toestablish a baby food factory in Latviain order to benefit from the cheap andabundant milk supply and to profit fromthe emerging Baltic Countries markets.

The project enjoys support fromthe Government and the authorities ofLatvia. The Danish Baby Food Produc-er (DBFP) has made a feasibility studyshowing a sufficient cash flow and prof-it based on certain assumptions of themarkets in the Baltic countries and onthe assumption that export quality canbe assured in production.

A local Joint Venture partner(with 50% ownership) has been identi-fied and has participated actively in thestudies and market research. Project fi-nancing is in principle in place pend-ing the signing of the joint ventureagreement. Consequently, the chair-man of DBFP, who has been promotingthe project with authorities and financeinstitutions, is very eager to get boardapproval at a forthcoming meeting inorder to sign the joint venture agree-

Table 5. The Risk Tracking Report

Table 6. Case study facts


ment immediately. This will enableDBFP to close the project financing andorder the basic design leading to ten-dering of building works and equipmentsupply. In Table 6 the case study refer-ence facts are presented.

Risk identificationThe managing director of DBFP realis-es that, although the project develop-ment has been smooth and quick, thereare still potential risks involved in thislarge and first investment abroad. Healso realises that there is more than 2years of hard implementation workahead. Consequently, he decides to pre-pare a risk analysis to be presented atthe board meeting. At that meeting theboard is scheduled to approve the jointventure agreement and the commit-ment of USD 1 million financing charg-es, design fees and other costs.

As small working group is formedto make a proper risk analysis of theproject. Project Manager is asked to pre-pare the concept and checklist for therisk identification. The group decidesto mark all risk categories with one ofthe following risk indications for prob-ability and impact: low, medium or high.The replies reveal one common feature,namely a clear bias towards many lowrisks, few medium risks and hardly anyhigh risks. Some of the participants re-alise that this method gives a wrong andtoo optimistic risk assessment becauselack of detailed knowledge of the wholeproject and insufficient project experi-ence to identify the potential risks andassess them objectively. It is realised thatobjective risk identification check-questions have to be formulated andanswered in each category in order toget a more objective assessment. In Ta-ble 7, one category is further investigat-ed.

Risk assessmentThe three "No" in Quality Assurancereveals potential and serious risks asproduct quality is a very sensible issuefor all products in general and for baby

food specifically. The following cause-effect diagram is drawn:

The cause-effect exercise revealsthat the QA system is not adequate orsufficiently implemented and that op-erators are short of training and experi-ence in the QA system. It is concludedthat the risk probability is frequent andthat the risk impact is catastrophic.

Risk responseIt did not take a long argument to con-clude that DBFP wants the risk to beeliminated beforehand, i.e. before com-mercial production starts. Consequent-ly, the project manager and technicaldirector are instructed to prepare aproper action plan to eliminate the risks

Risk monitoringRequirements for approval, responsibil-ity, action plans and reporting areagreed and documented in risk track-ing reports and in the project risk planfor follow-up at monthly project statusmeetings.

Finally the managing director ofDBFP can prepare his report to theboard recommending the signing of thejoint venture agreement. The recom-mendations is to proceed with the sign-ing the joint venture agreement closelymonitoring the progress on QA. Be-cause he has a feeling that there mightbe other potential risks not yet identi-fied he requests the whole risk analysisto be repeated in connection with man-agement quarterly reports to the board.

The risk management plan will be re-viewed at each monthly project statusmeeting.

The example demonstrates thenecessity to perform a comprehensiverisk identification and assessment asearly as possible, and to close the loopby a renewed risk management plan.2. Situation: Engineering and Procure-mentAfter the Board approval and signingof the joint venture agreement the part-ners proceed with the tender procedurefor the two major contracts, i.e. theprocess design and equipment supplycontract and the building works con-tract. This situation deals with theaward and of the process design &equipment supply contract from thecontractor's point of view.

Three major suppliers of babyfood process design and equipment areinvited and their proposals are basical-ly the same. They all accept the stipu-lated time schedule of 20 months. Al-though building works are not includ-ed in their scope of work the tenderdocuments require the equipment con-tractor to co-ordinate building workswith equipment installation to securetimely completion in 20 months.

In this situation the case studyfocuses on one of the suppliers, UnitedEuropean Food Process Engineering(UEFPE) called for the final round ofnegotiations in Riga.

The UEFPE sales manager incharge initially believes that he can talkhis way out of an obligation to super-vise building work. Thereby UEFPEavoids being solely responsible for itstimely completion by instead promisinga range of advisory services as planningand co-ordination free of charge. Buthe fails as the joint venture firmly re-quires the equipment contractor to takefull turn-key responsibility for timelycompletion of building works as re-quired by tender documents.

Table 7. Risk Identification Questionnaire. Part 3 Owner/Operator.Cat. 3.5, Quality Assurance

Implemented

Existence

Adequate

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Operators Production management

QA awareness

Basic skillsTraining

ExperianceExperienceDiscipline

Basic skillsTraining

ExperianceExperienceAwareness

Existence

Training

Discipline

QA system

Figure 5. Cause and Effect diagram for Quality Assurance in production

Risk identificationThe new development is discussed withhead office. After a short debate of thequalifications of the selected buildingcontractor, management agrees to goahead and in principle accept thatUEFPE takes charge of building workprogress on behalf of the joint ventureowner, on the condition that joint ven-ture accepts to sign a special agreementoutlining the powers of UEFPE's projectand site managers in this respect.

Sales manager and project man-ager are requested by management toprepare a risk analysis of the perform-ance of the building contractor to bediscussed and approved before any for-mal commitment is made. The riskanalysis of the building contractor con-tains the following questionnaire inTable 8 filled in by sales manager andproject manager.

The detailed analysis of the an-swers show the following weaknesses ofthe building contractor:

- Management has not yetadjusted to the change from thesocialist central planning systemto a market driven capitalisticsystem.

- As a result of above point themanagement structure andpositions might change al-

though no specific replacementscan be foreseen.

- Profitability has not yet beenfirmly established although asmall profit was made last year.The contractor's financial basisis still weak.

- In the socialist central planningsystem the contractor's maintask was millitary constructionwork. The contractor has sincethen gained some experience inindustrial building work, but hasno experience in constructionof high quality food plants.

- The labour market in the area isvolatile and characterized byshortage of skilled constructionworkers, high staff turnover andmany workers going abroad forbetter paid work.The above 5 weaknesses lead to

the following 4 main risks: managementinstability, financial weakness, lack offood industry experience and insuffi-cient labour resources.

Risk assessmentThe above risks are assessed in Table 9according to Table 2 and 3. The equip-ment contractor UEFPE performs theassessment as if direct contract relationexisted.

The risks are placed in Figure 6in consistence with their impact andprobability.

As seen in Figure 6 it is the la-bour and finance risks that have thehighest risk level and therefore prioritymust be given to reduce these risks.

Risk responseThe four risks are assessed according tothe degree of influence and predictabil-ity and placed in Figure 7. Risk A isplaced in the monitor area because thedegree of influence is relatively low nowthe building contractor has been select-ed. Risk B is rather difficult to influence,so it is placed in the standby area,whereas risk C can be influenced bydelegating supervisors on site assistingthe building contractor's own staff.Therefore it is placed in the emergencyplan area. As a precaution the projectmanager prepares an action plan of del-egating overseas labour (risk D) to siteif required. The labour authorities inLatvia are resisting such a plan but canaccept a few working supervisors. How-ever, the project manager maintains hisplan.

Risk monitoringUEFPE Management decides to reviewthe performance of the building con-tractor at UEFPE's monthly project sta-tus meetings based on reporting from itssite manager. Included in this reportshould be observations about the localbuilding worker's employment situa-tion.

Furthermore it is decided tostrengthen the site team by employinga senior building construction supervi-sor.

Finally, the management agreeswith the project manager's proposal toauthorise that the equipment contrac-tor UEFPE can delegate an assistantconstruction manager to work in build-ing contractors site organisation free ofcharge in order to improve progress.

3. Situation: Construction11 months later construction is almostcompleted and precommissioning test-ing has started. The parties are mobi-lising for commissioning and operation.Unrest among the 725,000 Russians liv-ing permanently in Latvia increases andbecomes violent. The Latvian authori-ties still have the situation under rea-sonable control, but the plant site isunfortunately situated in a mostly Rus-sian community experiencing riots from

Table 8. Risk Identification Questionnaire for Building Contractor

Table 9. Risk assessment of Building Contractor


time to time. Consequently,the expatriates from UEFPEand DBFP feel unsafe and afew replacements are immi-nent. Furthermore, newcommissioning staff is reluc-tant to be stationed in Rigaand work on site.

UEFPE Managementis worried and requests theirsite manager to identify andassess the risks for UEFPEand its staff caused by theunrest. Site manager takesadvice by the company's rep-

resentative in Riga.

Identification andAssessmentThe summary of the

site manager's report is thefollowing two tables describ-ing two risk scenarios. Theyassess that there is a 6/10chance that the present lev-el of unrest continues (sce-nario A) and a 4/10 chancethat the level of unrest in-creases to civil rebellion (sce-nario B).

Response and MonitoringThe project manager agreeswith the above risk identifi-cation and assessment anddecides to implement the fol-

lowing action plan sub-ject to UEFPE man-agement's approval:1. Implementrecommendation bysite manager.

2. Notify "Force Majeure"to the client, the jointventure, although a legalopinion concludes that it isdoubtful whether thepresent situation constitutesa force majeure situation.3. Strengthen security onsite and introduce a riskbonus of +30% for UEFPEexpatriates after discussionswith DBFP.4. Visit Riga and discussand "double-check" security

and evacuation plans.5. Daily sitesituation reports by sitemanager to projectmanager.

The project manager presents thereports and his action plan to manage-ment at its weekly meeting. Figure 8shows scenario A (present unrest lev-el) in the monitor area and scenario B(civil rebellion) in the emergency planarea. After a detailed discussion of thesituation, management decides to ap-prove the action plan. Managementwants to follow the situation closely byreceiving a daily site situation reportand if required ask the project managerto attend weekly meetings.

4. Situation: Commissioning andAcceptanceThe civilian unrest did not escalate andinstallation was only delayed by a fewweeks. Pre-commissioning is now inprogress and expected to be finalised in2 weeks. Commissioning has correctlybeen notified and is scheduled to startshortly. The previously approved com-missioning plan with a manpower re-quirement schedule is the basis for com-missioning.

DBFP Project Manager finds outthat the Latvian joint venture partner,LMM, is not able to staff the plant dur-ing commissioning with the stipulatednumber of staff already trained. Theshortage of local operating staff is realand caused partly by internal promo-tions within LMM's organisation andpartly by resignations caused by salarydifferences with new private companies.

Risk identificationThe Risk Identification is rather sim-ple because it is obvious that the risk iscaused by insufficient operator recruit-ment. The volatile labour market couldnevertheless have been predicted ear-lier.

Risk assessmentThe joint venture has a clear obligationto provide 5 operators per shift duringcommissioning; altogether 15 operators.Only 10 trained operators are availableand this shortcoming is a most seriousrisk for the full commissioning program.Joint venture proposes to adapt thecommissioning program to the numberof operators available but UEFPE refus-es. The commissioning program is nec-essary for proper testing, adjustment andoptimising of the plant in operation.UEFPE is willing to provide the miss-ing 5 operators for an extra cost of USD20,000 per man-month.

Risk E Risk E Risk E Risk E

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Figure 6. Risk mapping for building contractor

Figure 7. Risk Guidelines for Building Contractor

Degree of influence


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Figure 8. Risk Guidelines for unrest scenarios

Risk responseThe joint venture decides to acceptUEFPE's proposal for 3 operators,whereas LMM makes an extra effort torecruit 2 locals going through a crashtraining programme. As a precautionDBFP delegates one experienced oper-ator from its plant in Denmark. Com-missioning can then go ahead.

Risk monitoringThe joint venture now decides to im-prove risk monitoring by preparing andreviewing risk tracking reports. Table 12illustrates sample of a risk tracking re-port .

Furthermore, a project risk plansummarising the important risks, therelated action plan and the possibleconsequences is prepared for regularreview at management meetings.

This summary is in its compressedform a proven tool for continous man-agement review of all major projectrisks. It is a comprehensive managementstatus report of risks situations. Theproject risk plan is continously updat-ed and thereby demonstrates the loopaspect of the PRM Loop of Control.Once a risk is eliminated it disappearsfrom the status.

5. Situation: Operation andMaintenanceCommissioning is finally in goodprogress with the agreed mixed opera-tor staff working well together as oneteam. But the problem of recruitingoperators permanently has not beensolved.

The babyfood product producedmeet the required quality standards andthe guaranteed quantity. Preparation forguaranty tests and acceptance is inprogress when a crack in the fluid bedmachine appears. The crack is smallalthough growing slowly and can easilybe repaired. It does not yet influenceproduction nor does it cause leaking ofproduct or other safety problem. How-ever, it makes the joint venture staffnervous about the equipment work-manship. Indirectly, it slows down theprogress of preparing and executing theacceptance procedure. The joint ven-ture management is keen on control-ling equipment quality and puts nopressure on its staff for finishing testsand acceptance. The operator recruit-ment problem also takes time to solve.

The slow progress in commission-ing tests and acceptance is on the oth-er hand worrying UEFPE management,who is interested in solving the embar-

rassing technical problem and keen onmaking fast progress towards accept-ance.

Risk identification, assessment,response and monitoring

The joint venture and the equip-ment contractor, UEFPE, then agreejointly to perform a technical expertiseand quality control of all equipment.An independent expert in metallurgyreviews the investigation with no fur-ther comments except on the estimat-ed probability of crack.

The parties then agree on the fol-lowing action plan for solving the po-tential cracking problem:1. The exposed equipment will be

inspected weekly by UEFPE whowill keep a maintenance engineeron site during the warranty periodof one year.

2. Cracks causing operational orsafety problems or being longerthan 200 mm or wider than 0.5mm will immediately be temporar-ily repaired by welding.

3. Before the end of the warrantyperiod, UEFPE will replace allequipment parts with any crackswith approved new material notcracking. Equipment subject tosuch replacement will have a newwarranty period of one year.

4. A procedure for handling warrantyclaims will jointly be agreed by theparties and the status will bereviewed quarterly.

5. Commissioning tests and accept-ance procedure will proceed andcracks fulfilling point 2 above willbe considered minor defects anddo not prevent acceptance.

The above mentioned crackingproblem is not only a technical prob-lem but to a large extent a credibilityproblem for the equipment contractor,UEFPE, in this very critical phase of theproject.

Consequently, it is very importantthat EUFPE's credibility is recovered.UEFPE's project manager fully realisesthis aspect and takes quick and strongaction on the cracking problem. He alsomakes a serious effort to recover credi-bility by agreeing on a warranty proce-dure beyond the contract requirementsto keep a maintenance engineer on siteat its own cost during the warranty pe-riod.

A provision that might have beenprudent to include in the first place.

Table 10. Site Manager's report on unrest situation;Scenario A (unrest continues at same level)

Table 11. Site Manager's report on unrest situation;Scenario B (unrest increases to civil rebellion)


ConclusionThe article has presented a concept forproject risk management as a systemat-ic and cohesive management tool.

The case study demonstrates theapplicability of the concept and indi-cates improved project performance bycontrolling risks systematically and con-tinously. The repeated review of the riskplan demonstrates the loop aspect ofthe concept. Learning from previousrisk situations is also an important partof the concept.

However, succesful implementa-tion requires removal of three obstacles.First, a different management attitudeto risk management is required. Thisimplies recognition of early risk identi-fication and assessment in order to im-prove planning and financial control.Second, training in risk management isnecessary and thirdly, managementmust accept the extra time and costsrequired to implement project risk man-agement mainly in early project stages.

When these obstacles are re-moved, the use of the Project Risk Man-agement Loop of Control will strength-en project management and improvethe performance and credibility of manyengineering businesses.

ReferencesChapman, Chris 1997. Project risk analysis and

management- PRAM the generic process.International Journal of Project Manage-ment, Vol. 15, No 5. Pages 273-281

Chapman, C. B. and Ward S. C. 1997. Project RiskManagement: Processes, Techniques,Insights. Chichester, John Wiley & Sons.

Del Cano, Alfredo and M.Pilar de la Cruz. 1998On the Management of Risk in Construc-tion Projects. Project Management, Vol 4,No 1. Pages 54-61

Elkjaer, Martin. 1998 Project management of costand risk (English title)

Institute of Planning, DTU, DK (1998).

Felding, Finn and Kristensen Jens-Erik. 1992.Managing Projects for Food ProcessingPlants. Food Engineering Int`l, December1992

Godfrey, Patrick E 1996. Control of risk - a guide tosystematic management of risk fromconstruction CIRIA.

Isaac, Ian. 1995 Training in risk management.International Journal of Project Manage-ment, Vol. 13, No 4. Pages 225-229

Klakegg, O.J. Implementing the successive principle.In:Managing Risk in projects E&FN Spon/Thomson professional, London, UK. Pages119-129

Lichtenberg, Steen. 1989. New project managementprinciples for the conception stageproceedings, INTERNET 88 and Journal ofProject Management, Vol. 7, No. 1 (1989).Pages 46-51.

Murray, Kelvin 1998. Risk Management: Beyondthe textbooks. PM Network, June 1998.Pages 53-57

Turner, J R 1993. The handbook of project basedmanagement. McGraw-hill.

Wideman R.M.1992. Project and Program Riskmanagement - a guide to managing projectrisks and opportunities Drexel Hill, PMI.

Zhi, He 1995. Risk management for overseasconstruction projects. International Journalof Project Management. Vol. 13, No 4 Pages231-237

About the AuthorsMartin Elkjaer has a Master degree inScientific Engineering (TechnologyManagement and Planning). He worksas a Management Consultant. His areasof specialization are Business Develop-ment and Supply Chain Management.

Finn Felding holds a Master degree inEconomics followed by EngineeringManagement Studies. Mr. Finn Feldingnow works as Project Advisor. He hasheld Project Management and SeniorManagement positions in major DanishEngineering Companies working interna-tionally. During 28 years he has beenworked in approximately 90 engineeringprojects in 24 countries around the world.

Martin ElkjaerManagement Consultant

PricewaterhouseCoopersStrandvejen 44, Postboks2709, 2900 Hellerup,DenmarkE-mail

[email protected]

Finn FeldingProject Adviser

Denmark

[email protected]

Table 12. Joint venture Risk Tracking Report/Operator Recruiting

Table 13. Project risk plan

CATEGORY: INDUSTRY PRACTISE

Major Risks in ERP ImplementationJari Välimäki, Andersen Consulting, Finland

Keywords: ERP, Enterpise Resource Planning, Project Risks, Project Management

The article discusses common risks that are damaging in the Enterprise Resource Planning (ERP) packageimplementation projects. The purpose is to present pragmatic experiences about these problems and appropriateproject management practices.

OverviewThe acronym ERP stands for EnterpriseResource Planning and it is used as acommon name for those IT packagesthat intend to cover the majority ofcompany's business processes with a sin-gle application. Well-known ERP pack-ages include SAP, Baan, Oracle andPeopleSoft.

Due to their complex nature andthe wide impact they make across com-panies' business, there aren't too manysuccessful ERP stories available yet.This is not surprising because the ma-jority of large IT projects are usuallysomehow unsuccessful (e.g. Keil, Cule,Lyytinen and Schmidt 1998). Johnson(1998) argues consequently that only26 % of the major IT initiatives meettheir schedule, budget and functionalobjectives, and ERP projects do notseem to be exceptions.

ApproachThe main purpose of this study is toidentify common risks that are extreme-ly damaging in ERP projects. The re-search approach behind this article isvery practical. The author has actuallyconducted about 20 face-to-face discus-sions with European business managersand consultants who have participatedin these projects. All sessions were ar-ranged at 1996 - 1998.

The following two risks werementioned, in one form or another, inalmost each interview, and they werethus selected for more detailed analy-sis:

- Management conflict betweenproject tasks and deliverables

- Unsuccessful balancing ofbusiness processes and ITsystems

Management conflict betweenproject tasks and deliverablesA common problem in ERP implemen-tation projects is that their managementis too focused on project tasks and re-source estimates without a good under-standing of what should really beachieved with their execution. In cer-tain cases, project teams had been as-signed to implement work that did notproduce any visible results to progressoverall implementation processes.

For example, a team was asked torun a set of business scenarios with thesystem in order to define how the pack-age is used in the company. However,they were not explained how the result-ing change requests and workaroundsare documented and communicatedforward. The team went through theirscenarios, but they didn't produce anyproper deliverables. They were thus theonly ones who knew how the systemshould be used in the company. Thisinformation is of course vital in the ERPimplementation project, and it shouldhave been shared with all other teamsin a well-organised manner (i.e. withformal documentation and communi-cation).

Similarly, quite often the manage-ment teams seem to lack comprehen-sive understanding on remaining work.Projects are managed on a daily basiswithout a long-term planning perspec-tive, leading to a situation in whichthere is always some work, more or lesssurprisingly, undone.

Work Breakdown Structure isthe keyBased on our discussions, in order toavoid these situations, project manag-ers should actively change their man-

agement focus from implementationtasks to project's deliverables. The keyis to illustrate an end-product orientedWork Breakdown Structure (WBS) fortheir projects. This WBS is then usedas an iterative working tool throughoutdifferent phases, and eventually itshould include all deliverables that areproduced in the project.

A graphical Work BreakdownStructure is displayed in Figure 1. Thissimplified diagram presents a two-levelstructure, and some detailed delivera-ble examples on the tailored function-ality element. Circles highlight thoseareas with which the interviewees hadexperienced their most severe problems.When graphically illustrated, the WBSmodels a hierarchical structure for theproject's scope, similar in some respectto a production bill of material.

Deliverable orientation createscommitmentFollowing the creation of a WBS, eachdeliverable is assigned to a team leaderfor execution and delivery. They canthen decide how these deliverables areproduced. For example, it is up to themto define their own set of tasks, mile-stones and resource estimates, at leastas far as those are in accordance withoverall targets set at the project level.

Some of the interviewees arguedthat the most significant benefit in thisapproach is that the project teams areforced to go through a detailed planningprocess for their own part of the work.They claimed that it is the best way toachieve deep understanding of the workat hand, and a commitment to deliverit on time, in budget and to customer'sexpectations.

The project is on the right track


when comments such as this are rare:"OK, I can see these tasks, but so what;what should I really do?" or "Does any-body know what else we should do inorder to complete this project?".

Unsuccessful balancing ofbusiness processes and ITsystemsThis second risk is visible in two differ-ent ways. Firstly, in some ERP projectsbusiness processes that should be sup-ported with a new IT application areconsidered when it is much too late.Secondly, in other projects too mucheffort is focused on the system inde-pendent process design. Companies canspend a lot of time and money on top-down process modeling without addingany real value on the software packagedriven business process implementation(Välimäki, Tissari 1997).

The following situations werementioned:

- Constructed process models aretoo abstract, and it is thusimpossible to define a meaning-ful link between these modelsand detailed processes imple-

mented with a software pack-age.

- Constructed process modelscould not be supported with anew IT package, although itsimplementation has beenalready started.

- Constructed process models arevery close to current as-isprocesses, although the objec-tive is to achieve significantperformance improvementswith a new IT package.An important fact organisations

seem to be missing is that the best ERPpackages comprise of very advancedbusiness process models themselves. Inadapting these processes companieswould sometimes gain much greaterperformance improvements than withtraditional top-down process design andsystem implementation approaches. Itcould also be a more cost-effective wayto conduct major business changes.

Package independent thinkinghas a roleSoftware package independent think-ing has also an important role in theERP implementation work. A model onthe projects' impact levels are present-ed in Figure 2. Based on interviews,

best results are achieved when pack-age independent considerations arefocused on decisions related to twoouter circles, and when businessprocesses and workflows are al-most directly adapted from a se-lected software package.

All decisions on detailedprocesses and workflows mustnaturally support, and be in ac-cordance with, decisions made onthe business strategies, structuresand architectures.

This approach avoids acommon situation in whichputting very much effort on the

IT package independent process designexhausts key resources before imple-mentation work has even started. Ad-ditionally, it takes full advantage of thecurrent ERP packages' advanced proc-ess capabilities, and their ability to en-able performance improvements in or-ganisations.

ConclusionsThis article focused on problems in ERPpackage implementation initiatives.Based on data obtained from a series ofinterviews, two major risks were identi-fied and discussed. They are manage-ment conflict between project tasks anddeliverables, and unsuccessful balanc-ing of business processes and IT systems.

The key findings were that in or-der to be more successful, project man-agers should pay additional attention todeliverables, and to their own work al-location approaches. They should alsolet software packages drive and enableprocess changes to a greater extent.

ReferencesJohnson, J., 1998. Project results have improved 59

% since 1995. In: ABT Corporation'sProject Leadership Conference in Paris.Conference material, November 1998.

Keil, M, Cule, P E, Lyytinen, K, Schmidt, R C.,1998. A framework for identifying softwareprojects risks. Communications of theACM, Vol. 41. No. 11. Pages 76 - 83.

Välimäki, J M, Tissari, T., 1997. Risk managementfocus in business reengineering initiatives. In:Kähkönen K., Artto K. A., editors.Managing risks in projects, E & FN Spon,an imprint of Thomson Professional ITP.London, UK, Pages 233 - 242.

About the authorThe author received the Europeanproject leader 1998 award from theABT Corporation and the Internation-al Project Management Association(IPMA).

This award was handed over inParis November 1998 (for more details,see www.abtplc.com/top5euro.htm).

Jari Välimäki

Andersen ConsultingItämerenkatu 1,Box 110900101 Helsinki,Finland

Tel +358 40720 1065E-mail [email protected]

Figure 1. Managers should focus extra attention on the WBSelements marked with circles

Figure 2. ERP implementation has impacts ondifferent layers in an organisation

CATEGORY: RESEARCH PROGRAM

IPMA Research: PM-Competenceof the Project-oriented SocietyRoland Gareis, University of Economics and Business Administration, Vienna, AustriaMartina Huemann, University of Economics and Business Administration, Vienna, Austria

Keywords: PM-competence, Project-oriented Society

As societies are becoming more project-oriented, the question arises how pm-competences in societies can bedescribed, assessed and further developed. This paper describes an IPMA research initiative about pm-compe-tences of the Project-oriented Society (POS).

Working hypothesesThe research about pm-competence ofthe Project-oriented Society (POS) willbe based on following working hypoth-eses

- Societies can be defined bynations and by regions. Exam-ples for regional societies areEuropean Union, NAFTA,North America, Asia.

- Not just organisations butsocieties overall are becomingmore project-oriented. Differentnational or regional societieshave different project manage-ment competences. Differencesin the project-orientation canbe observed between OECD-,transition-, and developingcountries.

- The question arises, how pm-competences at a macro-economic level can be de-scribed, assessed and furtherdeveloped. Metrics for thedescription and the measure-ment of the pm-competence ofa POS are the existence and thequality of formal pm-educationprograms, of pm-publications, ofpm-associations, of pm-certifi-cation programs, of pm-events,of pm-advertisements in thenewspapers, pm-awards, pm-norms and standards.

- The ideal POS defines projectmanagement as a profession. Ithas companies consideringthemselves as being project-oriented in all major industries,and has an explicit pm-educa-tion system. Further it hasstructures for the furtherdevelopment of project manage-ment as a competence of thesociety.

- The pm-competence of asociety can be further devel-oped. Instruments for thisdevelopment are pm-selfassessments, pm-benchmark-ings, and significant pm-research initiatives (e.g. inNorway, in Finland, and inSweden).

- Societies with similar pm-competences have high poten-tials for efficient cooperationswith mutual benefits. Societieswith a high pm-competence cantransfer their pm-knowledge tosocieties with no or little pm-competence. An example for apm transfer is EPROM, an EU-financed TEMPUS project totransfer pm-competence toRumania.

- Organisations for the transfer ofpm-competence are nationalpm-centers of competences.

IPMA research initiative: pm-competence of the POSIPMA - the International Project Man-agement Association sets a researchinitiative about the pm-competence ofthe Project-oriented Society (POS). Achain of projects is planned, within thetime frame 1999 to 2002.

In "The POS ConceptionProject" the model of the POS will beconstructed, metrics for the descriptionand the comparison of POSs will bedefined, pilot applications of the mod-el will be performed. This project startsin May 1999 and lasts until June 2000.

In "The POS BenchmarkingProject" the pm-competences of differ-ent POSs will be compared , common-alities and differences will be analysedand interpreted, strategies for the fur-ther development of pm-competenceswill be defined, and measures for theimplementation of these strategies willbe planned. This project is planned tostart in September 2000 and is supposedto last until June 2001.

The implementation of the meas-ures planned for the further develop-ment of the pm-competences will hap-pen on the one hand side individualsocieties, on the other hand side coop-erative efforts to transfer pm-compe-tences from societies to other societiesare planned. These implementationmeasures will be supported, document-ed, and interpreted in "The POS Im-


plementation Project". This project isplanned to start in September 2001 andis supposed to last until June 2002.

By putting project managementat a macro-economic level the furtherdevelopment of pm-competences ofsocieties as well as the development ofpm-competences at the organizationaland individual level will be stimulated.

The POS Conception ProjectThe POS Conception Project has fol-lowing objectives:

- Construction of the model ofthe "Project-oriented Society"and definition of possibleboundaries for societies (na-tions, regions).

- Development of metrics todescribe and to measure thepm-competence of a society.

- Definition of restrictions andpotentials for cooperationsbetween societies with differentpm-competences.

- Identification of initiatives forthe development of (common)pm-competences and of de-mands for such developments.

- Evaluation of ongoing pm-knowledge transfers betweensocieties (e.g. TEMPUSprojects).

- Development of strategies andof instruments for the pm-

knowledge transfer.- Ensurance of EU financing for

the POS Benchmarking Project- It is not the objective of the

project to consider all societiesor all industries within a society.For the construction of the mod-

el of the Project-oriented Society liter-ature analysis (e.g. pm-maturity mod-els), interviews, and a questionnaire willbe applied. For the pilot-evaluation ofthe pm-competence of a project-orient-ed society quantitative methods such asquestionnaires, maturity models, andqualitative methods such as documen-tation analyses, project audits, delphipanels, will be applied.

The project is carried out by aninternational team of researchers andis steered by IPMA. Organization of thePOS Conception Project is in Figure 2.Representatives of project managementassociations, project management ex-perts of universities and as well as fromproject-oriented companies are invitedto participate as project contributors.

Financing for the pilot researchproject POS Conception will be en-sured by research contributions ofproject management associations andby sponsoring contributions of project-oriented companies. For the followingPOS Implementation project, fundingfrom the European Union will be ap-plied to supplement the above men-tioned financing schemes.

BenefitsThe benefits of cooperating in this re-search project for any national projectmanagement association and relatedparties are to participate in the initialevaluation of the pm-competence ofthe nation it is representating, and tolearn about possibilities to promote thefurther development of the pm-compe-tence in its society.

Roland Gareis

PROJEKTMANAGE-MENTFACTORYUniversity of Economicsand Business Adminis-tration, Vienna, Franz

Klein Gasse 1, A-1190 Vienna, Austria

Tel +43-1-4277-29401Fax +43-1-368 75 10E-mail: [email protected]

Martina Huemann

PROJEKTMANAGE-MENTFACTORYUniversity of Economicsand Business Adminis-tration, Vienna

Franz Klein Gasse 1A-1190 Vienna, Austria

Tel +43-1-4277-29401Fax +43-1-368 75 10E-mail: [email protected]

Figure 1. Project chain of the IPMA research initiative: pm-competence of the POS

Organization of the POS Conception Project- Project Steering Committee: Rodney Turner, IPMA (President) and Gilles Caupin (Chair of Council)- Project Manager: Roland Gareis, PROJEKTMANAGEMENT FACTORY, University of Economics and

Business Administration Vienna, Austria- PM-Assistant: Martina Huemann PROJEKTMANAGEMENT FACTORY, University of Economics and

Business Administration Vienna, Austria- Project Team Members: Roland Gareis; Brane Semolic, University of Maribor, Slovenia; Sergey Bushuyev, Kiev

State Technical University of Construction and Architecture, Ukraine; Joachim Ordieres, University of Rioja,Spain; Matti Ahvenkariju, Project Institute; Finland; Martina Huemann;

- Project Contributors: Representatives of project management associations, project management expertsfromuniversities and project-oriented companies

Figure 2. Organization of the POS Conception Project

CATEGORY: INDUSTRY PRACTICE

Matt Weisfeld, preEmptive Solutions, USAJohn Ciccozzi, United States Patent and Trademark Office

Keywords: Software Project Management, Legal Perspective in Software Projects

The article presents a process of project management and comments on the business and legal foundations ofthis process. It is important to adopt a workable project management strategy. This is true not only from aproject management perspective, but a legal perspective as well.

IntroductionOutsourcing is becoming more commonin today's software development envi-ronment. As a result, providing softwareproducts and services is increasingly acooperative effort between a customerand a vendor. Rather than being con-trolled exclusively within a single com-pany, the success of many softwareprojects now is dependent upon thepolitical and legal relationships betweentwo or more parties. These relationshipssignificantly complicate an alreadycomplicated process.

This article presents a process ofproject management and comments onthe business and legal foundations ofthis process. The legal issues are ad-dressed in the boxes. It is unfortunatethat many organizations fail to stand-ardize policies and procedures regard-ing project management - or they haveno project management process at all.In any event, it is vitally important thatall organizations develop and adopt aworkable project management strategy.This is true not only from a projectmanagement perspective, but a legalperspective as well. As a standard dis-claimer, this article is for informationalpurposes only and not intended as le-gal advice. We simply want to increaseawareness regarding potential problemsthat might arise.

Both authors have had manyyears of experience in software projectsin various capacities. We have been in-

volved in many successful softwareprojects. Unfortunately, we have alsobeen involved with some that were notso successful. It is from these experienc-es, as well as formal training in ProjectManagement and Law, that we draw onfor this article. The structure present-ed in this article can be used as a tem-plate to start the development, and thesubsequent refinement, of a projectmanagement process. This process pro-vides the checks and balances neededto grease the wheels for a smooth cus-tomer/vendor relationship as well as asuccessful software project (Box 1).

The Software DevelopmentLifecycle - The Current State ofthe ArtThis article deals with managing thesoftware development process. Thereare most likely as many different soft-ware development processes as thereare software development projects.There are certainly many reasons forthis. On the one hand, each individualproject has specific needs, and custom-izing a process to meet these needs is alogical and healthy exercise. On theother hand, many projects follow noprocess at all and this is anything buthealthy.

There is a vast amount of litera-ture available that speaks to the currentstate-of-the-art of software develop-ment. Almost all of these writings treatsoftware development as an atomic

process, suspiciously leaving out anypolitical or legal interactions. Howev-er, today software developers must takethese issues into consideration.

One of the most quoted modelsfor software development is the Water-fall model. There are many incarnationsof this model but they all follow thesame principle: the model representsthe flow from one phase to the nextuntil the software is released. In short,the water flows from one phase to thenext just like a waterfall. However, flawsin the model have been identified - notthe least of which is the fact that the

Box 1Even though the software develop-ment process may seem light yearsremoved from the legal process, itis very important to conduct busi-ness in ways to ensure that your endcustomer gets what they want andthat you are compensated for yoursoftware development efforts. Justas important, is that your clients donot reach a boiling point and crossover into territory where they be-lieve (rightly or wrongly) that liti-gation is the only remaining optionavailable to them. The problemwith litigation is that it often resultsin a lose-lose situation for everyoneinvolved. The following discus-sions should help you understandthe potential legal landscape andhow to navigate through it.

Software Project Management -Software by Committee


iterative nature of software develop-ment is not taken into account. Figure1 illustrates one popular form of theWaterfall model (Classical and Object-Oriented Software Engineering, 3rd Edi-tion. Stephen R. Schach. 1996 RichardD. Irwin). The lines of backward con-trol represent maintenance.

In the best of all worlds, progress-ing from one phase to the other wouldsignify the end of the previous phase.In reality, this is unrealistic. Thus, manyother models have been devised; how-ever, there is no single model that isconsidered the best one. In fact, mostprojects will use a combination of tech-niques. As far as this article is con-cerned, the technique(s) of choice isirrelevant. However, when dealing withlegal contracts, it is advisable to delin-eate between phases and ensure that allparties agree to these transitions.

Project Management Life CycleWhile the Waterfall model focuses onthe software development process, thisarticle is concerned with modeling thesoftware project management process.Rather than concentrating on buildingsoftware, we explore a method of man-aging software projects. Unfortunately,just as a technologically inferior prod-uct may win in the marketplace due tosuperior marketing, a technologicallysuperior software project may fail if theproject management is lacking. In oth-er words, a well designed and well builtsoftware product can fail miserably if thepolitical, legal and business issues blowup in the software project manager'sface. For example, if the deployment ofthe project gets stalled due to politicalbickering, or if one party sues the other,or if the project loses significantamounts of money, then, no matter howgood the software and the other deliv-erables are, the project is considered afailure.

Figure 2 is a variation on theWaterfall model that approximates theproject management model that we willdiscuss in the remainder of the article.Note the following significant changes:1) The inclusion of the project

management boxes (VendorResponse, Contract, Due Dili-gence).

2) The lines flowing backwards arenot maintenance lines. Theyrepresent a true iterative process.

3) The explicit inclusion of testing inall of the development stages.

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It must be reiterated that we arenot advocating a specific software de-velopment approach - there are manyproven techniques that are practicedsuccessfully. We are simply advocatingthe integration of business realities intothe software development process. Thereal issue is not which process to choose,but to have a process in the first place.

Request for ProposalWhen an organization determines thatit wants to outsource/contract with anoutside party to create a piece of soft-ware, it traditionally broadcasts a Re-quest for Proposal (RFP) to several ven-dors. The RFP outlines what the cus-tomer wants. If there is already a man-ual process (or even an outdated auto-mated process) in place, this processmust be explicitly detailed. All subse-quent documents are derived from theRFP, and the RFP serves as the mutual-ly agreed to basis for any work to be per-formed. It is crucial to note that theRequest for Proposal is simply that - aproposal. The RFP is by no means abinding functional software specifica-tion (Box 2).

of the project, and (2) whether or notto make a bid for the job. Even thoughthe level of detail does not need to beof a highly technical nature, the re-quirements must be specific enough torepresent the true nature of the custom-er's needs for the end product. The ven-dor must analyze the current system andconduct extensive interviews. It is im-portant for a representative of the cus-tomer's organization to be on the inter-view team. The requirements docu-ment that emerges from this phase mustbe of sufficient detail for the customerto make educated judgements about thecompleteness of the submitted propos-al. It also must be of specific detail for adesign group to take the document andproceed with the design phase. Henin-ger (1980) gives many guidelines forwriting requirements, three of the mostimportant are:

1) Specify only external behavior2) Be easy to change3) Serve as a reference tool (to

developers, testers, etc.)The requirements should be

jointly developed by the customer andthe vendor in order to establish co-own-ership and buy-off between the con-tracting parties when the contractualphase is entered. The requirementsmust be very specific and all encompass-ing. In many software projects (in fact,many projects of all kinds) major prob-lems are caused by implied from or readinto requirements. These are require-ments that the customer deems as soobvious that they are implied, eventhough they are not explicitly writteninto the requirements document. Theremust be no implied requirements. Allrequirements must be part of the re-quirements document.

ProposalAfter completing the analysis and re-quirements phase, a vendor may decideto submit a proposal to build the soft-ware. This proposal must specificallyoutline how the vendor plans to satisfythe RFP. The requirements, derivedfrom the analysis phase and included inthis document, must be written in plainlanguage since this is a user document- not a technical paper. The proposalmust detail any areas of the RFP thatthe vendor feels cannot, or should not,be implemented and why.

Once the vendor submits the pro-posal and it is reviewed and acceptedby the customer, a negotiation phase is

entered (Box 3). From these negotia-tions emerges the final, refined set ofrequirements. Note that the tone heremust be one of cooperation - a team ef-fort. Play to the strength of all parties.To simply take the stand that the cus-tomer is the customer and whateverthey say goes is a recipe for disaster. Inshort, the customer approached thevendor for a reason - most likely becausethe customer does not have the resourc-es or technical expertise to completethe project alone. For the optimal suc-cess of the project, it is vital that thetwo parties trust each other to makeprudent decisions.

Analysis & RequirementsIf a vendor is sufficiently interested inthe work described in the RFP theymust do the proper research and analy-sis to determine (1) the requirements

Box 2The RFP serves as an advertise-ment that the customer is solicit-ing inputs for a job. In many cases,they are not aware of either thetechnology that exists or the feasi-bility of applying that particulartechnology to the job at hand. Thelevel of detail that is submitted inan RFP is also a variable that de-pends upon the vendor and theirinterpretation of what the custom-er wants and how best to provide itto them. All further documents arederived from the RFP, and the RFPserves as the mutually agreed tobasis for any work to be performed.The RFP is a high level documentwhich is prepared unilaterally bythe organization seeking the workto be done. For valid contract for-mation, you need the consensualagreement of all parties. The resultof this agreement should be a re-quirements document that satisfiesthe expectations and business in-terests of each organization.

Box 3It is very useful to keep track of theongoing refinement of the require-ments as the program evolves. Thisevolution is a natural consequenceof learning more information aboutthe project and working at a great-er level of detail. There should bea give and take in the fine tuningand incorporation of adjustmentsto the requirements database. Youwant to strike a balance betweenreasonableness and the attainmentof profit. Keep track of any chang-es in scope and publish them toboth sides, to show all that you aredoing. This helps to satisfy the le-gal requirements of good faith anddue diligence in fulfilling your ob-ligations under the contract.

ContractThe contract must outline all responsi-bilities for all parties involved. This in-cludes defining the phases of theproject, all project documents, the datesfor all milestones, the exit criteria foreach phase and the procedure foramending the contract. It is also impor-tant to enumerate what happens in theevent that a part of the contract isbreached (i.e. binding arbitration).Even though the customer is footing thebill, it is important that the customeraccepts certain contractual responsibil-ities for the project. In fact, the custom-er may seek out this responsibility in aneffort to save time and/or money. How-ever, if the customer defaults on one ormore of their responsibilities, then thevendor may not be able to deliver theproduct. The vendor must be constantlyaware of this risk (Box 4).

In large projects, a contract mayneed to be written from scratch. How-ever, in many cases an existing form can


2 of the software (Box 6).Some formal development

projects involving large capital inten-sive programs have Change ControlBoards (CCBs). They are also calledConfiguration Control Boards. Theirmain purpose is to make sure that anybaseline changes to the design are con-sidered by all the parties involved, andthat every change considered receivesthe project teams' authorization beforefinal implementation. It is importantthat both sides identify one person thatwill serve as the focal point to transferchange information between the twoparties. On the customer side, this in-dividual needs to be very knowledgea-ble about ultimate product functional-ity.

DesignThe requirements document is writtenso that the users understand what mustbe in the system, the design is the firststep in migrating this plain languagedocument to something that a program-mer can understand and implement.Yet, the design document is still an ab-stract level away from the programmers.

The design specifies what needsto be done, not how it will be done. Themajor difference between the require-ments and the design documents is thatthe requirements describe what the sys-tem must include while the design de-scribes the system itself. It is importantto understand the difference betweenthe requirements, the design and thefunctional specification -the next iter-ation in the process. The design reliesheavily on the requirements. Boehm(1984) addresses two major issues whenwriting requirements and creating thedesign:

1) Verification - building theproduct right.

2) Validation - building the rightproduct.At each step in the design, eve-

ryone involved in the project should beaware of these two important goals.Even though they may seem similar,

Box 4The classic definition of a legal con-tract is that a contract results whenthe following three elements arepresent: an offer, acceptance, andconsideration. Using an easily un-derstood house analogy, an offer iscaptured in the statement: "I wantto buy your house." You are statingwhat you want from the other par-ty in this contractual relationship.The acceptance is quite simply thestatement: "I will sell you myhouse." It is an acknowledgmentfrom the other party that they alsowant to enter into the transaction.Contract formation is a bilateralagreement between two or moreparties, not a unilateral, one-sidedone. Consideration is what oneparty is giving in exchange for thebenefit being conferred by the oth-er party. You get the house by pay-ing money to its current owner forit. All of these three elements mustbe present, or else a legal contractwas not formed and the contractdoes not become legally binding.

Box 5Courts are on the lookout for thefollowing types of things duringtheir judicial inquiries. They liketo see the involved parties conduct-ing themselves as relative equals inthe bargaining process (althoughabsolute equality is almost neverthe case). They don't like to seeone party using their superior bar-gaining position to take advantageof a weaker party. Several factorscan contribute to an inequitablesituation. One party can be smart-er and more sophisticated than theother party. One party can havemuch greater resources than anoth-er. One party can be at a muchhigher level of technical know-howthan the other. Courts also wantto make sure that all of the contrac-tual proceedings were performed ingood faith, without any underlyingfraud or deceptive intent by eitherof the parties. The courts will scru-tinize the mental framework of theparties as they approached the busi-ness relationship very closely.Of the three elements forming acontract (offer, acceptance, andconsideration), consideration is theone that courts will not try to makea judgment regarding its sufficien-cy. In other words, if you want tosell your house for a hundred dol-lars, the law will allow you to doso. They will not say that you wereout of your mind when you sold thehouse and should have charged$200,000. Sufficiency of consider-ation is left to the parties under theterms of the contract.

be used. In fact, many large customerswill insist that they use their forms.Their reasoning is obvious - it is cheap-er in both time and money. This maypresent a dilemma for a vendor, espe-cially if they are small and cannot ab-sorb the legal costs required to properlyreview the contract. How the contractis written or adapted is yet another is-sue that the parties must negotiate.Each contract will be different. It is im-portant to have forms available as astarting point, but all parties must beflexible and sensitive to the needs of theothers (Box 5).

Despite the fact that the require-ments and the phases of a software de-velopment project are specifically de-fined by the contract, it is quite diffi-cult, if not impossible, to keep fromchanging a requirement or crossing aphase boundary line from time to time.The contract specifically enumeratesthe required documents for the project.Whenever all involved parties formallyaccept a document, including the con-tract itself, any change requires aChange Order Request. A Change Or-der Request is an amendment to thecontract. Though virtually unavoida-ble, any changes to the original docu-ment should be avoided like the plague.In short, if the change is not absolutelycrucial, then postpone it until Version

Box 6From a project management per-spective, it is important to structuresoftware development programsinto major program milestones orphases. This allows you to breakdown a larger project into manage-able chunks so that your chancesfor success are much higher. Le-gally speaking, milestones are alsovery important for providing objec-tive evidence that you and the cus-tomer have obtained buyoff for thepreceding phase and are ready toenter the next phase. This buyofftransforms what could be perceivedas a unilateral decision on the partof one party into a multilateral one.It helps to silence the complaintthat you have not fully implement-ed what the customer believed wasin the requirements. Neither par-ty can say that they were not keptfully informed about all stages of theproject, and the vendor will neverbe in the position of writing andimplementing the code they erro-neously believed was what the cus-tomer wanted.

verification and validation are two to-tally different things. You can build theproduct right, but if you build the wrongproduct, then the project does not meetthe user's needs and is a failure.

In many organizations the design-ers will have the luxury of direct accessto the developers. However, in some,the design may be complete before thedevelopers get involved. In the first case,the actual design will not be finalizeduntil the developers get a chance to re-view it. In the latter case, this is not al-ways true. Even if the developers do getto put their stamp of approval on thedesign, they may run into an unexpect-ed technological constraint in the de-velopment phase, which will require adesign change. In any case, the processmust be controlled yet flexible (Box 7).

Of course, all documents are usedas references to clarify issues and helpthe developers understand how to de-velop and implement the functionalspecifications. However, the function-al specifications represent the true sys-tem according to the developers. It iscritically important that all parties un-derstand this, and invest the properamount of due diligence into eachphase of the project. It is all too obvi-ous that a poor design will lead to a poorfunctional specification, which will leadto a poor system. It is the responsibilityof both the customer and vendor to paythe proper attention to each phase (Box8).

ImplementationThe most important part of implemen-tation is to make sure that any and allproblems are caught as early as possibleand are not allowed to propagatethroughout the process. This meanskeeping the customer representativesand the entire design team involvedthroughout the entire project. The goalis to eliminate any surprises during im-plementation or otherwise. If the cus-tomer is involved in each phase of theproject, then the surprises should be few- if any. As for the designers, even if thefunctional specifications are well writ-ten, the developers are bound to havemany questions. The designers must beavailable to settle any potential confu-sion with the design (in many cases, thedesigners simply disappear - for anynumber of reasons). If the developershave to start making assumptions, bigproblems are inevitable. Again, the ba-sic tenant must be - no surprises.

How are surprises kept to a mini-mum?:

- maintain clear and consistentcommunication

- practice incremental develop-ment and perform regularproduct builds.

- conduct regular status meetings(purposefully short and sweet)

- include a Version DescriptionDocument in all builds

- integrate a professional installa-tion package into the buildprocess

- place all project materials(including the status meetingminutes) on a secure Web Site

- make sure that more than oneperson is familiar with each partof the project

- don't forget the human resourc-es on your project! They needmaintenance too.

- implement a good configurationmanagement plan.

- perform regular backups withoffsite rotation.

- conduct regular fire drills toensure that backups are validIntegration of code is perhaps the

most difficult aspect of the implemen-tation. In a study by Basili and Perricone(1984), it was found that 40% of soft-ware errors were due to integration andinterface problems. These problems arekept to a minimum if a proper design is

Box 8Due diligence is conducting your-self in such a way that the reasona-ble person under the same circum-stances would behave in the sameor similar manner. It is not an ab-solute standard, but rather shouldbe evaluated on a case by case ba-sis in light of the surrounding factsof the case. The more things thatyou do to show that you have madea good faith attempt at consideringmany different factors helps to con-tribute towards the finding of duediligence in your case.Again we visit the responsibility is-sue. To a large extent, it is the ven-dor's responsibility to learn the cus-tomer's business as best as possible.However, the vendor cannot everbe expected to understand the cus-tomer's business as well as the cus-tomer. In the spirit of teamwork, itis vital that the customer under-stand this. To get the best system,the customer cannot simply handoff the project and expect the ven-dor to create a great system. Thecustomer must be willing to expendthe time, effort and money to getthe system done right. In many cas-es, the vendor will submit a designand the customer will not committhe necessary resources to reviewit. This leads to a rubber stamp ofthe design and it is only when thesystem is delivered that the custom-er realizes that the design waswrong. This is the fault of the cus-tomer. As with all phases of theproject, this is a shared responsibil-ity.

Box 7On the supplier side, the individu-al must know the limits of the tech-nology and what can be implement-ed effectively. They must also bevery aware of the level of function-ality negotiated in the initial con-tract so that the development ac-tivity can be focused and managedto an agreed to baseline. As in allbusiness agreements, there is alwaysroom for some flexibility in tryingto meet the customer's needs, butyou must make sure that what youcontracted for in the Statement ofWork and then filtered down forimplementation in your designspecification, is what you are work-ing towards.

Functional SpecificationsThe functional specification is the doc-ument that the developers are chargedto implement. Too many times, at vari-ous stages of implementation, a custom-er will whip out the design, the require-ments or even the RFP and ask why acertain feature was not implemented.All the documents listed in the previ-ous sentence are ancestors of the func-tional specification. The functionalspecifications are the living, breathingdocuments that are destined to becomethe system. Sommerville identifies thefollowing points that differentiate re-quirements from specifications:

1) The level of detail and abstrac-tion [specifications are muchmore detailed].

2) Specifications impose additionalconstraints, but the user shouldhave no way of knowing.


done and good functional specificationsare presented to the developers.

If these procedures are followedduring the implementation phase, thetransition to the next phase, the alphatest, is much easier. If the customer anddesign teams are not involved in theimplementation, then surprises are mostcertainly going to occur.

TestingWhile the system requirements lead tothe contract and the design, it is the testrequirements that accurately representthe delivered system. Unfortunately,testing as a whole often gets shortch-anged. Written properly, the test re-quirements can become the foundationfor the remainder of the project. Thetest plan, acceptance tests, automatedtesting and even the user documenta-tion can be based on the test require-ments.

Test plans encompass everythingthat can be considered testing; howev-er, most test plans focus on implemen-tation and beyond. It must not be in-ferred that testing simply starts at im-plementation. A well-run project willidentify the test team at the point of theinitial design and include the test teamin all reviews and milestones. The de-sign should be tested by the test teamevery step of the way. In fact, it is quitedesirable, if not a necessity, that thecustomer supply a permanent, full timeresource to serve on the test team. Thetest team will be in place for the dura-tion of the project - optimally even for-ward into Version 2 and any subsequentversions.

Alpha Test: The entire purposeof an alpha test is to have people otherthan the development team testing theproduct. The alpha test is a simulatedenvironment that provides validationthat the system is operating properly. Bydefinition customer resources (i.e. peo-ple) must be included in the alpha testteam. By the end of the alpha test alluser functionality issues should be re-solved and the customer must agreethat the product meets the specifica-tions. A mock site should be construct-ed to simulate the product's real worldenvironment.

In short, by the end of the alphaphase, the customer must understandthe delivered product completely andbring any deficiencies to the notice ofthe vendor. All documentation, userand otherwise, should be completedduring the alpha phase. The complete

system package, including the softwareand documentation, must be ready tomove into the beta phase.

Beta Test: While the alpha test isreally a simulated test, the beta is exe-cuted at a real-world site. The custom-er must allocate sufficient resources torigorously test the product in a live en-vironment. The test is a subset of thecustomer site and should be run in par-allel with the current system. Again,without the proper customer participa-tion, the beta test will fail - or the prod-uct will be accepted without the prop-er testing.

Acceptance Test: Acceptancetests must be in place as the final, legalexit criteria for each phase. This is es-pecially important for the phases of test-ing. The customer and vendor mustagree ahead of time on the acceptancetest criteria. A phase is complete onlywhen the acceptance test is performedand accepted by all parties (Box 9).

Box 9Does a vendor have a legal respon-sibility to do testing? No! LEGAL-LY they only have a responsibilityto perform what is specified in thecontract. However they have a re-sponsibility to provide a productthat works, and that is quite oftenonly determinable if they do test-ing to prove to themselves that itdoes. To dispense with this testingwould not be an example of due dil-igence, and it could be argued thatit was negligent. Another way ofsaying this is that the vendor mustsupply something that works andthe fact that it works can only bereadily performed via testing.

Box 10If a major rework or addition isdeemed necessary (and as with anychange in functionality this mustbe a painful process) it must be de-termined immediately whether ornot the work is within scope or outof scope. If it is out of scope, then aChange Order Request is required.If it is within scope, the vendormust do the work pursuant to thecontract. In any event, once anymajor work is done in the betaphase, the beta test itself should bere-started.

One unfortunate reality is that nomatter how well a product is tested, itis unfair to expect that the product willbe bug free. While it is important tohave no bugs as the goal, it is also equal-ly important from a business perspec-tive to realize that bugs will always arise.In fact, Goodenough (1979) has foundthat perhaps 50% of all errors may re-main undetected even when the state-ment containing the error is executed.

Documentation Trail andCommunicationBesides the obvious project documen-tation like requirements and designspecifications, it is imperative that allsupporting documentation, paper andelectronic, be filed properly. It is unfor-

tunate, but in today's litigious society,it is crucial that both the customer andthe vendor keep a secure trail of alltransactions regarding the project. It isrecommended to:

- keep all paper and emailcorrespondence (select keyindividuals to copy-don't spam)

- make periodic backups of allproject materials, code orotherwise

- hold periodic fire drills to testthe backups to ensure that theyare indeed backing up

- have well defined communica-tion channels (all contractchanges must be approved)

- send out a brief synopsis of themeeting notes to all attendees

- send out a brief synopsis of allkey phone conversations to keyindividuals

DeploymentFor anyone working on a large project,the step from beta to deployment is amajor event. In fact, this is the goal ofthe entire effort. In most cases, this stepshould be called Version 1. Some con-tracts may state that the end of beta sig-nals the end of the contractual agree-ment. Some contracts may stipulatethat the vendor must install the prod-uct at a certain number of sites. Thisall depends on the contract. Regardlessof how the contract is written, theremust be a hard cutoff for Version 1somewhere soon after deployment be-gins. As with all the previous phases,scope creep must be avoided. Stick tothe binding agreement (e.g. the func-tional specification) as the stake in theground for Version 1. Anything else goesto Version 2 and a new contract (Box10).

ConversionsConversions are, simply put, a neces-sary evil. If humanly possible, avoidthem at all costs. Unfortunately, in mostcases a conversion of some sort is re-quired. If this is the case, make sure thatthe conversions are part of the devel-opment effort and not simply an after-thought added on to the end of theproject. The bottom line is to designthe conversions into the project fromthe start. When the data model is be-ing developed, take into account howthe legacy data is to be converted andstart the process early. Perform data con-versions early and often, integratingthem into the incremental build proc-ess.

MaintenanceWhile the concept of Version 1 is im-portant, there is always the issue ofmaintenance to deal with. Deploymentshould signify the end of the project. Ifthere are bugs and problems with thesoftware that should postpone deploy-ment, postpone deployment. Do notrelease software that is not ready forprimetime.

The maintenance phase shouldbe a totally separate phase that followsdeployment. In fact, it should be a sep-arate contract since maintenance is on-going. In some projects, the customermay want to handle the maintenancethemselves. In others, they may lack theexpertise to handle the maintenanceand thus need to farm the maintenanceout. In actuality, maintenance and sup-port can be a significant profit centerto the vendor.

ConclusionIt is our experience that when a soft-ware project fails, it most likely fails asa result of business and/or political rea-sons. Technology is usually not the pri-mary stumbling block. Ironically, it ap-pears that in most cases the skills tomanage the project actually exist; how-ever, issues such as politics, marketingand departmental infighting, as well asother human factors, cause the down-fall. While eliminating human factorssuch as politics is understandably im-possible, there are ways to minimizetheir impact and run an effective andsuccessful project.

The primary mechanism to cir-cumvent these problems is to have acoherent project management plan thatall parties agree, stick to the plan, andmaintain good communication lines.

This article introduced a projectmanagement process with an emphasison each phase of a project. Specifically,legal issues were addressed while dis-cussing the process. Since it is our con-tention that many projects fail due tobusiness or political issues, it is the re-sponsibility of the business owner, de-partment manager and/or project man-ager to manage these human factorsproperly to permit the effective use ofthe technical and project managementtalent.

It is safe to say that running a soft-ware project and worrying about all thepotential business, legal and politicalissues is, in a word, daunting. However,ignoring these issues will put manyprojects, and companies, at peril. If youare a customer, do not assume that yourvendor is practicing solid project man-agement techniques. Make them proveit to you!! Require that they hold regu-lar reviews that include one of your rep-resentatives. If you are a vendor, don'tlet the customer assume that you areusing solid project management tech-niques. It is in your best interest to keepthem informed so they do not bring upthorny issues late in the project.

With outsourcing becoming moreand more prevalent, it is vital to have aconsistent, yet flexible, strategy for run-ning and monitoring software projects.A solid project management strategywill encourage all parties to practice duediligence and allow more time to con-centrate on the more important, tech-nical nature of the project.

ReferencesBasili, Victor R.,Perricone Barry T. 1984.

Software Errors and Complexity: AnEmpirical Investigation. CACM 27(1): 42-52

Boehm, B.W. , January 1984.Verifying and Validating SoftwareRequirements and Design SpecificationsIEEE Software , pp. 4-21 (Chapter 10)

Goodenough, J.B.A Survey of Program Testing IssuesResearch Directions in Software Technology,P. Wegner (Editor), The MIT Press,Cambridge, MA 1979, pp. 316-340(Chapter 5).

Heninger, Kathryn L. 1980.Specifying Software Requirements forComplex Systems: New Techniques andTheir Application. TSE 6(1): 2-13

Schach Stephen R. 1996.Classical and Object-Oriented SoftwareEngineering, 3rd Edition. Richard D. Irwin.

Sommerville, Ian.1992.Software Engineering, 4th Edition. ,Addison Wesley Publishing Company.

Weisfeld Matt A. January, 1996.Implementing a Version DescriptionDocument. Software DevelopmentMagazine.

About the Authors

Matt Weisfeld is Vice President ofProduct Development. He has over 17years of software development and projectmanagement experience. He holds an MSin Computer Science as well as an MBAin Project Management.

John Ciccozzi currently works in the areaof intellectual property law. He hasworked as a systems engineer, projectmanager and test engineer for over fifteenyears. He has worked as a projectmanager on several projects. He holds anMS in Systems Management. Heobtained his Juris Doctorate on May1998.

Matt Weisfeld

preEmptive Solutions, Inc.26250 Euclid Avenue, Suite 503Euclid, Ohio 44132, USA

Tel +1 216 732 5895Fax +1 216 732 5897E-mail [email protected]

John Ciccozzi

United States Patent and TrademarkOffice, USA

E-mail [email protected]


CATEGORY: INDUSTRY PRACTICE AND RESEARCH

Development of a ProjectSimulation Game

Juan L. Cano, University of Zaragoza, SpainMaría J. Sáenz, University of Zaragoza, Spain

Keywords: Simulation, Project Management, Engineering-to-Order

The paper describes use of simulation games especially in the implementation of change processes in Enginee-ring-to-Order oriented companies. Simulation is used for introducing feasible scenarios for different projectenvironments. The paper discusses experiences obtained during the development of PROSIGA (PROject SI-mulation GAme), with a learning aim concerning project planning, motivating the project team, and thedecision making process. The paper suggests benefits of using both the implemented models and a seminarapproach.

IntroductionDemand for training in the field ofproject management has increased. Itis necessary to provide ways to experi-ment, make decisions and act in theproject management context. Simula-tion techniques are used in a wide rangeof fields mainly for early pre-planningpurposes. The fields include mechani-cal engineering to risk management orre-engineering (Haho and Smeds, 1996,Riis, Smeds, Johansen and Mikkelsen,1996, Cano, 1994). In the learningprocess, these techniques give the op-portunity to deal with virtual situationswhich bear resemblance to those we tryto solve in real life.

Within the framework of the Le-onardo da Vinci Programme, the CAE-SAR Project (Computer Aided Educa-tion with a Simulation Approach forthe Redesign of Production Processes)appears as the result of the collabora-tion with the Universities of Karlsruhe(Germany) and Ghent (Belgium). Thebackground of this paper relates to thedevelopment of a simulation game forproject management training for thiscontext. The basic purpose of this pa-per is to comment the development andthe features of simulation games specif-ically for the implementation of changeprocesses in Engineering-to-Order ori-ented companies.

Game descriptionThe developed project simulationgame, PROSIGA is focused on teach-ing the practice of project management.In the game, the participant takes partin the management of a project from theproposal preparation to the tests priorto the end of the project. PROSIGAprovides a training experience devotedto the development, improvement andmotivation of the work group, the de-cision making process and the skills ofleading typical situations which appearwhen managing projects.

The example which is proposedby the simulator, is a project to set up anew bicycle plant in a country border-ing the European Union (EU), support-ed by a technology transfer program ofthe EU. With this story line, the partic-ipants gathered in groups, and assumedthe role of project managers, are obligedto make decisions in order to achievethe targets required by the board of di-rectors of the company.

From the beginning they are un-der time pressure when trying to solveconflicts. The decisions made in thegame influence the project develop-ment in different ways, the affected var-iables being such as costs, delays, teammotivation, management support. Bythe means of simulation an interactiveenvironment is created where manage-

ment skills could be trained without anyrisk of failure. The game is applicablefor:

- Engineering-to-Order compa-nies that need to introduceproject management skills.

- People who are interested ingaining experience in projectmanagement and need toolswhich reproduce real scenarioswhere decisions has to be madeand conflicts solved.

- Companies which requirespecific simulation tools fortraining to deal with processesof fundamental change. Theseprocesses involve changingattitudes and encouraging newwork methods, which form apart of the introduction of re-engineering and radical modifi-cation in internal organisation.The game is a part of a seminar

in which the participants should assumethe role of project managers. The par-ticipants play with the simulator. At theend, they will analyse the results anddraw appropriate conclusions. Eachgroup will be made up of three partici-pants. The seminar consist of two dif-ferent phases (Figure1) which comple-ment each other.

For the participants the aim of thephase 1 (see Figure 2 for an illustrationof the screen) is to collaborate in thepreparation of a proposal for a Europe-an Union programme. This programmehandles the concepts of project sched-uling, preparing an initial draft of themaster plan and later, adjusting it totime limits and weighing up and choos-

ing from the different available alterna-tives. The participants are first asked toprepare an overall plan for the installa-tion of a new bicycle factory. Subse-quently, participants have to optimisethe time scheduling and the cost of theplan with assistance of PROSIGA.PROSIGA allows to carry out planningoperations, such as the assignment of

resources and the simulation of the ef-fects of the decisions made. At the endof phase 1, participants have to carryout an analysis, in which their proposethe master plan and the strategy to befollowed with regard to costs, terms andresources allocation.

In phase 2 of the game, a series ofsituations will be experimented. Thesesituations occur during the develop-ment of the project up to the commis-sioning and final completion of theplant. Therefore, participants shouldtake a sequence of decisions which willbe required as the project progresses.Impacts of these decisions on theproject can be observed.

The project is divided into twohalves. At the end of each half there isa feedback on the decisions taken, theirimpact on the results and how theproject is developed throughout theconsidered period of time. In a limitedperiod of time each participant has todecide on situations or conflicts that thesystem may raise (see contingencies in-

Figure 1. The Two Phases of PROSIGA

Figure 2. Main Screen of Phase 1


box in Figure 3). For instance, we mightbe informed that due to labour prob-lems a supplier cannot deliver the re-quired equipment on time. The systemoffers us a series of alternatives:

- To wait for the subcontractor tosolve its problems and to let itdeliver after the problems aresolved.

- To cancel the order and tochoose a more expensiveequipment that is availableimmediately.

- To rent similar equipment for aperiod of time to replace thecontracted one.

- To put the contractor underpressure in order to get it tospeed up the delivery process.The position adopted in this case

will affect project state variables of qual-

ity, cost, duration, team motivation,management support, relationship withthe stakeholders, and communication.Information about these variables is al-ways available (see control screen inFigure 4) and you will be able to com-pare the work planned, in the terms ofcost and time, to the work performedup to now in the so called S Curve (Fig-ure 5).

For the participants the aim of thephase 2 is to introduce considerationsof which option is the best among thosethe system offers. Obviously, among thedifferent situations the group has tosolve, some of them will be more attrac-tive to the participants than others tak-ing into account the experiences theyhave had in their companies or in theirown working environment. They willdiscuss about the options to choose bysimultaneously answering to questions

such as: which option would be the bestto consider in your company and whichaction should be taken to find an effec-tive solution to this situation. When theparticipants have completed the courseall of them should have an idea of howto implement these aspects in their owncompany. At the end of this part eachgroup should explain and justify the re-sults achieved by presenting the projectfor the Board of Directors.

Aspects to be considered in thePROSIGA developmentWhen designing a game as a support-ing tool for a specific training seminar,a wide variety of aspects such as the sce-nario, the control board of the game,the modules in which the game is goingto be split, the project developmentmodel, the interactivity and the versa-tility achieved or the work group, ap-

Figure 3. Main Screen of Phase 2

pear as relevant factors. The develop-ment of the scenario is a key point. It isnecessary for participants to be able torelate their own and their companiesexperiences with the particular situa-tion in which the game is simulated. Onthe other hand, it allow the participantto assumes the role for himself. In thissense it is essential to perfectly definethe frame situation with the sequenceof scenes in which the action is goingto be performed, the characters, withtheir abilities and limitations, and thetasks to be performed during the projectdevelopment. In this scenario different

situations, conflicts and anecdotes,which will concern the evolution of theproject, will occur.

The tool has to provide a controlsystem of the evolution of the projectstate process so that, at every moment,it is possible to trace how the project isas a whole. This is enabled by an infor-mation control board. The system willhave to present a steady range of run-ning which contains a variety of deci-sion-making behaviours. According tothe decisions adopted by the projectmanager, the system modifies the valueof the variables as it occurs in the real

Figure 4. Control screen

Figure 5. S-curve

world. Since it has been demonstratedin the seminars already performed, theglobal quantification of the variables asa single unit has been challenging forthe groups.

The time sequence of the train-ing seminar directly affects the structureof the game. Each part of the game andits duration will be delimited depend-ing on the evolution of the seminar. Atypical time distribution of the seminarwould comprise 1/3 for the setting upthe seminar, 1/3 for the computer sim-ulation and 1/3 for the evaluation andpresentation of the results obtained bythe groups.

The project development simu-lation model used in the game is shownin the Figure 6. The project state is af-fected not only by the contingenciesthat could happen, but also by the re-sults of the decisions made in the regu-lator, i.e. the function the participantsplay. The sensor of an information sys-tem gathers the project state, shown bydifferent state variables, and comparesthem to the standard values adopted bythe set point in the project - such asbudget, master plan, supply qualityspecification. The difference betweenhow it is and how it should be, triggersthe regulator-function, which makesdecisions concerning the projectprogress and the redefinition of new setpoints. The project development mod-el is influenced by the project state var-iables which determine the next situa-tion that will arise in our scenario basedon probability laws and depending onthe stage the project is going through.In this way, each group will experiencedifferent situations and differentprojects, depending on their decisionsand the path they have followed.

The rules of decision / answer ofthe system require a certain degree ofagility. So we do not have to wait forthe system to react. The rhythm of theproject (typical decision making proc-ess under the pressure of terms) has toappear at a reduced scale during eachphase of the game. In addition, the sys-tem provides help and informationabout the project, so that participantsmanage, in their particular group, tointeract with the tool and extract themost knowledge from the experience.The way of tackling the game design issignificantly different if we try to adaptthe game, with minimum modifications,to different scenarios. In this case, itwould be necessary to implement a


macro-language which is open to a widevariety of scenarios and situations.

The game has to adapt to such adynamic environment where the par-ticipant learns more from his partnersthan from the conductor of the semi-nar. The main interest of the seminar isbased on the appearance of trade-offsituations which can be tackled fromdifferent perspectives by each group.Generally the seminar could use differ-ent techniques so that different skillscould be practised in diverse contexts.For instance, we are interested in deal-ing in groups with the different deci-sions which may be made with regardto the project progress. However, on theother hand, we want that the same peo-ple argue among themselves each oneperforming a different role, for exam-ple, to negotiate the terms of the com-missioning of the equipment. In the firstcase we can use PROSIGA (develop-ment phase) and in the second one,games based on the role-playing tech-niques (Cano, 1994), (Passalacqua,1990).

The designer of a game is obligedto carry out a huge quantity of testswhere, with groups with different fea-tures, the attendants response to theapplication issues is monitored. It is cru-cial to prepare test seminars in advanceduring the tool development. We needto see how other people play with thesimulator in order to be aware of thetopics that require improvement. Theinterface design, the information shownon the screens, the menus, the error

messages, the application help, etc.have been progressively modifiedthrough the different tests in order toachieve a high degree of usability in theapplication - a very important topic forthe right simulation running. An inde-pendent group has been created in or-der to monitor the usability test of thesuccessive PROSIGA issues.

The PROSIGA development hastaken a period of 24 months with anoverall effort of ten manyears. Thephases in the PROSIGA developmentare the following: Game specifications,analysis and design in 1996, and appli-cation programming and, internal testsuntil 1998. 200 people (students andpractitioners) have participated in sem-inars during the development until now.

ConclusionsAll the experiences with the simulationgame development have shown that aseminar approach is applicable. Simu-lation has been proved as useful andefficient tools with low level of risk, toimprove the training in project manage-ment and allow to simplify and displaythe processes of internal change from amore objective point of view. Additionalresearch is needed on how to contrib-ute with simulation games to the projectmanagement field. At the same timevirtual project environments are intro-duced where projects are managedthrough Internet applications.

ReferencesCano J.L., 1994. Juego de Simulación de Proyectos

(Project Simulation Game), I CongresoInternacional de Ingeniería de Proyectos,Oviedo.

Cano J.L., Sáenz M.J., Sanz D., 1997. Desarrollo deun Juego de Simulación de Proyectos(Development of a Project SimulationGame), XIII Congreso Nacional deIngeniería de Proyectos, Sevilla.

Dumas J.S., Redish J.C., 1994. A practical guide tousability testing, Ablex PublishingCorporation Norwood, New Jersey,.

Haho P., Smeds R.,1996. Benefits from usingsimulation Games in Business ProcessDevelopment, Proceedings of 6Th IFIP -APMS'96, Kyoto.

Passalacqua U., 1990. Qualitive and quantitativeanalysis of a project: can it be simulated as agame?, INTERNET'90 Proceeding WorldCongress of Project Management, Vienna.

Passalacqua U., 1990. A game for simulating aproject, INTERNET'92 Proceeding WorldCongress of Project Management, Florence.

Riis J.O., Smeds R., Johansen J., Mikkelsen H.,1996. Games for Organizational Learningin Production Management, (Pages 267 -272) Proceeding of 6Th IFIP - APMS'96,Kyoto.

AcknowledgementsMany people have collaborated in thePROSIGA development process. Espe-cially we want to thank David Sanz,Luis Miguel Almorín, José Castellano,Rubén Rebollar and José Miguel Ramí-rez for their commitment.

Juan L. Cano

Project EngineeringAreaFaculty of EngineeringUniversity of Zaragoza

c/ María de Luna3 - 50.015 ZaragozaSpain

Tel +34 976761910Fax +34 976761861e-mail [email protected]

María J. Sáenz

Project EngineeringAreaFaculty of EngineeringUniversity of Zaragoza

c/ María de Luna3 - 50.015 ZaragozaSpain

Tel +34 976761910Fax +34 976761861

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Figure 6. System Model for Project Development

CATEGORY: RESEARCH

The Assessment of ClientSatisfaction in the Client-ProjectManager Relationship: AnExpectations - Artefact ModelMike Browne, University of Ulster, Northern IrelandSean O'Donnabhain, South Africa

Keywords: Client-Project Manager Relationships, Client Satisfaction Model

The paper critically reviews the literature on customer service, service quality and customer satisfaction, iden-tifying key issues and concepts relevant to the Client-Project Manager relationship. The project managementservice to the client is defined and related to the client satisfaction paradigms within the literature. A suitablemodel is identified, redesigned to meet the project management environment and submitted as a means bywhich practising project managers, after adapting it to their circumstances, may assess client satisfaction on anon-going basis.

IntroductionIn the 1990's customer service has beenwidely recognised as providing the vi-tal competitive key in the all-importantretention of existing customers, throughloyalty, and in the attraction of newcustomers. The general service litera-ture highlights the importance of serv-ice as a business success factor in the1990's, with authors such as Eccles(1994) stating "what quality was for the'80's, customer satisfaction will be forthe '90's". Further, authors such as An-derson et al. (1994) posit that the ex-tent to which a business is able to satis-fy its customers is an indication of itsgeneral health and future prosperity.High levels of customer satisfaction arenow seen as a means for an organisa-tion to achieve a competitive edge, or,stated another way; service is the newcompetitive edge (Reicheld and Sasser,1990; Lewis, 1990; Smith & Lewis,1989).

Despite the widely perceived ad-vantages associated with increased lev-els of customer service and satisfaction,relative to other non project orientat-ed industries, there is a noticeable lack

of project management literature dis-cussing, relating to, or even acknowl-edging the fact. Such a deficiencyproves all the more perplexing when weconsider that as far back as 1978, re-searchers such as Rooley (1978) wereprompted to conduct research as a re-sult of an abundance of published ad-verse comment, together with "criti-cisms of the effectiveness of ProjectManagement in the construction indus-try, expressed over a number of years,by many (clients) in influential posi-tions". Any attempt to legitimise suchreasons would seem futile in light ofLevitt's (1986) comments that "there isno such things as service industries -only industries whose service compo-nents are greater or less than those ofother industries....Manufacturing com-panies should think of themselves asalso being in service....Everybody is inservice" .

Customer satisfaction and con-tinuous improvement in service deliv-ery is fundamental to total quality man-agement. Juran (1999) believes strong-ly in the involvement of the client/cus-tomer in the service delivery process

and that management must provide theframework, environment and culturefor meeting them at the lowest possiblecost. He argues that a 'triple role' con-cept applies to the service delivery proc-ess - namely 'the supplier, processor andcustomer'. He clearly sees that the out-put of one process may become the in-put of another process, therefore show-ing that there may be multiple internalcustomers and providers within a nor-mal service encounter. The projectmanagement process is no exceptionand consequently emphasises the im-portance of securing customer input,both external and internal, into theplanning stages of the project.

Jacobs (1999), drawing upon thework of Kano, states that the 'voice ofthe customer' must be brought into thedesign of the service as early as possi-ble. Kano recognised that an importantrequirement in any new product or serv-ice is to 'maximise customer satisfactionwhile avoiding unnecessary extras thatwould add cost but with little addedbenefit'. To this end he developed a sur-vey instrument to measure the level ofsatisfaction with a product or service


against customer requirements. Serviceattributes may fall into four categoriesof customer requirements. These are:exciting - where its absence has littlenegative effect but its presence gener-ates excitement and high levels of sat-isfaction; desired - where more is 'bet-ter' and none is 'bad'; must be - consid-ered necessary for the service to be ac-ceptable or even considered and finallyindifferent - where the attribute has norole in promoting customer satisfaction.

Whilst many service providersstrive to deliver excitement attributesthis is an on-going process due to com-petitors adopting similar services andthat over time they become the norm,i.e. 'desired' or 'must be' attributes.

Thus, this research paper into cli-ent / project manager satisfaction shallattempt to redress the balance some-what, through the adaptation and ap-plication of an appropriate model forclient satisfaction measurement, iden-tified by the author from the servicequality and customer satisfaction liter-ature.

For the purposes of this paper, theterms client and customer are inter-changeable and refer to 'an individual,group, department, division or firm whorequire a project to be undertaken andhas the ability and authority to insti-gate its commencement��. The cli-ent will 'own' the project or will direct-ly benefit from its execution and is nor-mally the ultimate arbiter of project suc-cess or failure', Browne (1997).

An Introduction to CustomerService and Satisfaction

A Definition of ServiceWhile in marketing terms a service canbe relatively easily defined as "an intan-gible product involving a deed, perform-ance or an effort that cannot be physi-cally possessed" (Dibb et. al., 1991), aconvincing definition of customer serv-ice proves somewhat more elusive.Donaldson (1986) suggests customerservice "means different things to dif-ferent people" - sentiments which Book-binder & Lynch, (1997) share, whenthey suggest that "every manager andcustomer will have their own definitionof customer service".

Taking a general view however,perhaps we can consider an appropri-ate definition of customer service as:that service offered by a firm to its cus-tomers, high levels of which result in a

perception of service quality which,when recognised by the buyer is reflect-ed in customer satisfaction, ultimatelyleading to its associated advantages.

Service CharacteristicsProducts (goods) are 'bundles' of at-tributes rendering satisfaction (Walker,1995). Services too, are 'bundles' of at-tributes rendering satisfaction, yet theyhave been more aptly described as'promises of satisfaction' (Levitt, 1986).Compared with goods, it is commonlyaccepted that services have uniquecharacteristics that any service businessmust acknowledge (Dibb et. al., 1991;Parasuraman et. al., 1993). These are:

- Heterogeneity or Variability;- Perishability, and,- Inseparability.- Intangibility;

Heterogeneity or VariabilityService performance is variable fromproducer to producer, as is the percep-tion of that service from consumer toconsumer and from day to day. Thequality of the interactions that banktellers, flight attendants and insuranceagents have with customers can rarelybe standardised to ensure uniformity inthe same way that the quality of goodsproduced in a manufacturing plant can.The emphasis here is as much on theindividual within the organisation as itis on competing organisations (Bell,1981; Berry, 1980)

PerishabilityUnlike products, services cannot bestored in inventory. Unused service timecannot be stockpiled for future timeperiods (Lovelock, 1991)

InseparabilityThe simultaneous production and con-sumption of services render them insep-arable (Berry, 1981). Quality in servic-

es primarily occurs during the servicedelivery in the provider / customer in-teraction, rather than being factory pro-duced and delivered intact to the cus-tomer (Lewis, 1993). The luxury of afactory serving as a buffer between pro-duction and consumption is one notafforded to service providers, wheretheir customers are seen by Parasura-man et. al., (1993) as being "in the serv-ice factory, observing and evaluating theproduction process as they experiencethe service". Such sentiments are ech-oed by Booms and Nyquist (1981), whohighlight the consumer's role in serviceproduction as one that adds complexi-ty over and above the production of atangible product.

IntangibilityServices are primarily intangible - theycannot be seen, touched or tasted be-fore they are purchased (Kotler & Arm-strong, 1996). Services are performanc-es and interactions as opposed to ob-jects, thus precise manufacturing spec-ifications concerning quality uniformi-ty can rarely be set (Parasuraman et. al.,1991). What is really being delivered ispurely a performance, hence the eval-uation criteria that customers use iscomplex and difficult to precisely cap-ture.

The Tangible / Intangible ContinuumAs stated previously, services are prima-rily intangible (Kotler & Armstrong,1996; Walker, 1995; Parasuraman et. al.,1992; Dibb et. al., 1991). It is widelyacknowledged in the service literaturethat both goods and services are con-ceptualised to fall on a continuum,ranging from tangible to intangible (Fig-ure 1).

This concept can be viewed inanother way: Very few products are lit-erally pure goods or pure services. Prod-ucts are 'bundles' of goods and services,and vice versa. The concept of 'bundles'

Figure 1. Rushton & Carson's (1989) Tangible/Intangible Continuum

was first introduced by Levitt (1986),when he suggested that "a product tothe potential buyer is a complex clus-ter of value satisfactions" and is consist-ent with Kotler's (1988) view, that serv-ice production may or may not be tiedto a physical product, and can consti-tute either a major or minor part of theentire offering.

When viewed in this light, onecan begin to appreciate the sentimentsbehind Levitt's (1986) now famousstatement that "there are no such thingsas service industries, there are only in-dustries whose service components aregreater or less than those of other in-dustries - everybody is in service". In-deed various authors such as Payne(1993), Berry & Parasuraman (1991)and Shostack (1977), use similar tangi-ble - intangible continuum models toRushton & Carson's (1989) to suggestthat defining services narrowly as onlyrelating to service industries is clearlyincorrect. Further, the concept of 'bun-dles' of tangible and intangible elementsof products and services as perceived bythe customer, goes some way in aidingin our understanding as to why certainindustries appear more service orientat-ed than others.

The Project ManagementService to the ClientThe use of project management servic-es embodies a number of unique char-acteristics. The production and con-sumption of the project managementexperience are inseparable. The corebenefit is primarily intangible, while theproduction process itself is complex andheterogeneous. In this way it is unlikemany other consumption experiences(McLean, 1992).

InseparabilityIn the inception and feasibility stages,both parties to the project try to cometo an agreement concerning the client'sneeds, project parameters and condi-tions and terms of the service. Since theclient must be present during the pro-duction of the service and work closelywith the project manager to provideinformation on changing needs and cir-cumstances, inseparability forces theclient into contact with the productionprocess (Carman & Langeard, 1980,cited by Johnson et al., 1996). In a dy-namic view, the use of project manage-ment services may be described as hav-ing many experience qualities. A client

only begins to fully understand exactlywhat is being purchased during thecourse of the service production proc-ess; the perceived performance of theproject manager in providing the serv-ice is, to a large extent, only observableonce the service has been provided.

Physical and Mental IntangibilityIntangibility manifests itself in two ways.(Langeard et al., 1981) distinguish be-tween physical and mental intangibili-ty. Physically, the service provided bythe project manager cannot be touchedby the customer - it is impalpable.Project management services constituteperformances rather than objects; theycannot be seen, felt, tasted or touchedin the same way that tangible goods canbe sensed (Zeithaml et al., 1985). Un-like a number of other services, such astaxi services or parcel delivery, projectmanagement services are also mentallyintangible or difficult for customers tocognitively grasp. Amid an array oftechnical and complex processes, it isdifficult for the inexperienced client tounderstand just what is being pur-chased.

This mental intangibility is en-hanced by a rather complex project lifecycle that includes, in such cases as fi-nancial services, up to eight differentphases. However, most authors suggestfive phases (Burton & Michael, 1991;McLean, 1992), which include: (1) in-ception, (2) feasibility and strategic re-view, (3) detailed planning and sched-uling, (4) implementation, monitoringand controlling, and (5) completionand evaluation. This process involves asubstantial amount of interaction be-tween the project manager and theproject's human resource element andis essential to the project's success. Yeta large part of the project does not in-volve the client directly; to the clientmuch of the system remains invisible.The client is thus very dependant onthe advice of the project manager tomake successful project related deci-sions. Given that many clients have lit-tle project management expertise(McLean, 1992), it is a difficult serviceto evaluate.

Heterogeneity/VariabilityProject management services involve alarge amount of interaction with, andco-ordination of, human resources,which inevitably makes it rather heter-ogeneous. Langeard et al. (1981) point

out that because a project managercomes in contact with, and relies heav-ily on, project personnel for project suc-cess, problems of consistency of behav-iour will inevitably ensue. The qualityand essence of the service can varywidely from project manager to projectmanager, from client to client, and fromday to day. This is critical because em-ployee behaviour is an important cus-tomer criteria in service selection andretention (Parasuraman et al., 1988;Parasuraman et al., 1985).

Client InexperienceFinally, for many clients, the use of aproject manager is not a frequently 'pur-chased' service. With the exception ofhighly experienced clients, such as ex-perienced developers or frequent busi-ness financial service users, clients rarelyhave the amount of experience neces-sary to turn a rather extended problemsolving experience into a limited prob-lem solving one or routine purchase(Howard, 1977). This suggests, there-fore, that clients hold weak expecta-tions, at best, for project managementservices. The expectations that exist arelikely an output or artefact of the serv-ice production process which have anegligible impact on customer satisfac-tion. The basic argument here is thatbecause performance information iscomplex and customer experience islimited, expectations are weak and un-likely to affect satisfaction (Johnson etal., 1996).

The Uniqueness of the ProjectManagement ServiceContrasting this scenario with mostother products and services - whilesome physical products may be com-plex, they are more tangible thanproject management services. Addi-tionally, there is greater homogeneity intheir production and customers havemore experience with them. Other serv-ices, while physically intangible, are typ-ically less complex, involve less depend-ence on the co-ordination of humanresources, and are also more frequentlyconsumed. In both cases, customers arelikely to have stronger expectations pri-or to any given product or service pur-chase i.e. consumption experience.

Satisfaction ConceptualisationA product or services' unique charac-teristics will of course determine howsatisfaction is conceptualised. Of the


two conceptualisations introduced ear-lier, the author is of the opinion that,as a result of those unique characteris-tics displayed, satisfaction with projectmanagement services is best viewed asa cumulative construct. As is the casewith project management services,where a service involves a high degreeof inseparability, heterogeneity, com-plexity and a large amount of client in-volvement in the often lengthy projectlife-cycle (the 'production' process),satisfaction is best viewed as a cumula-tive construct that describes a client'stotal consumption experience, as op-posed to a transaction-specific con-struct which is more suited to provid-ing insights into 'short-run' service en-counters (Anderson et al., 1994).

Viewing satisfaction withinproject management services as a cu-mulative construct, is also consistentwith the views in economic psycholo-gy, where Van Raaij (1981) suggests thatsatisfaction is equated with the notionof subjective well being, and econom-ics, where Meeks (1984, cited by John-son et al., 1996) suggests satisfactiongoes beyond expected utility to encom-pass post purchase consumption utili-ty. Satisfaction, in this view, is not anephemeral perception of how happy acustomer is with a product or service atany given point in time. Rather, it is acustomer's overall evaluation of theirpurchase and consumption experienceto date.

Further, this approach is conso-nant with Gable's (1996) view, that animportant construct in determiningconsultant / client relationship satisfac-tion, is client learning or improved cli-ent understanding. Churchman &Schainblatt (1965, cited by Gable,1996) suggest that for management sci-ence (consultant engagement) to beeffective, in addition to the scientist(consultant) understanding the manag-er (client), the manager must also un-derstand the scientist. The managerneeds to be educated about the scien-tist to understand what he is trying todo, and why he tries to do things theway he does. Views relating to the im-portance of improved client under-standing as a construct of satisfactionare shared by many authors, includingKolb & Frohman (1970), who empha-sise its importance "in order to increasethe ecological wisdom of the organisa-tion through improvement of its abilityto survive and grow in its environment".Thus, in view of these comments, it is

clearly apparent that transaction-spe-cific conceptualisation is inappropriateas a means of project management serv-ice satisfaction assessment, and is bet-ter suited to providing insights into'short-run' service encounters.

Client Satisfaction ParadigmsThe customer satisfaction literaturesuggests four general alternative modeltypes. These models are referred to as;(1) The Disconfirmation of Expecta-tions Model; (2) The PerformanceModel; (3) The Rational ExpectationsModel, and, (4) The Expectations Ar-tefact Model.

The Expectations-ArtefactModelThere is an emergingbody of literature(Johnson et al., 1996,Fornell et al., 1996)positing a model todescribe customersatisfaction, suggest-ing performance ex-pectations are morelikely an artefact ofperformance in suchcases, and have no ef-fect on satisfaction.Such scenarios differ from other prod-ucts and services where expectationsare a stronger predictor of performanceand have a positive effect on customersatisfaction. This model is called the Ex-pectations-Artefact model.

The nuances of project manage-ment services suggest that all three ofthe preceding models provide an inad-equate description of customer satisfac-tion within the client / project manag-er interaction. At best, many clients, asa result of their inexperience (Master-man, 1992), hold weak expectations forproject management services. Theirexpectations are more likely an outputor artefact of a complex, intangible andinfrequently experienced service pro-duction process, thus, the primary de-terminant of customer satisfactionshould be perceived performance. John-son et al. (1996) posit that expectationsshould have no positive or negative ef-fect on satisfaction because they serveas neither an anchor, as in the perform-ance model, nor a standard of compar-ison, as in the disconfirmation model,for evaluating satisfaction. At the sametime, perceived performance shouldcorrelate with customers' stated expec-

tations. Performance gives rise to theexpectations that customers report. Themodel, (Figure 2) posits a direct posi-tive effect of perceived performance onsatisfaction and a positive relationshipbetween performance and expectations,without linking expectations directly tosatisfaction, to capture these predic-tions. This model, of course, also holdsimportant implications for those wish-ing to implement customer satisfactionand quality improvement programs.The argument that expectations are anoutput, or a by-product of the serviceproduction process means that it wouldbe counterproductive to focus on ex-pectations at all; service personnelshould focus on improving performancerather than meeting or exceeding cus-tomer expectations.

Following a review of the fourcustomer satisfaction model types sug-gested in the literature, it is proposed,that the Expectations-Artefact modelproves the most suitable for the purpos-es of this research. It will act as a tem-plate for measuring customer satisfac-tion in the client / project manager re-lationship, a relationship in which it hasbeen suggested that the client often haslittle or no previous experience withwhich to form expectations, and thusthe primary determinant of satisfactionis perceived performance. Having cho-sen the Expectations-Artefact model asthe model type, let us now turn our at-tention to the actual model selected,and its suitability for adaptation as ameans of measuring client / projectmanager satisfaction.

The Multi-DimensionalModel for Client Successwhen Engaging an ExternalConsultant - The DerivedModelGable (1996) acknowledges several keyissues, including firstly, the importanceof distinguishing between the results of

Figure 2. The Expectations-Artefact Model

the engagement (for example the 'good-ness' of the consultant's final recom-mendations) and the effectiveness of, orsatisfaction with, the consultant's per-formance in arriving at those results(the process). In other words, the In-formation Systems (IS) literature em-phasises the importance of not only theend result but of the service deliveryprocess in achieving customer satisfac-tion. Such a view is consistent with thegeneral service literature, which wide-ly acknowledges the fact that all ele-ments of an encounter, for example thephysical facility and service personnel,are involved in the production of satis-fied customers (Zeithaml et al., 1990).Secondly, client learning or improvedclient understanding is an importantobjective or result of many consultan-cies. Argyris (1985), suggests that theconsultant should help the organisationto achieve its objectives in such a wayas to facilitate the organisation in con-tinuing to do so with decreasing exter-nal help. Further to this view, Gable(1996) identifies an improvement inclients' understanding of their needs asone of the most important goals. Final-ly, the relevance of the additivity, mu-tual exclusivity, and completeness of themodel dimensions were addressed.

Based on the literature searchand case studies conducted, Gable pro-poses the descriptive measurementmodel shown in Figure 3. It predicts theexistence of six important dimensionsof engagement success, rather than be-ing causal. Gable (1996) explains thatthe model makes a primary distinctionbetween results success and perform-ance. Results include the consultant'srecommendations and improvement inclient understanding.

These two results coupled withthe performance of the consultant yieldthree main areas of assessing engage-ment success. These are: recommenda-tions, understanding and performance.It is proposed that each of these threeareas of assessment can be measuredobjectively versus subjectively. The ob-jective measures for the three areas ofsuccess assessment are usage / accept-ance of the consultant's recommenda-tions, change in client understanding,and actual resource requirements ver-sus those estimated. The more subjec-tive measure for each of the three areasof success assessment is the client's lev-el of satisfaction. Each of the six a pri-ori model dimensions is now described.

Recommendations AcceptanceIn the context of an Information sys-tem selection consultancy, usage refersto the extent to which the client 'uses',accepts, or intends on acting upon theconsultant's recommendations (Gable,1996). Ein-dor and Segev (1982), sug-gest that the study of usage itself is im-portant - "we claim that a manager willuse some of the (various other) crite-ria, and that use is highly correlatedwith them. Thus we choose use as aprime criterion of success".

Recommendations SatisfactionA client may feel compelled to act uponthe consultant's recommendations as aresult of their investment (e.g. the con-sultant's fees and client resources), yetremain dissatisfied with the 'fit' of thesolution recommended. Similarly, theclient's inexperience and lack of knowl-edge of the technical aspects of theproject can create a biased perceptionof the recommendations. This impliesthat usage or acceptance may not beentirely voluntary. Thus, Gable (1996)suggests the importance of also meas-uring the level of client satisfaction withthe consultant's recommendations.

Understanding ImprovementAs suggested in the literature, the im-portance of client understanding im-provement is paramount. Improved cli-ent understanding can, as a result of abetter appreciation of their needs, fa-cilitate more effective implementationand an increasing level of general inde-pendence. Additionally, it is held thatas the client is better equipped to con-duct future projects with a decrease inrequired external assistance, they arebetter off.

Understanding SatisfactionIrrespective of the degree of under-standing improvement experienced bythe client, they may subjectively be sat-isfied with the level of improvement andadequacy of their new level of under-standing.

Performance ObjectiveThis can be considered the degree towhich actual resource and time require-ments (cost and time) initially estimat-ed by the consultant equalled actualproject requirements. This is consistentwith many authors' writings on projectsuccess factors.

Performance SatisfactionThe client may experience satisfactionor dissatisfaction regardless of the con-sultant time and cost performance. Dis-satisfaction may arise as a result of a cli-ent's perception of poor value for mon-ey ('benefits per dollar', Fornell et al.,1996; Zeithaml, 1993), that the con-sultant did not demonstrate necessaryexpertise or experience, or did not keepthe client adequately informed. Con-versely, clients may experience satisfac-tion despite poor schedule / budget per-formance. If a client is satisfied with theconsultant's overall performance, theengagement can be considered moresuccessful - thoughts common in thegeneral service literature, when Zeith-aml et al. (1993) state "it is the perform-ance of the service that separates oneservice from another; it is the perform-ance of the service that creates truecustomers".

Content ValidityGable (1996) posits the a priori modelto reflect a comprehensive set of dimen-

Figure 3. Dimensions of Engagement Success: The A Priori Model. (Gable, 1996)


sions of engagement success where anexternal consultant is engaged to rec-ommend a solution to a problem. It ishypothesised that all the dimensions aredistinct but relate measures of success,and that all are positively correlatedwith each other and with overall suc-cess. Gable (1996) explains that as themodel proports to be complete and thedimensions are hypothesised to be pos-itively correlated, the dimensions arealso posited to be additive, and thus canbe summed to yield a valid measure ofoverall success.

Methods employed by Gable(1996) to assess the content validity ofthe model included: semi-structuredinterviews of case study companies andconsultants; development of a detailedcase narrative to facilitate feedbackfrom the pilot case; a publication of ear-ly problems and issues identified; pilottesting of instruments on three of thefive companies; presentation of earlyobservations to a meeting of local asso-ciations; and presentation of the a pri-ori measures of success at a refereedconference. All suggested that the apriori model was ostensibly complete.

Applying the Model to theClient / Project ManagerRelationship withConstructionIt is acknowledged by Gable that hismodel should be adapted to suit thecontextual situation, if the practisingmanager is to derive meaningful infor-mation from its application. DespiteGable producing a revised model theauthor argues that his A Priori Modelis more suited to the client / projectmanager relationship.

Given the author's background itwas deemed appropriate to investigatethe construction client / project man-ager relationship therefore let us nowconsider its suitability and adaptabilityfor that purpose.

The Suitability of Gable's ModelAs shown earlier, the unique character-istics of the client / project manager re-lationship, and more specifically, theconstruction client / project managerrelationship, render many models ex-tracted from the general service litera-ture unsuitable for satisfaction assess-ment within project management. Ga-ble's (1996) Model- see Figure 3 - provesitself most suitable to adaptation as a

tool for client / project manager satis-faction assessment within the construc-tion industry for the following reasons:

Subject MatterPerhaps one of the most obvious rea-sons that Gable's (1996) model provessuitable to adaptation is the strong par-allels between both subject matters.Gable's (1996) investigation into clientsatisfaction when engaging externalconsultants, has obvious similarities tothe construction client / project man-ager relationship, especially when weconsider the increasing reliance the ISclient places on the external consult-ant to implement such complex, tech-nical functions. Gable's (1996) choice,in selecting only clients registered withthe Local Enterprise ComputerisationProgram (LECP), in other words, clientsof which the vast majority had little orno previous experience, is also conso-nant with the view that inexperiencedor less frequent clients of constructionaccount for the majority of constructionwork (DOE, 1995; Kometa et al., 1995;Walker, 1995). This is of course, of theutmost importance when we considerthe suggestion by (Latham, 1994) and(DOE, 1995) that the relative ease withwhich client's requirements are proc-essed, and therefore satisfied, is relatedto the experience of the client withinthe industry. Further, it is also interest-ing to note Gable's (1996) statement ofthe relationship between clients andexternal consultants as being perceivedas one of 'protagonist versus antagonist'- sentiments concordant with the wide-ly held perception of the often confron-tational nature of Western culture.

Areas of AssessmentThe primary distinction made by Ga-ble's (1996) descriptive measurementmodel between results success and per-formance, in addition to consistencywith the general service literature(Zeithaml et al., 1990), lends itself, theauthor contends, to a most suitablemeans of assessing construction clientsatisfaction, through use of the threeprincipal areas of engagement successassessment: consultant recommenda-tions (results satisfaction), improve-ment in client understanding (resultssatisfaction), and consultant perform-ance (performance satisfaction). Theauthor believes that the model's use ofthe six dimensions (allowing both ob-jective and subjective assessment areameasurement), contributes largely to its

suitability as a measurement tool forconstruction client / project managersatisfaction. Of the model's six dimen-sions, the importance of several as an-tecedents of project manager serviceassessment, are recognised in both thegeneral and construction specificproject management literature. Theseinclude:

Recommendations SatisfactionInexperienced clients, as a result of alack of technical knowledge and theirinvestment in the recommendations ofa consultant in terms of fees and re-sources, may feel compelled to accept,and act upon the recommendations ofa consultant, yet experience dissatisfac-tion with the proposed 'fit'. Thus, theimportance of recommendations satis-faction as a contributory factor to anoverall perception of client satisfactionis of paramount importance. Thisproves especially so, in the constructionindustry, where inexperienced clientsoften possess insufficient informationand knowledge to clearly understandand define their needs, and will there-fore depend heavily on the project man-ager to do so. Any recommendationsmade by the project manager in this re-spect will have a major influence on theclient's fundamental needs, thus play amajor role in overall client satisfaction.Another reason that project managersshould attempt to ensure high levels ofunderstanding (and therefore satisfac-tion) in this dimension, "is that ultimateblame for defective work and /or poorfunctioning of constructed facilities isusually put on the industry" (Anumbaet al., 1996)

Understanding ImprovementGable (1996) and other authors withinIS literature, such as Argyris (1985, cit-ed by Gable, 1996), place an importanceon client understanding or client learn-ing as a satisfaction assessment meas-urement dimension. This importance isconsistent with the views of many au-thors in the field of construction, whoall stress that an active client's role iscrucial for project success and subse-quent client satisfaction. They also ad-vocate the provision of adequate infor-mation on the operations of the indus-try (DOE, 1995; Kometa et al., 1995;Anumba et al., 1996, Latham, 1994;Cherns & Bryant, 1984). Improved cli-ent understanding not only improvesgeneral independence, but also facili-

tates more effective implementationthrough an increased understanding byclients of their needs (which Gable(1996) posits, is at the heart of manyfailed client / consultant relationships).

Performance ObjectiveThe degree to which the actual projectresources and time requirements equalthose originally estimated is analogouswith the writings on project success di-mensions in all fields, and hence, ishighly applicable to the constructionclient / project manager context.

Performance SatisfactionAs is the case with performance objec-tive, the subjective measurement ofperformance satisfaction is equally ap-plicable to all service provision con-texts. The author contends that theinclusion of this satisfaction assessmentmeasurement dimension is highly im-portant as it allows the client's overallsubjective satisfaction or dissatisfactionwith consultant performance (whichmay be experienced regardless of Per-formance Objective) to be recorded.This is of equal importance to construc-tion client / project manager satisfac-tion measurement as it is to all otherservice encounters.

Satisfaction ConceptualisationThe transactional or 'buyer-seller' viewof service provision is an 'arms-length'one, involving well specified rules,which assumes the client (the buyer) isresponsible for specifying exactly whatit is he/she wants, the conditions andschedule for delivery, and the negotia-tion of price. Tilles (1961) suggests thatsuch a view of the client / consultantrelationship is misconceived, and sug-gests the relationship more akin to a'partnership', which Gable's (1996)model takes account of. Such a view isconsistent with Johnson et al.'s (1995)suggestion that satisfaction within serv-ices such as project management beconceptualised as a cumulative con-struct, hence the author's belief in themodel's suitability as a means of meas-uring satisfaction within the client /project manager relationship.

The Adaptation of Gable's ModelThe author's adaptation of Gable's,(1996) model involved a relativelystraightforward process. Each of the sat-isfaction assessment measurement di-mensions was re-phrased, within a ques-

tionnaire based research instrument, foruse within a project context.

Empirical ResearchResearch is on-going into the applica-tion of Gable's adapted model withinthe Irish construction industry. Earlyresults show that the model is both ef-fective and efficient when measuringconstruction client satisfaction. Utilis-ing a mail questionnaire, a survey sam-ple of 82 construction clients and theirproject managers were approached, fol-lowing identification by the purposivemethod of non-probability sampling inan attempt to select a sample represent-ative of construction clients as identi-fied by DOE (1995). A total of 28 setsof usable client and project managerresponses were returned. Data was sub-jected to both the descriptive and in-ferential methods of statistical analysisusing the SPSS software package. Theresults obtained were used to comparethe difference in attitudes held by bothparties towards client satisfaction, andto identify the individual assessmentareas which bear the greatest influenceon, and association with, overall clientsatisfaction. First order results indicatethe importance of project managersputting in motion a continuous proc-ess for (1) monitoring client perceptionsof engagement success, (2) identifyingthe causes of success shortfalls, and (3)taking appropriate action to improvelevels of construction client satisfaction.The research conclusions and recom-mendations will be the subject of futurepublications.

ConclusionThis paper introduced the reader to theconcepts and constructs of customerservice, and the general service relation-ship as found in the service literature.The characteristics of the client /project manager relationship werefound to be quite unique when com-pared to those of the general servicerelationship, and by the same rationale,the construction client / project man-ager relationship, by encapsulating aseries of complex issues related to satis-fying client requirements, can be viewedas quite unique from the general client/ project manager relationship. Gable's(1996) model was identified as beingsuitable for adaptation and utilisationin the measurement of client satisfac-tion.

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About the AuthorsMike Browne holds a lectureship inConstruction and Project Management atthe University of Ulster, Jordanstown,Northern Ireland. He is Director of theCentre for International Project Manage-ment, based within the University. MikeBrowne also holds a Bachelor of ScienceDegree in Building, with Honours, fromthe University of Salford, a Master ofScience Degree in Architecture (BuildingEconomics and Management) fromUniversity College London and anAdvanced Postgraduate Diploma inManagement Consultancy from HenleyManagement College. Mike Browne is aFellow of the Association for ProjectManagement and the Chartered Instituteof Building.

Sean O'Donnabhain is a qualifiedarchitect who has studied at UniversityCollege Dublin. He has gained his Masterof Science Degree in Construction andProject Management at the University ofUlster and is currently working in SouthAfrica.

M A Browne

BSc(Hons) MSc(Arch) ADipMCFCIOB MIMgtFAPMDirectorCentre for Internation-

al Project ManagementSchool of the Built EnvironmentUniversity of Ulster at Jordanstown

NewtownabbeyNorthern Ireland BT37 OQB

Tel +44 1232 368564Fax +44 1232 368565Email [email protected]

S O'Donnabhain

BA (Arch), MSc

South Africa

CATEGORY: RESEARCH AND INDUSTRY PRACTICE

Organizational Change as a Project

Antti Salminen, Helsinki University of Technology, FinlandHarri Lanning, Helsinki University of Technology, Finland

Keywords: Project Management, Change Management, Organizational Change

Project management has been studied and its methods developed over many decades. There are, however,many aspects in which an internal change project differs from a traditional delivery project. The philosophyand methods of project management are an important part of the implementation of an internal change pro-ject, but the approach and emphasis clearly need to be different. Organizational development and changemanagement skills are needed as well, i.e. change project occupies an area where change management andproject management merge. This article discusses the special features of a change project and how projectmanagement techniques should be applied in context of organizational or operational change.

Nothing is constant but changeThe dynamic business environment to-day requires frequent changes both inthe way organizations operate and inthe organizational structure. In a studyof changes facing Australian corpora-tions 65 percent of human resourcemanagers estimated that the extent ofchange their corporation had met dur-ing the last three years was either ma-jor or radical (Waldersee and Griffiths,1996). According to survey of over 500chief information officers (CIOs) in1993 the average CIO was engaged in4,4 re-engineering efforts compared tomere 1,6 a year before (Moad, 1993).

Companies all over the worldstruggle through big re-engineering andorganizational restructuring efforts, re-structure their management, rational-ize and downsize, introduce changes inaward-systems and apply flexible workpractices, strive for total quality man-agement, try to implement empoweredhigh performance teams and streamlinetheir manufacturing operations. Theentire future of these organizations maydepend on the success of the changeprojects and great effort is put into im-plementing them. Shorter throughputand delivery times, better productionplanning and control and eliminationof non-value adding processes are ex-amples of the typical goals of operative

changes (Salminen and Perkiömäki,1998). Changes in organizational struc-ture lead towards process organizationand breaking down interdepartmentalbarriers, and team-based organization(Waldersee and Griffiths, 1996).

Despite the importance of the is-sue and amount of consultants and re-search organizations offering their helpmany change efforts fail. They fail toproduce the performance enhance-ments that were planned or they endup months late or with costs remarka-bly in excess of the budget. Somechange efforts die slowly in silence andsome can even cause harm to the over-all performance of the company (Nort-ier, 1996). According to a 1991 surveyof US electronics companies only 37%of those engaged in total quality pro-grams reported that they had succeed-ed to improve quality defects by 10%or more (Schaffer and Thomson, 1992).Estimated 50%-70% of re-engineeringefforts never reach their goals, (Ham-mer and Champy, 1993; Revenaugh,1994).

Whatever the actual failure ratemay be, the fact is that many changeprojects fail for one reason or another.It clearly seems that there is somethingin the way organizational and opera-tional change is usually managed thatleads to these miserable results.

The dominant approach toorganizational changeChange in organizations has largelybeen viewed from two different angles,namely changing the organization andhuman behavior, and changing the op-erations and mechanisms of the tech-nical system. In the beginning of thecentury, when the modern organizationstarted to develop, most of the researchconcentrated on organizations as pure-ly technical systems, leading to simplis-tic and mechanistic assumptions aboutchange. Theories of Taylor, Fayol, andWeber, applied most successfully byHenry Ford, represent this early schoolof managing change in organizations.

As the shortcomings of the mech-anistic approach started to become ob-vious, an opposite school of thoughtstarted to conquer the field of organi-zational research. Kurt Lewin's work ininterpersonal, group, intergroup andcommunity relationships built the ba-sis for so called human relations move-ment. The most established part of thismovement is often called organization-al development (OD) school. More re-cent development on this field has ledto integration with theories of largescale strategic change (Dunphy andGriffiths, 1998).

The basis of the OD movementlies on the recognition of the fact that


organizations are collections of people,and changing how organizations workis thus fundamentally about changinghow people work. People deliver thevalue to the customer, and ability todeliver value to the customer is whatdetermines the success of any organiza-tion. Following this line of though mostof the problems in organizations can betraced down to conflicts between peo-ple. All changes in organizations andrelated systems require changes in theway people work. That is why OD the-ory views management of change alwaysas management of people, motivatingthem and solving conflicts betweenthem (McCalman and Paton, 1992).Organizational development has beendefined as "a planned process of changein an organization's culture through theutilization of behavioral science tech-nologies, research and theory." (Bourke1987, p. 11). So even though OD in-volves the element of planning, it clear-ly concentrates on the use of behavio-ral and sociological methods, and eventhe planning aspect deals usually withplanning of behavioral interventions.

There are practically no mentionsabout systematic controlling of imple-mentation of changes in the OD litera-ture, and when the issues of control andmonitoring are addressed, the messageseems to be that project managementis too technical and bureaucratic in flex-ible and complex framework of humanorganizations. McCalman and Paton(1992) have addressed the applicationof project management methodology tomanagement of change as an alterna-tive for traditional OD approach. Butthey seem to regard project manage-ment as something that can not be ful-ly integrated with organizational devel-opment methodology and is to be usedpredominantly in simple and mechanis-tic, technically biased change.

It seems however, that one possi-ble reason for the high failure rate ofthe change projects is the failure to treatthem as projects. In our recent study of27 change projects the only variable outof thirty correlating statistically signifi-cantly with the success of the projectwas the coordination and monitoring ofthe project (Salminen et al., 1999). Anearlier study revealed that the factorsmost strongly connected to changeproject success were associated withproject control, training, and generalproject management practices (Salmin-en and Perkiömäki, 1998).

Project is a project is a project�A project is often defined as a uniquepiece of work with predefined start andend dates, objectives, scope, and budg-et, performed by a temporary organiza-tion. PMBOK makes a distinction be-tween projects and operations - thoughadmitting that these two can overlap -on basis of continuity and uniqueness.According to this definition a project is"a temporary endeavor undertaken tocreate a unique product or service"(PMBOK 1996, p. 4). Temporary meanshere that each project has a definiteend, which is reached when the objec-tives of the project are reached.Uniqueness of the results means that noother product or service of exactly thesame nature has been produced before.

Project management literature istraditionally built around a life-cyclemodel of a project and tools, methodsand techniques needed to carry out theproject management task in context ofthis life-cycle. The phase of the life-cycle determines which activities andwhat work should be carried out, andto certain degree also who should beinvolved (PMBOK 1996). The activi-ties of each phase are described in de-tail in many sources, and numeroustools and methods are provided by theliterature. The skills, knowledge andmethods required from a project man-ager can be formulated as necessary ca-pabilities that form the project manage-ment body of knowledge. The strengthof the project management discipline isin its ability to provide a systematicframework for planning and implement-ing one-time efforts in limited time-frame.

There are relatively few publica-tions on the role of project managementin managing change, and practically noempirical research data on the issueseems to exist. The traditional projectmanagement has concentrated on coreprojects delivering products or servicesto outside customers and only recentlyhas the orientation turned into inter-nal support projects - such as market-ing projects and OD projects - as well(Gareis, 1998). Cleland (1994) andBoddy and Buchanan (1992) are someof the few authors on the field of projectmanagement openly addressing the is-sue, giving implementation of industri-al automation and new strategy as ex-amples of typical internal projects.

On basis of the definitions givenabove it is clear, however, that any op-

erational or organizational change is aproject. Individual change effort is aone-time task that has predefinedschedule, goals, and scope and is usual-ly carried out by a temporary projectorganization. Even though the historyof the project management is connect-ed with management of large-scaleproduct development or capital invest-ment projects, recently some authorshave explicitly addressed the funda-mental role of projects in producingchange. Cleland (1996, p. 35) goes asfar as defining project as "somethingthat brings about change in an organi-zation" and has, in addition to featuresoutlined in definitions given earlier,"complexity, scope, or innovation be-yond the operational work of the en-terprise, a key role in preparing the or-ganization for its future, significant con-tributions by two or more functionalunits of the organization, an a directcontribution to the success or failure ofthe organization." He also claims thatproject management constitutes one ofthe main forms for converting an organ-ization from one state to another.

One of the possible reasons forthe bad reputation of the project man-agement discipline in managing changeis that during the past decades it hasbeen too often degraded to a collectionof planning and control techniques andtools, and seen as highly bureaucratic.But as early as 1959 Gaddis (as quotedin Cleland, 1994) referred to projectmanagement not in terms of tech-niques, but in multitude of approachesincluding cross-functional teams andimportance of communication.

Another reason for neglecting theproject management issues in changeprojects and organizational develop-ment activities may be the fact thatmany specialists of organizationalchange have a background on organi-zational psychology, leadership theoriesand human resources management, notin engineering or project management.Also the person in charge of a changeeffort is typically either a line managerof the organization or a specialist fromhuman resources function, internal de-velopment function or quality depart-ment. These people are experts in theirown special field of knowledge, for ex-ample day-to-day production activities,quality management, flexible manufac-turing systems or logistics, but have of-ten very little previous experience inproject management.

Specific features of changeprojectsEven though change clearly should bemanaged as a project, organizationalchange projects differ from traditional"hard" projects in many ways. Turnerand Cochrane (1993) have classifiedprojects to four categories according toclarity of goals and methods used, aspresented in Figure 1. The complexityof change project raises from the ill-de-fined goals and methods, as it is not al-ways clear what the actual outcome ofthe project will be and how it will beattained. Even when the goals of achange effort are measurable perform-ance improvements, the what can stillbe unclear in the sense that the designof the actual organizational and opera-tional solutions leading to these goalsis in itself an important part of theproject.

The most significant feature dis-tinguishing internal change projectsfrom external projects is the fact thatthe organization is changing itself, i.e.the members of the organization areboth suppliers and customers of theproject. This can lead to difficulties forinstance in determining project successor customer satisfaction and makes re-sponsibilities somewhat unclear. As thegoal is unclear and there are usually dif-ferent opinions about what actually isthe product of a change project - quitecontrary to traditional engineeringprojects - and the customer is not per-forming any final tests to approve the

product, the question of how to actual-ly determine the success of a changeproject becomes crucial.

According to a study of internaldevelopment projects - i.e. product de-velopment, software development andorganizational development - andproject manager's role the three majordifferences between internal and exter-nal projects are (Mikkelsen et al.,1991):

- Weak initial foundation ofinternal projects. Internalprojects are not based on a clearcontract and there are conflict-ing ideas and ambitions aboutthe project inside the organiza-tion

- Organizational developmentcontent. Development oforganization and personnel andlearning are among the mostimportant tasks in internalprojects.

- More competition of resourceswith day-to-day operations ininternal projects.The lack of contract is actually a

manifestation of the ambiguity in defi-nition of customer. In addition to thisinternal projects can be initiated fromany organizational level, and they some-times start as small-scale improvementactivities gradually turning to majorchange projects. This can lead to diffi-culties in attaining a project sponsor orproject champion. Mikkelsen et al.

(1991) emphasize that a clear visionand strong management support incombination with participative plan-ning and implementation are the keysuccess factors of internal projects.While traditional methodology concen-trates on the project life-cycle and thehard dimensions of project manage-ment, such as budgeting and schedul-ing, change project management needsto emphasize the human, organization-al and political aspects of the change aswell (Boddy and Buchanan, 1992).

According to Boddy and Bucha-nan (1992) distinctive features charac-terizing management of internal changeprojects include lack of earlier experi-ence from similar projects and difficul-ties in determining resources and timerequired, sometimes even difficulties indetermining the results of the project.Change projects tend to induce newchange needs in other parts of the or-ganization and thus make the scopemanagement difficult. In addition tothis the costs can be difficult to evalu-ate (Mitilian, 1998), as the bulk of thecosts can occur as internal labor costsof people attending development meet-ings and training sessions. Boddy andBuchanan (1992) also claim thatchanges are usually implemented inclusters and there may be multiplechange efforts simultaneously underway. This might be true but it hardly canbe considered as a specific character ofinternal projects these days, as that isexactly the way most project-basedcompanies operate.

In addition to these slow emer-gence of cultural and economic resultsmakes organizational change projectsmore complex than traditional projects.The more complex and people orient-ed a change project is, the more it callsfor organizational development toolsand techniques instead of hard systemscentered project management tools(McCalman and Paton, 1992). It seems,however, unjustified to totally discardthe project management approach andreplace it with organizational develop-ment methodology in such cases. Quitecontrary, the more complex a project isin terms of ambiguity of objectives,number of activities, unclarity of activ-ity boundaries and sequences, indeter-minate duration and resource require-ments of activities, non-technical ori-entation, and activity success largelydependent upon motivating people, themore systematic the planning and con-trol efforts should be. At the same timeFigure 1. Goals-and-Methods Matrix (Turner and Cochrane 1993)


it is naturally necessary to bear in mindthe flexible and living nature of suchprojects and allow for changes and iter-ation.

Project Management for ChangeAgentsAccording to the authors' experienceof organizational and operationalchange projects from varying fields ofindustry and of varying scope and goals,a great deal of "good old" project man-agement is always needed to achieve theplanned performance improvements.But the special features of changeprojects have to be acknowledged. Thecritical success factors of changeprojects and the skills required from achange project manager are somewhatdifferent from the success factors of tra-ditional external projects. These differ-ences are reflected in the change projectlife-cycle model presented in Table 1.It is based on the four-phase project life-cycle model of Adams and Barndt(1983), but the activities in each stageare supplemented by change manage-ment and organizational developmentmethods.

In addition to the clear changemanagement issues that naturally haveto be added to the agenda of a changeproject manager - just as a software de-velopment manager have to add soft-ware development issues to his - empha-sis and nature of some basic projectmanagement methods have to be al-tered somewhat for a better fit with thechange management context.

There are at least three practicalimplications that have to be account-ed for when applying project manage-ment in change projects. First of all aspecial emphasis should be put on goalsetting of the project to ensure that eve-ryone in the project has the same ideaof the objectives. Secondly, when plan-

ning the project, a special attentionshould be paid to resource allocationand scheduling to assure sufficient re-sources and enough time for learning.Third characteristic feature of changeprojects is the high emphasis on moti-vational issues in project control.

Setting the goalsThe goals of any change effort must bein line with the company vision andstrategy. It is important that the changeproject drives the company to the di-rection described in its vision statement.The connections with the vision willalso make it easier to justify the goals topeople dealing with the project andhelps them commit themselves to theobjectives.

As the progress usually can notbe measured in terms of materials as-sembled, it is crucial that the goalsthemselves are measurable either interms of performance improvements oras clearly defined structural and opera-tional changes. Otherwise it is difficultto determine whether the project teamis going to the right direction at a suffi-cient pace, whether the actions takenhave had the desired effect and, finally,whether the goal has ultimately beenreached. It is not rare to come acrossinternal change projects of which no-body can tell whether they were evercompleted or not

People readily commit themselvesto clear goals if they have participatedin setting them up and have had theopportunity to influence the contentsof the project. When planning a changeproject it is beneficial to have represent-atives from all stakeholder groups in-volved in the process. A brainstormingsession or some other participativemethod is a good way to scan the maindevelopment needs of the different per-sonnel groups and integrate them to theoverall goals.

Planning the projectThe ultimate purpose of a changeproject plan is to describe the projectso that all those involved understandwhat the project is all about. Anyoneever involved in a delivery project of apaper machine knows roughly what isinvolved in a delivery project of someother paper machine, even though themachines and projects may be very dif-ferent in many respects. But a personwho once participated in a re-engineer-ing project may have a completelywrong picture of some other re-engi-neering effort, as the terminology andmethodology of organizational changeis not well established. The problem isoften how to describe the differentphases of the project and the methodsused so that everyone understands themsimilarly and knows what is anticipat-ed of them. How is layout design car-ried out in practice? What does it meanto be assigned to a development team,and what are the tasks of differentteams? Why should the shipping depart-ment supervisors participate in plan-ning the operating principles of the as-sembly department?

An important part of planningand managing any project is dividing itinto manageable sub-projects and indi-vidual tasks. This is done to ensure thatall the necessary actions are includedand to form a realistic basis for sched-uling, resource allocation and budget-ing. Errors in dividing the project intosuitable entities are directly reflected aserrors in cost estimates and scheduling.Composing a work breakdown structure(WBS) is a standard part of the toolkitof every project manager, yet far too of-ten neglected completely in internalchange projects. A change project isprimarily dealing with people, not withtangible products and tasks with well-defined deliverables, which makes thecomposing of WBS more difficult, butmore, not less important than in lesscomplex projects.

In addition to WBS, previous ex-periences on corresponding projectsshould be used as a basis of schedulingand resource allocation as far as possi-ble. However, the problem with changeprojects is that they are usually con-cerned with new and unproven con-cepts and methods, with which nobodyin the organization has ever dealt withbefore. It is then naturally difficult toassess the workloads and the time need-ed for different tasks. The situation is

Table 1. Life-cycle model of change projects

further complicated by difficulties inestimating time and resources it takesfrom different individuals to learn newthings.

Getting sufficient resources inrespect of personnel, material and mon-ey is a prerequisite for a successfulchange project. More often than notthe amount of work needed on an ex-tensive internal change project is un-derestimated by a factor of ten. Chang-ing internal processes requires a lot oftime and effort, for even if it would beeasy to change the systems themselves,changing the personnel's ingrainedworking habits and deep held beliefstakes time.

As most personnel resources as-signed to a change project work for theproject on part-time basis on top of theirdaily duties, it is important to specifythe resource-plan down to the level ofthe individual person. This is again aroutine task in many external projects,but practically unheard of in the con-text of internal change projects. Forevery subproject, the time usage of everymember of the team is examined: howmuch time the members can allocateto the project? Any problems should bebrought forward at an early stage in or-der to secure additional resources ingood time.

Controlling the projectIn practice, a change project is usuallycoordinated and controlled in regularmonitoring reviews or meetings, andnot even basic project managementsoftware tools are used. In the reviewevery part of the project should be con-sidered from the viewpoint of schedulesand progress attained. With delays inschedule, also expenses tend to go updue to the resulting inefficiencies. Es-pecially in a change project costs areoften directly related to its duration, asthe wages of the people tied to theproject can be the most significant partof the total expenditure. With a delayin the completion of a task, it is good torequire the person responsible for thetask to produce a clear plan of how heor she intends to rectify the situation.Far too often change project are sloppyand uncontrolled, as no explicit effortis made to control the progress, makeadjustments to schedules as deviationsfrom plans occur, or reallocate resourc-es as needed.

Merely monitoring adherence toschedules is, however, not enough. Mostimportant function of project control

in change projects is to motivate peo-ple to strive for the project goals. A con-struction worker usually does his partof the construction project even with-out any extra motivating efforts or in-centives, as he gets paid for the projectwork. In the internal change projectmost of the people get their pay fromtaking care of their daily line responsi-bilities and keeping the customers hap-py, not from the development workdone for the project. It is the foremostresponsibility of the project manager tomotivate people and make them dotheir best for the project.

Active and open communicationabout progress and schedules is also animportant part of personnel motivation,as most people are enthusiastic to seethat the project is running well. If peo-ple don't know what has been achieved,they might feel that all their efforts havebeen in vain. Positive feedback is cru-cial. In contrast to a constructionproject where the daily progress of thework is clearly visible to everyone, in achange project it may seem that noth-ing concrete happens for a long periodof time, as most of the work might betraining and designing of new systems.It is thus important to try to visualizethe progress of the project through somesort of project chart that is frequentlyupdated and accessible by all involved.

ConclusionsThe need for understanding and mas-tering of all the techniques and meth-ods of project management is perhapsnot as critical in internal changeprojects as it is in large external projects.Nevertheless, every company engagingitself to a change effort should makesure that the project manager they as-sign for the project understands that sheis managing a project and has the capa-bility of doing that in a systematic man-ner.

Organizational and operationalchange projects call for a combinationof knowledge and skills derived fromboth project management and changemanagement. Neither the existingchange management practices nor theproject management body of knowledgeform a sufficient presentation of skillsrequired from a qualified change projectmanager. Change projects should bemanaged as projects with thoroughplanning and strict coordination, butbearing in mind that organizationalchange always deals with changing theway people behave and thus unavoida-

bly also with the sociological and psy-chological issues.

The article addressed the domi-nant human centered approach to man-aging organizational change, and arguedthat more, not less, systematic approachto planning and controlling of changeefforts is needed. The basics of projectmanagement were then briefly dis-cussed and it was shown that any or-ganizational change effort fulfills thedefinition of a project. Some probablereasons of organizational change usu-ally not being treated as a project werediscussed.

The specific features of changeprojects from project managementpoint of view were then discussed. In-ternal change projects are often unclearin what is to be done and how it shouldbe done, do not have a clearly definedcustomer, are highly dependent on peo-ples ability and motivation to learn, andare not the priority number one for thecompany. On basis of this a life-cyclemodel of change projects was intro-duced. The model combines issues ofproject management and change man-agement in a systematic manner. Thenthree key features of this model werediscussed in more detail: 1) goal settingof the project to provide well under-stood and manageable targets, 2) re-source allocation and scheduling to as-sure sufficient resources and enoughtime for learning, and 3) motivationalissues in project control.

ReferencesAdams, John R. and Barndt, Stephen E. 1983.

Behavioral Implications of the Project LifeCycle, in Cleland and King (eds.)

Alasoini, T. and Halme, P. (eds.)Learning organizations, learning society.Ministry of labor. Reports of nationalWorkplace Development Programme, reportNo 8. Helsinki. (in Finnish, in print)

Boddy, David and Buchanan, David A., 1992.Take the Lead: Interpersonal Skills forProject Managers. Cornwall (UK), PrenticeHall International Ltd

Bourke, Warner W. 1987.Organization Development: A NormativeView. Reading (Ma), Adison-Wesley

Cleland, David I. and King, William R (eds.), 1983.Project Management Handbook. New York,Van Nostrand Reinhold

Cleland, David I. 1994.Project Management: Strategic Design andImplementation, Second Edition. New York,McGraw-Hill

Dunphy, Dexter and Griffiths, Andrew, 1998.The Sustainable Corporation - organization-al renewal in Australia. St Leonards,


Australia, Allen-Unwin

Gareis, Roland 1998.The New Project Management Paradigm, inHauc et al. (eds).Pages 290 - 296

Hammer, M. and Champy J. 1993.Reengineering the Corporation: a Manifestofor Business Revolution. New York, HarperCollins Publishers

Hauc, Anton, Kovac, Jure, Rozman, Rudi, Semolic,Brane, and Skarabot, Andrej (eds.) 1998.Proceedings of 14th World Congress onProject Management, June 10-13 1998,Ljublijana, Slovenia

McCalman, James and Paton, Robert A. 1992:Change Management - A Guide toEffective Implementation. London, PaulChapman Publishing

Mikkelsen, Hans, Olsen, Willy and Riis, Jens, 1991.Management of Internal Projects.International Journal of Project Manage-ment, Vol 9, No. 2, May 1991.Pages 77-81

Mitilian, Gérard 1998.Concepts and Methods for OrganizationalProject Controlling, in Hauc et al. (eds).Pages 311-322

Moad, J., 1993.Does Re-engineering Really Work?Datamation, Vol. 39, No. 15. Pages 22-28

Nortier, Frederic, 1995.A new angle on coping with change:managing transition! Journal of Manage-ment Develoment, Vol. 14, No. 4. Pages 32-46

PMBOK, 1996.A Guide to Project Management Body ofKnowledge. Upper Darby (PA), ProjectManagement Institute

Revenaugh, D. Lance, 1994.Implementing Major Organizational Change- Can We Really Do It? The TQMMagazine, Vol. 6, No. 6. Pages. 38-48

Salminen, Antti, Korpi-Filppula Marko and LanningHarri 1999. Implementation and success ofchange projects (in Finnish), in Alasoini andHalme (eds.)

Salminen, Antti and Perkiömäki, Pentti, 1998.Evaluation of "Kaikki peliin" ProductivityCampaign (in Finnish). Publications ofMinistry of Trade and Industry

Schaffer, Robert H. and Thomson, Harvey A.,1992. Successful Change Programs Beginwith Results. Harvard Business Review, Vol.70, No 1, January-February 1992. Pages 80- 89

Turner, Rodney J. and Cochrane R. A. 1993.Goals-and-methods matrix: coping with ill-defined goals and/or methods of achievingthem. International Journal of ProjectManagement, Volume 11, No. 2, May1993. Pages 93-102

Waldersee, Robert and Griffiths, Andrew, 1996.The Changing Face of OrganisationalChange. Working Papers of Centre ofCorporate Change, Australian GraduateSchool of Management, Paper No. 065.Sydney, Australia

About the Authors

Antti Salminen

Helsinki Universityof TechnologyTAI ResearchCentre

PO Box 9555,FIN-02015 TKK

Tel +358-9-451 4762Fax +358-9-451 3665E-mail [email protected]

Harri Lanning

Helsinki Universityof TechnologyTAI ResearchCentre

PO Box 9555,FIN-02015 TKK


David L. Hawk, New Jersey Institute of Technology, USAKarlos Artto, Helsinki University of Technology, Finland

Keywords: Learning, Wisdom, Knowledge, Information, Data, Project Management, Project Manager, Project-oriented Business, Project Company, Internationalization

The article presents learning as a critical factor of success for project-oriented organizations. When new pro-ject situations require unique adaptations, learning becomes imperative to understanding and deriving impro-ved responses to what will be taking place. Learning involves moving to higher levels of abstraction, in order toevaluate a subject against its context. This fosters the processes of renewal and innovation, and responds to thegrowing need for project self-regulation. Complex conceptions of learning and confusion about its process can,on the other hand, impede it. Additional forces also impede learning to do things in a better, more useful way.The purpose of this article is to describe practices of individual and organizational learning for use at a compa-ny level above projects, yet keep a connection to individualized learning at the project manager level. Theauthors believe that the project managers, those who carry out the tangible company assignments, are the bestsuited to illustrate the advantages of learning for a forward-looking company. The article draws from a study ofindustry-wide adaptation and learning activities. Titled Conditions of Success, it was carried out with 60 inter-national project-based firms. The results illustrated the evolutionary role of learning and the business signifi-cance of it for firms that manage large, diverse projects.

CATEGORY: RESEARCH

Factors Impeding ProjectManagement Learning

Challenges of a Changing ProjectContextProject management education andexecution often begins with definitionssimilar to that found in the PMBOK(1996):

"Project management is the appli-cation of knowledge, skills andtools, and techniques to projectactivities in order to meet or ex-ceed project objectives and stake-holder needs and expectations froma project. Meeting or exceedingstakeholder needs and expecta-tions invariably involves balancingcompeting demands�"Project management is thus seen

to include a wide variety of subjects.These range from projects for develop-ing a new good or a service, projects fordeveloping or modifying a social organ-ization to projects for relating a techni-cal system to a natural setting. A projectcan be set up to produce or modify in-

frastructures, factories or buildings, orto bring new business processes intoexistence. This variety makes it difficultto describe projects in a way that is suf-ficiently wide to be inclusive, yet fo-cused enough to be useful. To furthercomplicate the defining process, projectenvironments can quickly get caught upin rapid change processes.

There is much that managers cando to manage projects in a more system-atic and integrative manner, yet they areoften encouraged to restrict themselvesto the tangibility of what is known andhope for luck. Projects present interest-ing circumstances that challenge rea-son while inviting luck. Recent articlesin the Harvard Review and a manage-ment book by Eisenhart (1998) discussthe phenomenon of rapid change linkedto the desirability of getting people toembrace it and "compete at the edge ofchange."We believe there is a need togo further than this by preparing project

managers with new theories for howbest to manage changing practice at theedge of their reality. In this article the-ory and practice are seen as mutuallyimportant to improvements in projectmanagement. Either acting alone isseen as deficient to growing challeng-es. We base these comments on the leg-endary dictum of the famous social sci-entist Kurt Lewin (1951), "there isnothing so practical as a good theory."In the telecommunications project in-dustry, for example, ignoring theorywould be to exclude knowledge as tohow best to move from second to thirdgeneration systems, while excludingpractice would have bypassed the ex-perience for why a move was essentialto the continuance of the industry.

It seems appropriate to applyLewin's sage wisdom to finding ways toimprove the practice of project manage-ment. We strive to support project man-agers who seek innovative ways to re-


spond to change they know is impor-tant, yet don't fully understand. An ar-ray of forces are behind these changedynamics, including a continual shiftfrom projects based on goods to thosefocusing on services, growing techno-logical sophistication of the production,delivery and operation systems, and anemerging decentralization of tradition-al hierarchical management structures.The complexity grows as the dynamicsof change overrun the remaining islandsof stability. So too does the gap betweenthe situations that we passively occu-py, and ones in which we would preferto be active participants. We proposethat learning is the most effective meansto manage complexity and bridge thegap to improvement.

Looking at the shifting themes ofprofessional management meetings il-lustrates the current rate of change.These meetings are shifting from fixedsupply-chain analysis, and mechanismsfor its prediction, command and con-trol to much more fluid means to man-age that which appears too complex tounderstand and too exciting to ignore.This can be seen in the theme of the1999 annual conference of the Strate-gic Management Society SMS (1999),a widely-respected management meet-ings. Titled "Winning Strategies in aDeconstructing World" the conferenceis about deconstructing contemporarytheories of the firm and the corporatestrategies that guide them.

"Deconstruction forces a funda-mental rethinking of some of thebasic principles of strategy withpotentially broad impact on con-cepts of the portfolio, forms of or-ganizational structure, styles ofleadership, mechanisms for acquir-ing and managing knowledge, andapproaches to uncertainty andrisk." (SMS 1999).

Formal Education vs. GenuineLearningThere is uncertainty as to what knowl-edge is, and which skills and tools willbest complement future project man-ager work. Perhaps the most we can sayat this time is that, under conditions ofchange, learning is very important whilebeing able to move to a higher level andlearning to learn, may be critical. If theintent is to improve project results, aswas stated above, through "meeting orexceeding project objectives and stake-holder needs and expectations" then

the support framework needs to includemore than the limited knowledge of for-malized education systems. They are toofixed to tradition and slow to respond.With the objective of expanding suchlimits, learning herein signifies upgrad-ing the larger cognitive context by ac-cessing higher level thinking activities.

Learning requires higher levelprocesses than education. Education isa formal process that has long helpedmembers of society to acquire knowl-edge. Its primary means are memoryexpansion and analytical exercises.Learning processes transcend memoryand analysis. They improve knowledgeby questioning the viability and validi-ty of what is known; i.e., always seekingto improve cognitive quality. Hereinthere are two major ingredients to thecognitive qualities of learning: ration-ality and non-rationality. All projectevents are presumed to contain a mix-ture of both. Rationality is the processof reasoning with oneself or others toarrive at a logical framework. This isimportant for communication and for-malization of common objectives andactivities to achieve them. Rationalityallows for clear identification of what isformally known and what can be donewith this knowledge. Reason points toopportunities that can be realized, andrisks that can be reduced or avoided.The danger is that project managerscome to believe that projects only in-volve the rational, or at least a manag-er should restrict his considerations tothat which is clearly rational. A largeworld exists beyond the limits of rea-son, and it can have significant impactsupon situations and how they improve,deteriorate or otherwise change. Thisis the area of the non-rational and in-cludes politics, religions, aesthetics, andsomething project managers call luck.It is easy to describe the educationalprocess for acquiring things of reason,but negotiating with the non-rationalrequires more; it requires learning. Thequestion then becomes how do youlearn about luck?

Luck is an everyday form of pre-destination. Risks of circumstance andmatters of timing are filed under goodor bad luck. As such, humans feel thereis little they can do to change, controlor manage such non-rationality. Here-in, learning is developed as a means todeal with the non-rational domain andmake it more susceptible to human ca-pabilities. There is a rich body of scien-tific literature emerging in this area that

combines recent knowledge of biology,chemistry, computer design and electri-cal engineering. The award winning sci-ence book of Steven Pinker (1997),How the Mind Works, outlines the mostrecent developments. The essence ofthe book is that we must learn to enter-tain questions that change the frame ofreference, not just the details in a con-tinuing frame. We have the capabilityto do so, but the pervasive attitude isthat we shouldn't. Pinker argues that wehave much greater capabilities than weuse. We can simultaneously deal withvery fuzzy and very clear things, yet thenormal mind prefers to simplify aroundwhat is known. Project managers pre-fer decisions made on economic, tech-nical or similar narrowly-derivedgrounds. Messy combinations are avoid-ed. Managers generally prefer clear de-cisions that are wrong, to ambiguousdecisions that have a good chance ofbeing right.

Leading companies now pay apremium for graduates who have devel-oped their abilities in learning to learn,instead of the traditional educationalemphasis on developing skill in predic-tion and control. Learning is one of themost desirable doorways into the future.It is an accepted prerequisite for suc-cess in a project company, as empha-sized by Artto, et. al. (1998) where theyintroduced the concept of learningloops. The learning, innovation andcreativity loop in project companiesemphasizes the crucial importance toproject companies fostering their peo-ple to develop self-regulating and inno-vative activities. Instead of reliance onfixed management methods, a projectcompany must employ knowledge in-tensive and flexible business practicesso as to ensure adaptation to new situ-ations. There must be room for innova-tive and creative solutions.

A distinction was made at theoutset between processes for educationand the learning process. Via education,assumptions about reality are acquired.For the second, the same assumptionsare questioned and criticized. Underconditions of stability, education is effi-cient and effective. Under dynamicconditions, effectiveness requires learn-ing. Loop learning theory illustrates this.It is able to encourage exploitation ofexperiences and business practices thatfurther facilitate learning by the organ-ization. A new management paradigmin a project-oriented company, with aspecific emphasis in learning, is suggest-

ed by Gareis (1996). It contains a dis-tinction between individual learningand closely related team and organiza-tional learning schemes.

The authors of this article recog-nize the importance of organizationallearning and intend to address it, how-ever, the basic hypothesis behind thecontent, as based on the authors' expe-rience, is that important strategic andforward-looking decisions generally oc-cur at project manager and operativelevels. Thus, the purpose of this articleis to provide a theory for introducingthe practices of organizational learninginto a company at an organizational lev-el just above projects. To do this effec-tively, we feel that the organizationallearning must accommodate the cen-tral problems of project managers' andrespond to their needs for individuallearning. Project managers are increas-ingly important in the current climateof needing to decentralize authority. Aproject, for purposes of this article, isan organized, multiple-person, set ofactivities directed towards improvingthe situation of those involved. In thisway it excludes individual actions di-rected at narrowly-defined self-fulfill-ment. Project management learning,obviously needs to result in improvedmanagement of projects, but this mayincreasingly involve learning to manag-ing projects in non-traditional ways.

Project management researchgenerally concentrates on issues of effi-ciency in answering questions as given.It generally avoids challenging the un-derlying questions of what is projectmanagement and why is it different fromother forms of management, e.g., man-aging repetitive manufacturing regimes.We attempt to open up some deeperquestions that address the effectiveness.They can generate significant debateand chances for significant progress, buttend to get "sticky" for those involved.Some stickiness is acceptable and need-ed to see if the right questions are be-ing asked. The alternative is to contin-ually improve the efficiency in answer-ing the wrong question. We need to re-consider the questions that projectmanagement asks. This builds on thePeter Morris (1998) Project Manage-ment article and the Karlos Artto(1998) editorial. Their concern is lesswith improving projects under condi-tions of stability, and more towards cre-ating a better future during states ofchange.

An Evolutionary Perspective onLearningA new context for learning is needed.An initial attempt is outlined in thissection in order to support learning andhelp improve project management at ahigher level. Developed several decadesago, it presents a different sense of whatlearning does. Generally neglected, of-ten forgotten and frequently misinter-preted, this frame is used here insteadof its recent prodigy because it providesmore insight for responding to change.The newer "translations" lose some-thing and can lead to tangents anddead-ends. Some aspects of the work ofSchon and Argyris (1976), and Nona-ka (1996) illustrate this. The frame be-gins with Kurt Lewin's model that linksthe concepts of learning and change(Lewin 1951, p. 66):

Within what is called learning, wehave to distinguish at least the fol-lowing types of changes: (1) learn-ing as a change in cognitive struc-ture (knowledge), (2) learning asa change in motivation (learningto like or to dislike), (3) learningas a change in group belongingnessor ideology (this is an importantaspect of merging into a culture),(4) learning in the meaning of vol-untary control of the body mus-culature (this is one important as-pect of acquiring skills, such asspeech and self-control).All four changes can be impor-

tant to improving a project manager'sactivities. The improvements rangefrom high-level negotiations with thatwhich leads to significant change in thecognitive context, to simple accommo-dations of minor modifications to move-ment. All four types are interesting butthe emphasis in this article lies in thisfirst area, in the changing of cognitivestructure. A small elaboration on eachof the other three is given in the fol-lowing before returning to the first type.1. Change in cognitive structure

sponsors innovative, and unpre-dictable, behavior and is perhapsthe most critical to changingstructures in project managementactivities. This is important whenstructural change is needed tomeet the challenges of complexi-ties and environmental shifts. Thiscan be seen in project situationsthat require shifting from strictBritish hierarchical chains ofcommand to Japanese autono-

mous work groups.2. Change of motivations, and

finding new motivations, isespecially critical to keepingproject quality at a high level. Thisis where a practice, or result, thatwas previously considered accept-able is seen in a new light thatreclassifies it as substandard.

3. Changing group culture is a meansfor individuals to find new ways towork systemically within a group,a project team, and a companyculture, and is one of the long-standing factors of success for aproject manager. The interestedreader is advised to consult Lereim(1997) for recognition of differentgroups and related cultures such asdifferent engineers' groups, cultureof the company, and individuals'/people's own culture.

4. Changing ergonomic tangibility isalways helpful for certain tasks.Traditional measures of projectproductivity arose from this area oflearning. Many decades ago youngstudents were given tests in thisarea to help determine what kindof profession or trade they shouldbe directed towards in their laterstudies. Via the growth of impor-tance of computer driven workthese tests have been largelysuspended.

The first Type of learning, changein cognition that underlies knowledge,appears to provide a fruitful platform forimproving the current project environ-ment. This is because cognitive changeis the most significant, and a signifi-cance is needed to respond to the highchange-rate now taking place in projectinitiation and execution. Even thoughcognitive learning operates at a highlevel it has obvious links to traditionalproject management concerns, e.g., ithelps with finding the best traits of anew employee? It is better to seek em-ployees that illustrate a depth of knowl-edge in a specialty, or to find people withless depth but are able to learn fast? Theanswer of course also depends on con-textual issues of company characteris-tics, location and expectations. Suc-cessful project management firms illus-trate success through emphasizing bothextremes. A very successful major in-ternational firm that participated in thestudy described in the next section hiresfrom both extremes, although they are


now shifting to the learning side. Theirchoice was initially based on the coun-try in which the individuals will workbut is now trying to respond to theproject change rates in most countries.

The model of learning presentedhere clearly favors finding employeeswith abilities for learning to learn, overcapabilities in knowing. There are sev-eral reasons for this, where the mostimportant one may come from the lim-its of pragmatism. This dilemma con-fronts the historic limits of knowledge.The dictum of pragmatism has been, "Ifit works, use it!" The dilemma is whathappens when it doesn't work? Projectpragmatism worked very well in the1950s, and later, but has gradually be-came less and less successful. In the tur-bulence of the 1990s it has almost beenabandoned. The philosophy of pragma-tism, especially American pragmatismof the 1930s as described by Will James,John Dewey and Singer, provided a pro-found foundation for American project,business and educational development.James (1978) illustrates this most clearlyin his work in the 1930s. He found whatworked and helped to place it in prac-tice. The American approach to indus-trial management and developmentmade rich use of this philosophy, but thedilemma for the school, and for Ameri-ca, eventually arose when "whatworked" was no longer so obvious. U.S.Society then had to turn back onceagain to its base in research and theorybuilding. While initially done for secu-rity and space exploration reasons, theknowledge gained therein has found itsway into project management.

The following outlines a theoryof learning that was important to U.S.self-criticism and the push to developresearch. It emphasized Lewin's firsttype of change, as outlined above,"Learning as a change in cognitivestructure." This is a change in the cog-nition of what is and isn't. It helps inresponding to situations where "prac-tice doesn't work." And fundamentallynew knowledge is needed. This need ispresented in five different levels in thefollowing, where the progression is fromless to more significance.

The essence of this theory oflearning is learning by asking questionsat ever-higher levels. Using this, aproject manager could manage changeby the questions he asked. Known as theSocratic method, where the essence ison dynamic thinking so as to be more

sympathetic to the process of change,this activity avoids formalization andfixations. It has long been the underly-ing method of developmental science.The anthropologist Gregory Bateson(1973) was the author of the structureof the theory of learning used in the fol-lowing.

Learning at Different LevelsFive levels of learning are suggested inthe following. They lead up to the cog-nitive changes suggested by Lewin out-line in the previous section. They are:

Zero learning - No learning takesplace here. The activity is characterizedby simple and direct responses, which,regardless of whether they are right orwrong, are not subject to any change orcorrection. (For example, there is acommand and control simplicity, wherehierarchical orders are given and takenwithout question.)

Level I learning - This is changein aspects of specific responses. Correct-ing errors of choice is allowed, but onlywithin a narrow range of alternatives.(For example, alternatives to a set ofproject specifications are allowed, orgiven.)

Level II learning - This is changein the process of Level I; such as mak-ing a corrective change in the set of al-ternatives from which a choice is made,or change in how the sequence of ex-periences are punctuated. (For exam-ple there is a moving between assign-ments, or learning to do a variety ofjobs)

Level III learning - is change inthe process of Level II, e.g., a correctivechange in the system of sets of alterna-tives from which choice is made. (Weshall see later that to demand this levelof performance of some men and somemammals is sometimes pathogenic. Thiscould involve redefining the sexual hab-its of men in a protestant community,or to have those building nuclear pow-er stations to switch to photovolteic sta-tions.)

Level IV learning - is a changein Level III, but probably does not oc-cur in any adult living organism on thisearth. Evolutionary process has, how-ever, created organisms whose ontogenybrings them to Level III. The combina-tion of phylogenesis with ontogenesis,in fact, achieves Level IV. (This wouldinvolve people learning to not go to war,to achieve a new relationship to na-ture.)

Learning is a vehicle for building,upgrading and setting aside fixed knowl-edge, and making room for new knowl-edge. In this way knowledge is placedin a context where it can be evaluatedand improved. This differs from howknowledge might be conceived in aprocess such as competence building,where the act of questioning is given alow priority. In the above model, learn-ing begins at level II. The learning firstexamines the presuppositions about anaction to be taken, just like Socratesdelving into ever-deeper levels of whatis known, in order to access the mind.This is like a project manager askingwhy something is being done instead ofhow to do it? It opens up a new area ofhuman potentiality but can easily leadto confusion associated with accompa-nying dilemmas, double binds and con-tradictions without obvious exits.

Double binds, as first identified byBateson (1973) are situations where ina project situation you must give a "gift"in order to gain a contract, yet yourhome country's laws say it is illegal togive any such "payment" to potentialclients. Closely related to this, but in amuch more popularized manner was thekey concept of Joseph Heller (1994),called Catch-22s. These are similar todouble binds, except more ironic anddynamic. In a Catch-22 situation therules keep changing, yet the participantsdon't know why or how. Studies of thedesign process illustrate how creativityis directly linked to effective generationof responses to double binds and Catch22s. Perhaps this is why design is in-creasingly seen as an important skill inmany firms in most industries. (Hawk,1992) The logic for Learning II helpsset the basis for this by assessing whatwe think we are capable of, and theneliciting creative responses to changethe basis of these thoughts. This hasbeen used to help project managers andother kinds of workers deal with change.(Hawk, 1992)

Learning III is different. It offershigh learning rewards once accessed,but humans have great trouble access-ing it. One reason is that humans tendto be tied to hierarchical processes thatin fact probably don't exist in the mind,and this kind of learning is non-hierar-chical. The limitation is greatly easedhere when humans leave behind thesecurity of hierarchical structures. Lead-ing international firms, e.g., ABB, illus-trate some of what this means. This is

consistent with current developmentsin management theory where hierarchi-cal structures are being broken down,or left behind. Non-hierarchical formsof learning begin to emerge in level IIlearning but are not critical until levelIII. Bateson argues that there is no evi-dence of any humans being capable ofaccessing learning in level IV. He be-lieves that only evolutionary develop-ment in nature illustrates this learningform.

Firms are looking for ways tomanage the challenges they face whentraditionally separated business practic-es become ever move tightly woven intoa systemic fabric. Magazines and jour-nals commonly refer to this as increas-ing complexity. Emerging models ofproject management parallel this devel-opment and reach for ways to deal withgrowing site chaos and complexity. In-creasing sophistication, technologicalcomplexity, and continuous environ-mental change challenge discipline-based approaches. This may help ex-plain the growing importance of theproject concept in helping to cope withgrowing complexity. Recent articles(Runeson and Skitmore 1999, Stocksand Singh 1999, Price and Mangin1997) illustrate the need to go muchfurther and move to higher levels oflearning. Our objective is a model oflearning that supports this work.

Learning Inputs: Data,Information and Knowledge &WisdomIt is important to distinguish betweenwhat is and is not learning. Part of thiscan be seen in the shifting focus of con-cern for learning over the years. Shiftshave been taking place in universitiesand companies since the 1950s. IBMillustrates this clearly. The sixties, wastruly an age of data. Data collection wasthe prime objective. More data was al-ways better. IBM seized the conditionsto attain tremendous growth by help-ing people collect data. During the ear-ly seventies the focus shifted from datato its organization. IBM's worked to re-define itself around what they thoughtwould be an emerging era of informa-tion. They articulated the key conceptsof management information systems(MIS) as designed systems to organizedata and give information. The era ofMIS continued into the late eighties,when it was discovered that havingmore information was not the same as

being more informed. Issues of knowl-edge and competence were beginningto enter the discourse. "Knowledge cre-ating firms" and "knowledge assets" be-gan replacing the MIS terminology.

It is likely that this progressionwill continue. If so, it is possible thatwisdom may become an emphasis in thefuture. Knowledge is organized informa-tion, and information is organized data,but wisdom is not hierarchical, cumu-lative, linear, obvious nor organizedknowledge. In fact, it may begin withthe disorganization of what is known,and a discarding of some knowledge.The search for wisdom will not be soeasy.

As Figure 1 illustrates, the key tomoving from one stage of an operationto another is to shift to a higher form oforganization. Organized data becomesuseful information, just as organizedinformation becomes knowledge, andorganized knowledge allows access towisdom. The above schema illustratesthe depth of the problem, not the solu-tion. Those devoting their lives to dataend up finding small challenges. Theycan live with an easy belief that more isbetter - a million data points is obvi-ously superior to a hundred thousand.Much of the work of Wharton's LarryKlien, and more recently Harvard'sMichael Porter, illustrates the tenden-cy to seek knowledge from assemblingdata, but not organizing it. This well-grounded approach was handed to thesocial sciences from classical physics inthe last century. The world of pre-He-isenburg, pre-chaos and pre-complexi-ty allowed data to rest in positivisticobjectivity so that truth might arise fromit. Modern science has become muchmore skeptical and demanding. It looksfor qualitative differences in data, makesthe filters for seeing it more explicit, andrequires more innovative methods forgiving it a sense of organization.

A fascination with the idea of "in-formation" is more recent, but here too,

there was a belief that more is better,although the believers had to workharder to remain faithful to the ideolo-gy. When they came to believe that in-formation is everywhere, and everythingis information, and via the use of ad-vancing technology they can eventual-ly gather and organize all informationad infinitum they eventually began toask deeper questions. The Human Ge-nome Project (the US National Insti-tutes of Health project to find and clas-sified all DNA) exemplifies this.

It is interesting to note that theearly development of information sys-tems began with discussions about thedifference between information andwisdom. Data was presumed to simplybe there as a resource. Several of theearly Bell Labs people concentrated onthe information level via their theoryabout the importance of getting themessage between A and B. Simultane-ously, Norbert Wiener, Gregory Bate-son, et.al., (1972) tried to redirect con-cern from information and to meaningvia cybernetics means to clarify mean-ing and improve human wisdom. Bate-son in particular argued for rising abovethe limits of rational human thought inorder to get beyond what he then called"unaided rationality." This was an earlyarticulation of Nobel Prize winner Her-bert Simon's concern about operatingwithin "bounded rationality." Within adecade both concerns were buried un-der a quest for data, and technologiesfor its management. This was the hard-ware problem that IBM eventuallyturned into a 1974 software problemwith design of the MIS challenge. Thisbecame the doorway into IBM's softunderbelly that Microsoft since tooksuch great advantage of. Many tools forproject management were developedalong the way of this evolution, but allhave been disappointing.

Reaching Towards WisdomInterest in information is the current

Figure 1. Learning Stages


focus of information sciences and someareas of management theory. It is herethat the dilemma of meaning surfaces.While those lower on the informationfood chain concentrate on how to makemen think like machines, those at ahigher level try to make machines thinklike men. In his development of heter-archical and N-Form (knowledge-seek-ing) organizations Gunnar Hedlund,(1994) attempted to avoid both groupsand look instead at the bio-chaotic,holographic processes involved inlearning. This work could be very help-ful to managing projects, as it has beenin firms like ABB.

During the past years, manage-ment concerns have moved towards theidea of knowledge creation, with con-cern as to what knowledge is. The workof Hedlund (1991) and Nonaka (1996)illustrates this emergence. They beganwith the model of learning used hereinbut then developed it in a direction thatallowed it to initially seem more opti-mistic, but eventually was seen to lackthe potential of the initial model. Theyavoided the highest level of humanachievement, called wisdom, in thatthey felt it was too difficult for humansto relate to. Based on work in a LucentBell Labs project, e.g, Hawk (1994), itmay be that they were right, and thatwisdom may be of a very different logi-cal type than knowledge, but it remainas important. Meaningless knowledgecan in fact be shown to get in the wayof wisdom, and meaningful knowledgerequires avoiding of useless information.This is consistent with the Japanesebelief that it is important to forget whatwas known in order to learn to do thingsin new ways. The key question thenbecome, if learning is such an obvious-ly good idea, why is it not an integralpart of business organizations?

Heresy often accompanies wis-dom, in that wisdom is often precededby the asking of questions about themost closely held beliefs in a given sys-tem. Heresy is where a member of a"church" ask fundamental questionsabout the basis of the church; e.g., "whatdo of rules of the church really mean?"Whitehead and Russell, in, PrincipiaMathematica (1997), set the stage forthis process when they established thetheory of different logical types. Thecontent of Figure 1 is set up as a logicaltyping model, not a hierarchicalscheme. It is a logical framework thatallows modeling of the resources that

can go into learning as segmented orintegrated inputs. Whitehead and Rus-sell saw learning as a doorway into waysto organize and then question closelyheld assumptions. Their model was in-strumental to early development of ide-as about communication and informa-tion technology.

In an era of increasing applica-tions of information technology, andthus increasing the importance of self-regulation and decentralization of au-thority and information, theories suchas Whitehead and Russell's are impor-tant to decentralized discourse. Thissets the stage for significant innovationand variety. Eric Trist's afterword in CalPava's (1983) book on how informationtechnology decentralized the manage-ment of work addresses this point in anespecially helpful manner. This workintroduces the concept of deliberationas a key aspect of improved operationsand management, where informationtechnology is especially adapt at in-creasing the possibilities for project de-liberations around alternatives and im-provements. This can be helpful toproject management firms that mustprepare their employees for these newcontingencies, potentialities and dan-gers. As Trist pointed out, the stumblingblock is the conventional industrialmodel of control that has great difficul-ty with complexity.

"In conventional technocratic andbureaucratic organizations thestructural foreground is occupiedby static positions that delineatethe responsibilities of the office-holders and their authority to dis-charge them. These positions con-fer ownership of expertise and ac-cess to privileged knowledge inways the falsely politicize the res-olution of complex issues depend-ent rather on pooled knowledgeand interpositional collaboration."(1983, p. 167)

Impediments to ProjectManagement LearningThe model of learning described anddiscussed herein is for project manag-ers and firms who are driven to find waysto improve what they do and how theydo it. Many firms are members of thisgroup, and they wish to respond by ex-perimenting with innovative learningprocesses. What then stands in the waythey and their most motivated employ-ees fully embracing the learning proc-

ess described in the prior section? Whatare the impediments to learning?

Human endeavors are exceeding-ly complex phenomena. They are com-plicated to begin with, and then afterwe invest a great deal in understandingthem, they seem to move and changeinto something else entirely. An earlyimpediment to learning thus becomesthe notion that "learning isn't worth thetime and trouble it takes." This is sooncountered by a realization that thechange process itself must be learnedabout so it can be managed, thus learn-ing needs to be moved to a higher levelwhere it can in some ways anticipatechange. This sometimes leads to at-tempts to manage change, thus callingfor learning at an even higher level ofoperations.

There are other impediments toproject management learning that,when examined more closely, becomestrong arguments for learning. One ofthese is the strategy for dealing withgrowing complexity by avoiding it.Project managers have widely notedthat the projects must manage appearto be getting ever more complex, andincreasingly difficult to comprehendand manage. This is due to the growthin number of project parts and the in-crease in relationships between parts.The concern is highest when complex-ity is directed linked to an expensiveproject failure that resulted from a fail-ure to understand. Many believe theonly response to this is to invest morehours, thus leaving no "spare time"available for "learning." Research illus-trates that a simple addition of morehours seldom aids in management ofcomplexity. When we say something iscomplex, it's a sign that we don't un-derstand how it is organized, thus weneed to learn about organizational prin-ciples and other things at a level abovethe project. Since complexity is gener-ally in the eye of the beholder, not thephenomenon being viewed, it is theviewer's vision that needs improved, nothis work efficiency. The complexity ar-gument that normally inhibits learningthen becomes a key argument for whylearning is essential.

An additional class of impedi-ments is just as important although lessobvious. These impediments can in-clude how a method for doing some-thing in a closely specified way can be-come a rationale for not doing it better.This can also be called attitude, where

method and attitude can reinforce theweaknesses of each, especially if bothare conceived as closed systems. A newmethod can temporarily open up theprocess, but often ends as up as anoth-er fixed recipe. It too can quickly loseits capacity to handle new inputs. Thehistory of operations research (OR) il-lustrates the process.

Impeded Operations Research asImpeded LearningMuch can be learned by looking at thehistory of a significant discipline thathas long been important to project man-agement education and practice. Calledoperations research, it has passedthrough a life-cycle of birth, rapid rise,stagnation and fall from grace. Exam-ining it illustrates the process of knowl-edge building, organizing and obsoles-cence.

OR methods have been usedthroughout project management. EarlyOR leaders believed that its seven pre-scribed problem-solving methods couldbe used to solve all human problems.The creative challenge was to describeproblems so that they could be fittedinto a method's framework. The mostinnovative stage of OR developmentcame out during the life-threateningurgencies of World War II. It saw rapidimprovement during the 1950s and bythe 1960s was common to most con-ceptual and operational decisions ofleading organizations. By the 1970s,leading firms had begun to move from afocus on OR, where those most skilledin its methods were placed at the or-ganization's margin. Firms were by thenlooking for methods and people thatwere systematic, systemic and strategic.

A great deal of effort was put intoapplying systems theory, communica-tion theory, management informationsystems, and strategic warfare scenari-os to the emerging challenges of busi-ness. Change has continued where cur-rent attention is now with use of neu-ral networks to design and manageprojects. It seems that just as a set ofconcepts become clarified and opera-tional, i.e., rationally useful, they are nolonger capable of accommodatingchange. Since change seems endemicto the project process what shouldproject managers do? Analyzing the de-velopment of one of the leaders in theinitial effort to apply OR, and then toabandon it, may help highlight the proc-ess.

Russell Ackoff was centrally re-sponsible for bringing science to projectand operations management via devel-opment of operations research. His var-ious text-books on different operationsresearch (OR) techniques and theirapplications to business needs havebeen used throughout the industrialworld. His 1962 book, Scientific Meth-ods, was translated into 26 languagesduring its first two years (Ackoff, 1962).It became a model for modeling efficien-cy and quality analysis in many indus-tries in many countries.

Ackoff turned away from this tra-dition in 1974, and left its focus on pos-itivism, quantification, CPM and PERTcharts. He then published an alterna-tive to traditional project operationsmanagement which he called "projectredesign." (Ackoff, 1974) Instead ofstruggling with management of themore problematical aspects of projects,he advocated their redesigning. He ar-gued for tapping into the underlyinghuman capabilities linked to learningand innovation. He criticized his earli-er OR methods for having become toofocused and fixed, and unable to re-spond to the dynamics from growingchallenges. He argued that businessproblems were changing more rapidlythan the methods set up to managethem. He felt that OR had stoppedlearning, and that this had happeneddue to the arrogance it attained fromits early gains.

Proactivist Attitudes as anImpediment to LearningAttitude can also be an impediment tolearning. "Proactivism," while effectiveunder some conditions, can impede thewill to learn new things. Ackoff illus-trated this for managers in terms of themodel in Figure 2. He wanted to en-courage an interdisciplinary, interactiveapproach to problem and project man-agement but found that certain atti-tudes would get in the way. Figure 2 il-lustrates this in terms of four differentapproaches to dealing with the future.These approaches can also be called"postures." They are the reactivist, in-activist, proactivist and interactivst.- Reactivists were those who felt the

best future and best chance forthem lay in a context that resem-bled the past. Thus, each decisionthey would make would be anincremental effort to bring thepast into the future. They often

prefaced a decision-point with thecomment: "In the good old days,we�"

- Inactivist preferred the sanctuaryoffered by the present. Theirdecisions, and work, attempted tokeep things from changing. Theyrely heavily on committees to slowdown, or eliminate good ideas, and"keep things from happening."

- Proactivists were quite different.They either longed for the hopethat could be offered by the future,or felt it was inevitable and thusthey should improve their role init by getting there prior to others.They continually searched for thenext wave heading for the future,where these were primarilystructured by new technology.

- Interactivists were of a differenttype. They felt that the predictionand forecasting basis of the otherthree was counter-productive tothe dynamics of living systems.Instead of building better informa-tion for a more efficient centralcontrol, they seek to decentralizeresponsibility so individuals canwork out the qualities of informa-tion in real time. They are moreinterested in "creating" a futurethat ought to be, instead to tryingto predict what is assumed toinevitable. The interactiveparticipants are to be members ofthe other three groups, since thoserepresented all available people.

Figure 2 is not from Ackoff's mod-el but illustrates how attitudes towardstime can become an impediment tolearning. Ackoff's model points to theimportance of problem solving that canstep outside the limitations associatedwith time. There is a deeply seated ten-dency to rely on time to resolve prob-lems, such as difficulties in project man-agement. Via prediction, forecastingand/or simply waiting, it is hoped that aresolution will occur. This is one of themost important and most commoncharacteristics of problem solving meth-ods. It can be avoided, thus encourag-ing a more active, innovative and inte-grative stance.

The Ackoff scheme is growing inimportance just now. This may be be-cause the proactive manager is current-ly the object of affection in most maga-zines and consultant recommendations.Managers are counseled to become"more proactive" in what they do. A


proactive person is thought to be themost ideal form of manager in 1999. Inthe original 1974 Ackoff model, theproactive person was thought to be fartoo compliant and complacent. He de-picted proactivists as closely tied to pre-diction and control strategies, and un-willing to tap into the significant po-tentials in redesigning and reinventingimproved futures. Proactive choices, asdefined by the author of the concept,were intrinsically linked to and limitedby time.

An interesting question is why, inthe later 1990s, does management em-brace part of the Ackoff model but onlyfirst three-fourths of it? In a context ofthere being many possibilities for futuredevelopment, due to technological (in-ternet) and managerial changes (decen-tralization of control), it seems that theinteractive posture is now much moreappropriate and viable. It provides greatpotential for improved project manage-ment. There are many additional im-pediments to learning that need to beconsidered. Three examples are.1. Comfort can get in the way of

learning. Being comfortable hasoften been an impediment tolearning. When we accept thestatus quo we are no longer verymotivated to change it or prepareourselves to deal with unexpectedchange in the future.

2. Client beliefs can impede learning.Clients are not always right. It hasbecome fashionable to say that adecision depends on the client butthis in fact has become an easyway out of a situation that de-mands more of the project manag-er. Often a client does not knowwhat to do. That is sometimes whya project is launched in the firstplace, and why it must be innova-tive.

3. Profit is seldom complementary tolearning. Profit is not the mostimportant aspect of a project.Assuming that a project is set upto accomplish some improvement,in not profit the objective of theproject, but a reward for accom-plishing it. This is a criticaldistinction. The idea that we areout to make a profit is often usedfor ignoring learning, research anddevelopment activities.

Information about these and oth-er impediments to learning was gainedfrom a study project done at the Stock-holm School of Economics under thetitle of Conditions of Success (Hawk1992). It involved 60 internationalproject-based firms and is outlined inthe following section.

Examples of Project Learningfrom the Conditions of SuccessStudyA major international managementstudy, titled "Conditions of Success,"was carried out by Hawk (1992) duringthe period from 9/89 - 6/92. It was setup to help the participants better un-derstand what their world would be likeat the end of the century, and how bestto locate themselves and their compa-nies within it. The work was funded anddirected by the participating companies,which included 60 major internationalfirms from seven countries: England,Finland, France, Germany, Japan, Swe-den and the United States. Eighteen ofthe world's largest construction firmsparticipated, as did several large engi-neering, design, component manufac-turing, materials and financial organi-zations. A few major clients were alsoinvolved. The essence of the project wasan action research venture to help par-ticipants learn how best to internation-alize as they studied what it meant for

their industry. Incorporating learningcame to be an important subject in thestudy.

The study was of company inter-nationalization in an industry organizedaround project business. The industryhad been slow to consider the conse-quences of globalizing its business meth-ods and operations. The participatingcompanies defined their industry as onethat provided building, water, energyand information infrastructures so as tosupport the activities of other indus-tries.

The study began with a presump-tion that no human activity is success-ful, or unsuccessful, in abstraction. Suc-cess factors depended upon the rela-tionship of an act to a set of conditionswithin which the act is carried out. Thecomplexities increase as the conditionschange, which generates new acts, andleads to new relationships, which inturn can generate new conditions. Sur-viving in this environment requirescontinuous learning, where learning isdifferent than the process of continu-ing education.

One example from the study cen-tered on the practice of constructionmanagement (CM), as it began in the1970s, as a form of project management.For some applications CM was the rightapproach, while for others it was dis-tinctly wrong. The complexity was thatany use of CM, right or wrong, couldlead to changes in context. This meantthat CM success in the short term de-pended on the conditions where it wasapplied, yet over the longer term a mi-nor or even wrong application of CMcould then spread to generate new con-ditions where CM was highly success-ful. An example of this is outlined inthe following.

A large Swedish constructionfirm, participating in the study, arguedthat construction management mightsometimes be helpful, but that itshouldn't be allowed in Sweden. "InSweden only general contracting shouldbe allowed." CM, as it was used in theproject, refers to the principle where acontractor has a very different relation-ship to a client. They take responsibili-ty for a project in the form managingthe work of sub-contractors to achievea fixed price delivery of set objectives.General contracting, in the Swedishcontext of the time involved having le-gions of internally employed workerscarrying out a cost-plus or related

Figure 2. Attitudes for Solving Problems

scheme. Risk and responsibility man-agement were handled very different inthe two approaches. This situation ofthis major firm being fervently againstCM was especially interesting to theother participants in the study, sinceoutside of Sweden the same firm hadswitched to only doing contracts via theCM process. Participants were interest-ed as to why the difference?

The answer came from under-standing the conditions of national andindustrial structure, and how incomewas accrued in the Swedish construc-tion industry at the time. The firmcould, at least for a few years beyondthe study, resist the obvious conclusionsthat construction management was agood idea for clients although it wouldcreate new challenges for constructionin Sweden. As long as they could con-trol the national context, and keep theadvantages of general construction,they would. They could not do this in-ternationally. In other countries theydid not have the control option and hadto be more adaptive. Over the next fiveyears they developed a very high formof CM in non-Swedish projects; i.e.,they learned a great deal. The same firmis now much more successful in theirinternational work than the work theydo in Sweden. Officers in this companyrecently discussed this "lag in learning"in their home context, and the long-term price they had paid for short-termrisk reduction at home. They are thank-ful for their international operations.This illustrates a clear difference be-tween the educated knowledge of whatto do at home and learning that had tobe done to meet new challenges andrisks abroad.

The study focused on the issue oflearning at the level of the executivesthat participated in it. This was to setthe stage for learning within their com-panies and their industry. The study wasstructured around concepts of productdevelopment, since most other indus-tries had already internationalized viathese concepts and thus a great deal wasknown about what worked and whatdidn't, but these were brought down tohelping to manage projects. In thisframework the study worked to identi-fy the best information, knowledge andneed for learning over the next decade.A hint of this can be seen in what theindustry felt to be the most promisingbusiness development ideas over thenext decade. This was then used for the

industry to identify its main researchpriorities during the same period. Final-ly, this was seen in light of the criticalfactors to applying or not-applying thenew knowledge that had been gained.This collection of information was thento be used as a basis for learning. Thestream of the inquiry is indicated by theconclusions outlined in Figures 3-5.

In the figures, the information isarrayed in terms of national clusters,pointing to differences and similaritiesbetween countries. This was becausethe individual company responses need-ed to be kept confidential and thusgrouping them with others from theirown nation made them opaque yet pro-vided rich information with which eachcould ascertain where they stood.

Figures 3, 4 and 5 offer some re-sults from information generated in thestudy. The three charts focus on thelearning aspect of organizational andindustrial development as it was definedwithin the study. The numbers repre-sent composite scores for all studiedcompanies from each of the seven coun-tries. They were combined to mask theirindividual identities, while presentinga national perspective towards the var-ious topics being studied.

The numbers represent the pri-orities of each category. Number one isthe highest priority and number sevenis the lowest. The dash line means thatthe topic, while proposed by the com-posite group, was not under active con-sideration by country group. The cate-gory of "other" refers to something anational set of firms was looking at, al-though it had not been included in theformal list from the composite industry.

For example, "lateral thinking"was thought to be the most promisingbusiness idea for the UK and US firms,and "decentralization" was the leastpromising area for future business de-velopment of UK firms. Meanwhile,Swedish firms were looking into "oth-er." The figures point to individual andorganizational learning as critical tosuccessful internationalization of theindustry studied. There was a consen-sus that the "industry" would need tohelp the companies and their peoplemove beyond formal education and to-wards "learn to learn."

"Construction firms traditionallywould hire people with a moder-ate education, depending on wherethey were to be placed in the val-ue-adding stream, and count on

those people to function reasona-bly well in a relatively stable envi-ronment. The environment nowchanges too rapidly for this tradi-tion. Employees need to enter withhigher degrees of training and needto have access to a continual learn-ing system while on the job. Somefirms do this with internal corpo-rate programs. Others rely on con-tinuing education in outside insti-tutions. Most do neither. It is im-perative that a learning system bean integral part of the industry andits companies. The industry willneed to have a system that rivalswhat is found in advanced tech-nology industries. Therefore,learning to learn is a critical at-tribute of future firms in theindustry."(Hawk, 1992, p. 10)

Implications from Conditions ofSuccessThe results suggest a number of impli-cations. A most general one was that afirm's internal "radical" thinking, whichthey had tried to keep secret, was in factwidely known and even appreciated inthe larger industry. Once this was dis-covered, the problem shifted from se-crecy to one of how to develop a col-lective basis for high-level, mutual andindividual learning. They soon foundthat there was much that they could doto help each other while not interfer-ing with individual rights to pursue a"competitive advantage." A small groupeven proposed shifting from competingagainst each other, and move to learn-ing how to jointly compete against in-dustry-wide ignorance. To successfullyoperate in the global conditions of thisindustry firms felt they must find newways to learn new things. They movedto reach this in ways that included ques-tioning existing practices and develop-ing fluid approaches to embracing risk.One conclusion in this regard was that"globalization is happening, and learn-ing is critical to successful participationin the dynamics of the process, but par-ticipation is not for all firms."

The essence of Figure 3 is that themajority of the firms were looking toareas for learning as the most promis-ing basis for future business during thenext decade. "Intelligent systems" and"lateral thinking" were seen as the mostfruitful areas. The more pragmatic con-cerns of possible business developmentopportunities, e.g., "developing leisure-


time facilities," that were initially as-sumed to be the "best" targets, endedup with a very low priority. Only theSwedish firms differed and felt that fu-ture business development would firstneed organizational restructuring via"decentralization," prior to focusingconcern on learning. The second prior-ity for Swedish firms', noted as "other,"was development of future business bymoving into creating "industrial learn-ing environments" for customers.

The essence of Figure 4 is that theresearch priorities in most of firms weredirected at topics that required signifi-cant learning. At the time of the begin-ning of the study management informa-tion systems were defined to includeinformation and communications tech-nology, knowledge management sys-tems, and training of personnel in all ofthe above. For most of the firms, thearea became a very high priority for re-search investments. The exceptionswere German firms, that were going toconcentrate on environmental con-cerns, and Japanese firms, that weregoing to concentrate on intelligenttechnologies, that they wanted to de-fine in a way that did not fit with thelarger group.

The essence of Figure 5 illustrateswhat firms felt to be the largest imped-iments to their being able to apply whatis learned in research. It is important tonote that there is no clear pattern inthe responses. This is very interestingin that the impediments to learningseem not to be industry-wide. They in-stead appear to be culture-based. As thefigure illustrates, the reasons for notimplementing an improved practice caninclude almost anything. The reasonscome from what was previously calledthe non-rational domain. Knowing thisoften elicits a response that we shouldthus ignore them. This is dangerous.These impediments in fact can be seenas "culturally-based" and can thus beeffectively dealt with on their ownterms. Learning is important to this.Several companies ended up setting upor modifying their own R&D and learn-ing centers after the research to helpemployees better deal with future con-tingencies. In some instances thesecomplemented their prior educationalcenters, and in other instances they re-placed them. Many participating firmshave since worked out joint ventures,mergers and acquisitions with each oth-er to better share mutual resources.

Figure 5. Impediments to Applying R&D Knowledge

Figure 3. Most Promising Business Ideas for Next 10 Years

Figure 4. Research Priorities for Next 10 Years

In addition, the participantslearned a great deal about the varietyof attitude and skill types that wereneeded in a successful project. The fol-lowing is an abstraction of this work asit comes from the study. It points to fourdifferent kinds of people that are com-monly found in a project. At first glancemost would argue for one or two of theseas most critical to a project's success. Infact, due to the divergence of belief be-tween the companies, as to which typewas the best to hire, it was decided thatall were valuable. What was insteadneeded was a more sophisticated man-agement model that could include va-riety, so as too best meet the objectivesof a project, instead of current empha-sis on one type of person.

Careful consideration of each il-lustrates that it offers a unique set ofattributes, but emphasizing any one inisolation becomes dangerous to the firmand the project. Learning is different foreach, but mutual learning helps all. Thisis similar to the problem posed in theAckoff model in Figure 2, where a fo-cus on the assumed advantages of theproactivist project manager can turnout to be as large of an obstacle as werethe known limitations of the reactivistand inactivist attitudes. How to man-age their interactions is more importantto success than selection of a prefer-ence.

I. Strategist - Knows, but doesn'timplement. Currently the most soughtafter type of project manager. In prac-tice perhaps the greatest problem forlonger-term project management. This

person's actions eventually come to il-lustrate why successful strategy is alwaysdeceit, but that deceit is eventuallycounter-productive. Also illustrateshow learning to uncover deceit be-comes learning to deceive at a higherlevel.

II. Servant - Knows, and does, inpredictable, dependable style. This isthe individual that tries to be as dutifulas possible in carrying out the assignedtasks. Hired with the presumption thathe knows how to do certain tasks verywell, and will carry them out to the bestof his ability with limited management.Little management is needed, exceptinstructions. This person is generallynot expected to learn, and doesn't. Seenas a tremendous short-term asset butbecomes a longer-term liability.

III. Innocent - Doesn't know, anddoesn't do. Seemingly a problem but infact can be a valuable resource to suc-cessful project management. Can be-come a learning benchmark.

IV. Inventor - Doesn't know, yetworks to invent ways to do. This indi-vidual, when challenged by not know-ing, finds a way out. Some expense, andrisk, is involved but depending on thecircumstances the cost can be worth theeffort. In each industry there is a pre-sumption that internal developmenttakes place via these people. Whennoticed, they are often removed fromproject work and placed in R&D. Thisis not a good use of their capabilities.Little management is needed or help-ful to these people. This individualmanifests the essence of one aspect of

learning, but needs to be with the oth-er types.

ConclusionsLearning is clearly a necessary featureto any forward-looking project-orient-ed organization. Being a vehicle ofchange, it can help to mobilize an or-ganization's people to work together bygiving them renewed purpose, yet be-ing able to accommodate wide differ-ences. To do both learning needs a com-mon framework for organizing innova-tion as well as the differences that in-novation encourages. We presented amodel of learning in this article thatfocused on the importance of question-ing and criticizing business as usual.Through continually challenging theusual, best practices are strengthenedand worst practices can be improved orreplaced. On the other hand, this is notan easy process. Serious impedimentsstand in the way of attempts to improvevia questioning the practices and normsof current operations.

Conceptions of learning can beimpediments. One of these is wherelearning is too closely associated withthe limits of traditional classroomevents and the weaknesses of the for-mal educational process. Resources forlearning can also form impediments.Inputs such as data, information andknowledge can become rigidly struc-tured in an organization or project.Project learning, as it was presentedhere, needs to be associated with muchmore dynamic inputs and processes. Inthis way learning is more consistentwith the needs of managing projects arecontinually unique and constantlychanging. Even the widely acceptedconcept of time, where dreams aboutpast, present and future events becomesanctuaries from efforts of genuine prob-lem-solving, can stand in the way oflearning. A framework for interactiveproblem-solving, as distinct from itsmore popular proactive form was intro-duced. Via inter-personal interaction,e.g., using internet-based real-time sys-tems, time is no longer the central is-sue, as either an asset or a limitation.

A study of 60 project-based com-panies demonstrates the above pointsand points to the growing importanceof learning as an asset to leading firms.This is due to the growing complexityof projects and project-based firms, andtheir need to invent ways to operate inan increasingly complex international

Figure 6. A Constellation of Project Participants


environment. The Conditions of Suc-cess study, and other referenced works,illustrate that learning occurs mostclearly when experiences gained fromworking are evaluation at higher levelsof abstraction. In this way practice canbe better understood, and improvedpractices initiated. This best takes placein an environment of self-regulationthat fosters decentralization. The inno-vative aspects of knowledge intensiveproject organizations are thus encour-aged.

The article introduced learningat a company organization level, that isabove projects, but the focus began andended with individual learning at theproject manager level. In the end, theseare the individuals who will conduct thestrategic forward-looking activities in acompany that will promote organiza-tional learning. This takes place interms of the resources known as data,information, knowledge, and wisdom.Traditional modes of education, as re-lated to traditional conceptions of data,information and knowledge, while em-phasizing their separations, are obsta-cles to wisdom-seeking, innovative, cre-ative solutions. This is while learningoften requires unlearning what isknown. Wisdom is the most difficult yetattractive. It appears to involve learn-ing but learning that is neither hierar-chical nor cumulative.

Finally, the article presents a con-stellation of personality types that ap-pear in virtually all projects. Projectmanagers, and those they manage, canbe categorized as strategists, servants,innocents or inventors. The essence oflearning presented in this article is tofind ways to accommodate and inte-grate all four, plus more, and not allowany one to either be excluded or givensole authority over a situation. Lettinga personality type, or a narrowly definedspecialty, assume emphasis in a situa-tion is to restrict that situation to lim-ited improvement, or serious problems.Just now it is popular to manage peopleas strategic resources that know, but wefeel it is more rewarding to instead findinnovative ways to manage resources tohelp people learn to learn.

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About the Authors

David L. Hawk is a professor in theSchools of Architecture and of Manage-ment at the New Jersey Institute ofTechnology. He has done extensiveresearch and work with internationalconstruction and infrastructure creatingfirms. He teaches international businessdevelopment in executive developmentprograms.

Karlos A. Artto possesses a wealth ofindustrial experience and knowledge,including experience in project-orientedbusiness, project management and riskmanagement fields. He is a professor ofinternational project-oriented business atthe Helsinki University of Technology inFinland.

David L. Hawk

School of Manage-ment,New JerseyInstitute ofTechnologyUniversity HeightsNewark, NewJersey 07102USA

Tel + 1 (973) 596-3019Fax + 1 (973) 761-5204E-mail [email protected]

Karlos A. Artto

Helsinki Universi-ty of TechnologyP.O. Box 9500FIN-02015 HUTFinland

Tel +358 9 451 4751Fax +358 9 451 3665E-mail [email protected]

CATEGORY: RESEARCH

A Model for Supplying with ConstrainedResources in Project Management underRandom Disturbances

V.I. Voropajev, Russian Project Management Association, RussiaS.M. Ljubkin, Russian Project Management Association, RussiaD. Golenko-Ginzburg, Department of Industrial Engineering and Management, Ben-Gurion University of theNegev, IsraelA. Gonik, Department of Industrial Engineering and Management, Ben-Gurion University of the Negev, Israel

Key words: deterministic resource delivery schedule, resource constrained project scheduling, activities ofrandom duration, coordinate optimization, knapsack algorithm.

A resource supportability model for network projects with random activity durations is considered. Two typesof resource are imbedded in the model:

Firstly, highly expensive and rare resources which are not at the PM disposal and can be obtained from outsidefor a short time. Such resources have to be delivered at a pregiven date that has to be determined before theproject's realization. Thus, the problem is to determine a resource delivery schedule for certain project activi-ties which consume such costly resources. The objective is to minimize the average expenses which comprise:a) penalties for the idleness of rare resources, i.e., when an activity starts later than the corresponding resour-ces are delivered, and b) costs of utilizing unrestricted and non-costly resources by other activities, within theperiod of the project's realization.

The problem is solved by a combination of simulation modeling and a non-linear programming method.

Secondly, constrained renewable resources which are in limited supply at the PM disposal. Most project activi-ties require such resources either with fixed or with variable capacities. The problem is to develop a decision-making model to reallocate available resources among activities which are waiting to be supplied and to startprocessing. The objective is to minimize the average project's duration. The solution is obtained by using asimulation model together with a knapsack resource reallocation problem.

Both problems offer practical solutions in real projects and are considered for a modified version of a PERTtype project which comprises a broad spectrum of various time-oriented logical links. A numerical example isgiven.

IntroductionIn modern Project Management (PM),a broad variety of network projects isrealized under random disturbances.This occurs, for example, in opto-elec-tronics and in aerospace and defenserelated industries, when designing andcreating new machines and installationswhich have no similar previous proto-type. For example, in the process of de-signing new aircraft or missiles, opera-tions on proving grounds are usually ofrandom duration, as are various

machin-ing operations on numericalcontrol machines, etc. Many randomdisturbances usually occur in these op-erations, such as repetition due to low-quality, delays in tool replacement, etc.For some operations, there are contin-uous stochastic changes in the process-ing speed during the opera-tion. Due tosuch random influences, projects areoften not realized and frequently notdelivered to customers on time, evenwhen using various scheduling tech-niques As a result, solving the problem

of increasing those random projects'delivery performance becomes essential.

One of the most immediate andimportant problems in the area of plan-ning, scheduling and monitoring net-work projects with uncertainty, is theproblem of supplying certain projectactivities with highly expensive and rareresources which are not at the PM dis-posal and are delivered from outside.These resources can usually be obtainedonly for a short time within the timespan of the project. If, for example, a


certain activity has to be realized bytesting on a proving ground that is sel-dom open, or with the help of techni-cal experts who work on many projects,such resources have high priority andshould be monitored closely, becauseshortages might significantly affect theproject's schedule. On the other hand,due to the high cost of such resources,they must not be idle for a long timewhen waiting for the moment the cor-respond-ing activity can start process-ing. Note that, due to random distur-bances, it is unknown beforehand whena certain activity will actually be readyto begin. Nevertheless, such resourceshave to be delivered at a pregiven datethat has to be determined beforehand,i.e., before the project starts to be real-ized. Thus, the problem is to determinea schedule of delivering resources forcertain project's activities. Note that anactivity cannot start before its corre-sponding planned moment when activ-ity resources are ready and delivered.

We suggest using the cost objec-tive to minimize the average expenseswhich comprise:a) penalties for all delays of activities,

andb) costs of utilizing non-constrained

and non-costly resources by otheractivities, within the period of theproject's realization.

The problem's solution is ob-tained by a combination of simulationmodeling and a very effective non-lin-ear programming method, namely, thecyclic coordinate descent algorithm.The latter has been successfully used inmany similar problems (see, e.g. Go-lenko-Ginzburg and Gonik (1997)).

The considered problem of re-source supportability for networkprojects under random disturbances isa realistic problem which stems frompractical requirements (Golenko-Ginz-burg and Gonik, 1997 a, Sitniakovskii,1998).

Another problem which is well-known to a broad PM community, is asfollows. Consider a network projectunder random disturbances which con-sumes constrained renewable re-sourc-es, which are available in limited quan-tities throughout the project's planninghorizon (e.g., a fixed workforce or vari-ous items of equipment). Each projectactivity requires these resources eitherwith fixed or with variable capacities.Such resources have to be hired at thebeginning of the project's realizationand have to be maintained and moni-

tored until the project is accomplished.It is widely known in PM (see, e.g., Wil-lis, 1985) that shortening the project'sduration results in decreasing the ex-penses of utilizing those resources, and,thus, increases the PM net profit. Wesuggest developing a decision-makingmodel to reallocate available resourcesamong activities (which are waiting tobe supplied and to start processing) inorder to minimize the average project'sduration. The solution is based on us-ing a simulation model together with aknapsack resource reallocation algo-rithm.

Both problems are considered fora modified version of a PERT type mod-el, which has been described by Voropa-jev et al. (1997). The model is, in es-sence, a unification of the constructionmodel GNM suggested by Voropajev(1975), and the PERT network model.The GNM model comprises a broadspectrum of various time-oriented log-ical links and is a deter-ministic, finite,oriented, cyclic network. A unificationof the GNM and the PERT networkmodel results in developing a networkmodel with random activity durationsand a broad variety of logical relationsand technological links.

Description of the NetworkModelThe network model here presented is aunification of PERT and GNM net-works. It can be regarded as a particu-

lar case of the network outlined in (Vo-ropajev et al., 1997) but, unlike the lat-ter, the presented network does notcomprise alternative branchings. A frag-ment of the network model (we willhenceforth call it RGNM-a randomgeneralized network model) is present-ed in Figure 1.

Various logical restrictions areimplemented in the model, namely:1. Consider two activities, (i1,j1) and

(i2,j2), entering the RGNM.Activity durations t(i1,j1) andt(i2,j2) are random values. Call(i,j)r a sub-activity which, beingthe first part of activity (i,j),contributes r percent of the totalvolume of that activity. Call,further, F(i,j)r the actual moment(i,j)r is finished processing. Arestriction is introduced such thatthe difference between F(i2,j2)r2and F(i1,j1)r1 has to be not less thana deterministic time d(r1, r2), i.e.,

(1)

holds, where (i1,j1), (i2,j2), r1, r2 andd(r1, r2) are pregiven. It goeswithout saying that restriction (1)does not refer to any couple (i1,j1),(i2,j2), but only to certain activitycouples entering the network.

2. For a certain set of activities

i, j( ){ }⊂ RGNM its starting

and finishing times S(i,j) and F(i,j)

Figure 1. Various fragments of RGNM

F i2, j2( )r2 ≥ F i1, j1( )r1 + d r1,r2( )

may be restricted from above orfrom below, e.g.,

(2)

where A(i,j) and B(i,j) are pregiv-en deterministic values. Note thatS(i,j) and F(i,j) = S(i,j) + t(i,j)are usually random values.

3. For certain pairs of consecutiveactivities (i1,i2), (i2,i3), the startingtime of activity (i2,i3) must notexceed the finishing time of (i1,i2)by more than f(i1,i2,i3), where f is apregiven deterministic value.Thus,

(3)

Examples (1-3) are only a part ofvarious possible restrictions which canbe incorporated in the RGNM.

Assume, further, that there is asubset of q activities (a1,b1), (a2,b2),�,(aq,bq) entering the RGNM, whichare operated by using rare and costlyresources. The latter cannot be idle fora long time and have to be delivered atpregiven moments T(a1,b1), T(a2,b2),�,T(aq,bq). The resource deliveryschedule has to be predetermined, i.e.,before the project's realization. Denote

the resource idleness expenses per timeunit of the activity's delay,i.e., within the period

As to other activities, they areprocessed by utilizing non-constrainedresources which are available for a costand are at the PM disposal. Assume thatin the course of the project's realization,the cost of such resources does not un-dergo drastic change and is on theaverage. Denote the moments theproject actually starts and is complet-ed, by S and F, respectively. Thus, thecost of utilizing unrestricted resourcescan be approximately calculated and itsvalue is .

The ProblemThe problem is to determine values

to minimize the average total cost ofrare and expensive resource idleness foractivities , ,togetherwith the cost of utilizing unrestrictedand non-costly resources for other ac-tivities. The cost objective for an

RGNM project is

where (4)

Restrictions (5)

and (6)

have also to be imbedded in the model.It can be well-recognized that

decreasing values results in in-creasing the resource idleness expens-es, i.e., the first additive of objective (4),together with decreasing the project'sduration, i.e., the second additive of (4).Thus, a trade-off can be realized by var-ying decision variables , .

Problem (4-6) is a complicatedstochastic optimization problem. Thegeneral idea of solving similar problemsis outlined in (Golenko-Ginzburg andGonik, 1997 a, Sitniakovskii, 1998).

It can be clearly seen that for aset of fixed values , ,calculating (4) can be carried out viasimulation. The simulation model (SM)calculates value (4) of the RGNM with-in a simulation run. Realizing the sim-ulation model many times with fixedvalues , to obtain a representa-tive statistics, enables value to becalculated. The simulation model is,thus, the backbone of the algorithm tosolve (4-6).

The Problem's SolutionSince objective is a complicated non-linear function of decision variables , we suggest that problem (4-6)be solved by using the cyclic coordinatedescent method (Golenko-Ginzburgand Gonik, 1997 a, Sitniakovskii,1998). To solve the problem, we use thesimulation model SM to simulate theproject's realization, at each search stepof variables . Thus, we suggest atwo-stage algorithm as follows:

At the external stage a cyclic co-ordinate descent method is used to de-termine the optimal moments for de-livering expensive resources from out-side. The general idea of the method isto arrange a local search for each coor-dinate independently, while

- in the course of that search allprevious coordinates are fixedand remain unchanged, and

- all next coordinates (which didnot as yet undergo optimiza-tion) have to be updated in

accordance with (5-6).At the interior stage the algo-

rithm calculates value (4) by using thesimulation model.

Extensive experimentation formedium size network and job-shopmodels have illustrated the efficiency ofthe cyclic coordinate descent algorithm(Golenko-Ginzburg and Gonik, 1997 a,Sitniakovskii, 1998).

A Resource Constrained ProjectScheduling ModelAs outlined above, the resource con-strained project scheduling models arewidely used in PM (see, e.g. Lorterapong(1994), Ulisoy and Ozdamar (1995),Schonberger (1981), Willis (1985),etc.) However, those papers deal onlywith deterministic models, while thenumber of publications on resourceconstrained project scheduling modelsunder random disturbances, e.g. on re-source constrained network modelswith random activity durations, remainsvery scanty (see, e.g. Golenko-Ginzburgand Gonik (1997, 1998), Sitniakovskiet al. (1998)). Thus, undertaking re-search in that area is promising bothfrom the theoretical and applied pointsof view, since newly-developed modelsenable monitoring real projects withrandom parameters.

Consider the RGNM model out-lined in Section 2. Several renewableactivity related resources, such as ma-chines or manpower, are imbedded inthe model. Each activity in a projectrequires resources of various types withfixed capacities. Each type of resourceis in limited supply, with a resource limitthat is fixed at the same level through-out the project duration. For each ac-tivity, its duration is a random variablewith given density function. The prob-lem is to determine starting time val-ues S(i,j) for each activity (i,j) enteringthe project, i.e., the timing for feeding-in resources for that activity. ValuesS(i,j) are not calculated beforehand andare random values conditional on ourdecisions. The model's objective is tominimize the expected project duration.Determination of values is carried outat decision points when at least oneactivity is ready to be operated andthere are free available resources.

If, at a certain point of time, morethan one activity is ready to be operat-ed, but the available amount of resourceis limited, a competition among the ac-tivities is carried out in order to choose

S(i, j) ≥ A(i, j)

F(i, j) ≤ B(i, j) ,

S i2,i3( )≤ F i1,i2( )+ f i1,i2,i3( )

c(aξ ,bξ ) 1 ≤ ξ ≤ q

(aξ ,bξ)T(aξ , bξ),S(aξ,bξ )[ ]

c

c (F − S)

T aξ ,bξ( ) 1 ≤ ξ ≤ q

aξ ,bξ( ) 1 ≤ ξ ≤ q

C = MinT(aξ ,bξ){ }

E c(aξ , bξ)[ ]⋅ S(aξ ,bξ ) − T(aξ ,bξ )[ ]ξ=1

q

∑ + c F − S( )

S = Mini,j{ }

S i, j( ), F = Maxi, j{ }

F i, j( )

S i, j( )+ t i, j( ) = F i, j( )

S i, j( )≥ T i, j( ), i, j( )∈ RGNM

T aξ ,bξ( )

T aξ,bξ( ) 1 ≤ ξ ≤ q

T aξ ,bξ( ) 1 ≤ ξ ≤ q

T aξ ,bξ( )C

C

T aξ ,bξ( )

T aξ,bξ( )

T aξ,bξ( )


those activities which can be suppliedby the resources and which have to beoperated first. We suggest carrying outthe competition by solving a zero-oneinteger programming problem to maxi-mize the total contribution of the ac-cepted activities to the expected dura-tion of the project. For each activity, itscontribution is the product of the aver-age duration of the activity and its prob-ability of being on the critical path inthe course of the project's realization.Those probability values are calculatedvia simulation. Solving a zero-one in-teger programming problem at eachdecision point results in the followingpolicy: the project management takesall measures to operate first those ac-tivities that, being realized, have thegreatest effect of decreasing the expect-ed project duration. Only afterwards,does the management take care of oth-er activities. For a simpler network mod-el of PERT type, the problem has beeneffectively solved in (Golenko-Ginz-burg and Gonik, 1997 b).

In recent years we have comeacross much more complicated but re-alistic network projects (mainly fromthe defense related industries), wheneach project's activity (i,j) requires re-sources of various types with variablecapacities and is operated at a randomspeed which depends linearly on theresource amount rijk assigned to thatactivity. We have formulated the prob-lem to determine for each activity (i,j)the starting time S(i,j), i.e., the timingof feeding-in resources, and the assignedresource capacities rijk. The objective isto minimize the expected project dura-tion.

In order to solve the resource-constrained project scheduling problemwith variable capaci-ties, we have for-mulated the general stochastic optimi-zation problem with decision variablesS(i,j) and rijk (call it henceforth prob-lem A) (Golenko-Ginzburg and Gonik,1998). Values S(i,j) and rijk are not cal-culated beforehand and are randomvariables conditioned on our future de-cisions. The problem is too complicat-ed to be solved in the general case. Tosimplify the problem, we replace it byanother one, namely, by the knapsacknon-linear resource reallocation prob-lem (call it problem B). Such a replace-ment is based on various heuristic as-sumptions, e.g., that minimizing theaverage project duration results in re-allocating available resources at a rou-tine decision point among those activi-

ties (ready to be operated) which de-liver the maximal total contribution tothe expected project duration. Thus, astochastic optimization problem is sub-stituted for a deterministic one. Thedecision variables of problem B are thechosen activities to be supplied by re-sources and the resource capacities as-signed to those activities.

However, even such a simplifiedmodel is essentially more complicatedthan the zero-one integer programmingmodel which was presented in (Go-lenko-Ginzburg and Gonik, 1997 b) fora PERT network project schedul-ingwith fixed resource capacities (call itproblem C). The classical zero-one in-teger program-ming algorithm, whichdelivers an optimal solution to thatproblem, cannot be applied to problemB. Since problem B is NP-complete, itsoptimal solution can be obtained onlyby realizing a lookover algorithm to sin-gle out all the feasible solutions. Wehave developed such an algorithm forthe case of a PERT network (Golenko-Ginzburg and Gonik, 1998) and we sug-gest using that algorithm for cases ofsmall and medium size projects ofRGNM type.

For cases where the number ofpossible feasible solutions becomes veryhigh and much computational time isneeded to realize a lookover, we havedeveloped a new heuristic algorithm tosolve problem B (Golenko-Ginzburgand Gonik, 1998).

Problem B has to be solved ateach decision point, when at least morethan one activity is ready to be operat-ed but the available amount of resourc-es is limited.

Numerical ExampleWe will illustrate the efficiency of theresource delivery model, outlined inSections 3 and 4, by a medium size net-work project of PERT type which hasbeen carried out in one of the defenserelated industries. The project's initialdata is given in Table 1. Activities (5,8),(7,11), (9,13) and (12,13) utilize rareand costly resources, while other activ-ities consume non-restricted resources.Values are as follows: c(5,8) =100, c(7,11) = 200, c(9,13) = 160,c(12,13) = 120.

Other parameters are as follows:relative accuracy , search step , value .

The algorithm is written in Tur-bo Pascal 7.0 and is implemented on a

Pentium PC. Two alternative distribu-tions are considered:

- all activities' durations t(i,j)have a normal distribution withmean values

and variances

, and- values t(i,j) are distributed

uniformly in the interval

The number of simulation runs(300 runs) at step 3 (see Section 4) wasdetermined by applying the classicalestimation theory (Walpole and Mye-rs, 1978). The results of the experimen-tation are presented in Table 2.

The following conclusions can bedrawn from the table:1. The cyclic coordinate descent

algorithm performs well for bothnormal and uniform distributions.The decrease of the average totalexpenses between the initial andthe first iteration show 53% versus1.2% between the first and thesecond iteration (for the normaldistribution) and 50% versus 4.6%for the uniform distribution. Twoiterations are enough to realize theoptimization process.

2. The decrease in the average totalexpenses in the course of theoptimization is achieved by adrastic decrease of the penaltyexpenses (97% for the uniformdistribution and 99.8% for thenormal distribution), while thehiring and maintaining expensesdo not show essential changes. Toall intents and purposes, nor hasthe average project duration beenchanged.

3. It can be clearly recognized thatusing the normal distributionresults in lower expenses than forthe uniform distribution. Thus,practically speaking, the algorithmperforms better by using normaldistribution for project activities'durations.

Conclusions and FutureResearchThe following conclusions can be drawnfrom the study:1. The random generalized network

c(aξ ,bξ )

ε = 0.01∆t = 2 c = 50

µ i, j( ) = 0.5 a i, j( )+ b i, j( )[ ]

V i, j( )=1

36b i, j( )− a i, j( )[ ]2

a i, j( ), b i, j( )[ ]

model (RGNM) can be used forboth resource supportabilityproblems outlined above. Themodel outlined in Section 5 hasbeen successfully used for smalland medium size projects of PERTtype.

2. The developed resource deliveryschedule for the problem outlinedin Sections 3-4 pre-sents anefficient solution to minimize theaverage expenses, comprisingpenalty costs together with thecosts of utilizing non-constrainedand non-costly resources. For amedium size network project withrandom activity durations, twocycle iterations resulted in adecrease of more than 50% in theinitiated average expenses andwere enough to realize the optimi-zation process.

3. The developed resource supporta-bility model for rare and costlyresources is suitable for resourcescheduling in stochastic networkprojects, when the processing ofcertain activities is based ondelivering resources with highidling penalties, e.g. high technol-ogy projects, defense relatedindustries, opto-electronics,aerospace, etc.

4. Both models outlined above areeasy to use and can be easilyimplemented on a PC.

5. Future research can be undertakenin several directions:5.1 New objectives, together with

taking into account othersources of expenses, can beused;

5.2 The RGNM may be expandedto more universal models, e.g. byimplementing alternativebranching nodes of random anddeterministic nature outlined in(Voropajev et al., 1997), etc.

5.3 Both models outlined inSections 3 and 5 may be unifiedin order to obtain a moregeneralized resource supporta-bility model.

ReferencesGolenko-Ginzburg, D and Gonik, A. 1997 a. Job-

shop resource scheduling via simulat-ingrandom operations. Journal Mathematicsand Computers in Simulation. 44, Pages427-440Table 2. Determining Resource Delivery Schedule T(i,j) by the Cyclic

Coordinate Descent Method

Table 1. The Initial Data


Golenko-Ginzburg, D and Gonik, A. 1997 b.Stochastic network project scheduling withnon-consumable limited resources. Int. J.Prod. Econ. 48, Pages 29-37

Golenko-Ginzburg, D and Gonik, A. 1998. Aheuristic for network project scheduling withrandom activity durations depending on theresource reallocation. Int. J. Prod. Econ. 55,Pages 149-162

Lorterapong, P. 1994. A heuristic method forresource constrained project scheduling.Project Management Journal 25(4), Pages12-18

Schonberger,R.I. 1981. Why projects are alwayslate: a rationale based on a simulation of thePERT/CPM method. Interfaces 11(5),Pages 66-70

Sitniakovskii, Sh, Golenko-Ginzburg, D and Gonik,A. 1998. Resource scheduling for stochasticnetwork projects. Proceedings of the 10thIsraeli Conference on Industrial Engineer-ing. June 1-3. 1998. Haifa, Israel

Ulisoy, G and Ozdamar, R. 1995. A heuristicscheduling algorithm for improving theduration and net present value of a project.Int. J. Oper. Prod. Mngm. 15(1). Pages 89-98

Voropajev, V.I 1975. Models and Methods ofCalendar Planning in Project Management.Stroiizdat, Moscow (in Russian)

Voropajev, V.I, Ljubkin, S.M and Golenko-Ginzburg, D. 1997. A model approach inreducing uncertainty and risk in projectmanagement. Project Management(Profession-al Magazine of the PMAssociation, Finland). Vol. 3, No. 1, Pages40-43

Walpole, R.E and Myers, R.H 1978. Probability andStatistics. 2nd ed., Collier Macmillan Int.,New York, London

Willis, R.J. 1985. Critical path analysis and resourceconstrained project scheduling. Theory andpractice. Eur. J. Oper. Res. 21, Pages 149-155

Metso CorporationFabianinkatu 9 A, P.O.Box 1220, FIN-00101 Helsinki

Tel. +358 20 484 100, fax +358 20 484 101

On July 1, 1999 Rauma Corporation andValmet Corporation merged to join theirknow-how and resources. The new corporationis called Metso.

Metso Corporation is an internationally significantmanufacturer and developer of industrialprocesses and machinery. The corporation isthe world�s leading supplier of fiber and papertechnology. It is also positioned as a supplierof process automation and flow control systemsand related services.

Acknowledgements

This research has been partially supportedby the Paul Ivanier Center of Roboticsand Production Management, Ben-Gurion University of the Negev, Israel.

The authors are very thankful to theanonymous referees for their very helpfulcomments.

V.I. Voropajev, Russian Project Manage-ment Association (SOVNET),

room 1303, 29, Vernadsky Prospect,Moscow 117943, Russia

S.M. Ljubkin, Russian Project Manage-ment Association (SOVNET),

room 1303, 29, Vernadsky Prospect,Moscow 117943, Russia

D. Golenko-Ginzburg, Department ofIndustrial Engineering and Management,

Ben-Gurion University of the Negev,Beer Sheva 84105, Israel

A. Gonik, Department of IndustrialEngineering and Management,

Ben-Gurion University of the Negev,Beer Sheva 84105, Israel

The net sales of the merging companies,Rauma and Valmet, totalled approximately 3.7milliard euros in 1998. The number of staffexceeds 20,000.

E. Cagno, Department of Mechanical Engineering, Politecnico di Milano, ItalyF. Caron, Department of Mechanical Engineering, Politecnico di Milano, ItalyA. Perego, Department of Mechanical Engineering, Università degli Studi di Brescia, ItalyP. Trucco, Department of Mechanical Engineering, Politecnico di Milano, Italy

Keywords: Competitive Bidding, Multi-Attribute Decision Making (MADM), Analytic Hierarchy Process(AHP).

Competitive bidding is a kind of auction in which each potential contractor submits a bid in compliance withthe owner's product/service requirements. The most competitive bid, according to the owner's evaluation, isawarded the contract. Literature on competitive bidding generally proposes models for the appraisal of bids'competitive value based only on the evaluation of factors which have an immediate financial impact. Suchmodels are hardly applicable in environments in which increasing competition and customer expectationshave broadened the number of non-financial factors which should be considered in the evaluation of the "best"bid.

The paper describes a multi-attribute decision making (MADM) approach to competitive bidding based onthe Analytic Hierarchy Process (AHP). The model is applied to a case in which contractors compete for thedesign and construction of a process plant. The competitive value of each bid is assessed with respect to anumber of relevant factors for the owner. The existence of inter-relationships (or dependencies) between com-petitive factors is recognised and various approaches to handle them are suggested.

CATEGORY: RESEARCH AND INDUSTRY PRACTICE

A Multi-Criteria Framework forCompetitive Bidding

IntroductionCompetitive bidding, in the sense ofstandard sealed bidding, is a kind of auc-tion, the major characteristics of whichare:

- the owner states the product/service requirements

- each contractor arranges asealed bid

- competing bids are openedsimultaneously

- the owner selects the contractoroffering the "best" bidCompetitive bidding involves two

kind of actors, the owner and the con-tractors, and consequently two pointsof view. Each potential contractor hasto decide whether to take part in theauction or not and, in the affirmativecase, to arrange a bid aimed at winningthe competition, without overbidding.The competitive value of each bid de-pends on the importance the owner

gives to the bid competitive factors (i.e.price, delivery time, etc.) and on thespecific features of the other compet-ing bids submitted to the auction. Inpreparing their bids, contractors shouldbase the bid on the most recent assump-tions about main competitors' biddingpolicy and assess the priority of compet-itive factors aiming to conform to theowner's selection criteria through an"educated guess"-based process. In fact,the bid arrangement process involves aprogressive revision of the contents inthe light of the learning process regard-ing the owner's orientation and the pos-sible courses of action taken by the com-petitors. The owner faces a dual prob-lem: the most competitive bid must beselected from those joining the auction.The problem is simplified as the ownerworks on data rather than assumptions.Common aspect of both the contrac-tor's and the owner's point of view is theneed for an evaluation model which is

able to assess the bid competitive val-ue. The bid appraisal is in general amulti-criteria decision problem whereboth economical (e.g. price, terms ofpayment, financial package) and tech-nical elements (e.g. process technolo-gy, safety, dependability) must be con-sidered. In fact, due to the complexityof the offered "product", bids may con-form differently to the specific require-ments and be non-homogeneous intheir technical, financial and service-related aspects. Moreover, over the lastyears, the growing level of competitiontogether with increased customer ex-pectations have broadened the numberof service and financial aspects whichare used to differentiate competing bids.Since only rarely a bid dominates theothers according to all the owner's mostimportant selection criteria, the com-petitive value results from trading offhigh performances according to somecriteria and low performances accord-


ing to the remaining criteria.Taking the owner's point of view

this paper presents a multi-attributedecision model (MADM) based on theAnalytic Hierarchy Process (AHP)(Saaty, 1980) which provides a decisionsupport tool in the selection of the"best" bid. The model gives an integrat-ed indicator of competitive value, com-bining performances on all relevantcompetitive factors, and relies on anappraisal scheme which can be easilyup-dated and reviewed on the basis ofthe progressive availability of new in-formation.

Literature ReviewTechniques so far applied to assess thecompetitive value of alternative bidscan be classified according to the kindof competitive factors which can natu-rally be taken into account. Three class-es of competitive factors can be dis-cerned:

- factors which offer quantifiablefinancial support to the bid'scompetitive value, e.g. price,terms of payment, financialpackage

- factors which offer quantifiablenon-financial support, e.g.delivery time, plant dependabil-ity, safety level, process technol-ogy performance

- factors whose effect is mainlyqualitative, e.g. utilisation oflocal vendors, conformity tocontractual terms proposed bythe owner, technology transferThe distinction between these

classes depends not only on the intrin-sic nature of each factor, but also on thequantity and quality of informationavailable for each factor and on theamount of resources which can be em-ployed to quantify their contribution tothe competitive value of the bid. Forinstance, the environmental impact ofdifferent technologies can be quantifiedby developing an environmental bal-ance. However, its preparation requirestime and money. Moreover, quantifyingthe environmental impact provided byeach competitor requires the decision-maker to have access to environmentaldata-bases and detailed data about thetechnological process of each bid.

With reference to the above clas-sification of competitive factors, mod-els so far developed to assess the bidcompetitive value may be grouped intotwo major categories:

1. financial techniques, i.e. tech-niques aiming to assess themonetary value of each bid byquantifying in monetary terms theeffect of as much factors aspossible (MIL-HDBK-259, 1983;VDV Communications, 1998;Fabrycky and Blanchard, 1991;Caron et al., 1996; Asiedu Y. andGu P., 1998). These techniques areaccurate in considering financialfactors (e.g. price, terms of pay-ment, etc.), but less accurate inconsidering quantitative non-financial factors, since variouslevels of performance according tothe latter factors must be translat-ed into monetary effects byidentifying the financial equiva-lent of a unit of performance. Forinstance the monetary equivalentof a day delay in delivery timemust be assessed

2. MADM techniques, i.e. tech-niques that see bid appraisal as amulti-attribute decision making(MADM) problem, in which bidsare evaluated on the basis ofmultiple factors considering themain aspects which take value forthe owner (Simmonds, 1968; Kingand Mercer, 1985; Ward andChapman, 1988; King and Mercer,1988)

It is possible to indicate distinc-tive areas of application of financial andMADM techniques, in terms of the spe-cific decision context. In auctionswhere the main selection criteria arefinancially quantifiable, and the priceoffered is the most important competi-tive factor, the application of financialtechniques is justified. However, in de-cision contexts with a number of rele-vant non-financial competitive factors,the MADM techniques should be pre-ferred since they can easily handle non-financial factors and integrate thesewith quantitative financial data. In suchenvironments, bid selection based onthe application of financial techniquesgenerally leads to one of the followingshortcomings:

- some relevant factors whosemonetary impact is hardlyquantifiable are excluded fromconsideration and the evalua-tion is therefore incomplete

- the monetary effect of somerelevant factors is assessed bymeans of complex models and isbased on hardly justifiable

assumptions (i.e. risk of forcingfinancial quantification)The main advantage of MADM

techniques is thus the opportunity offocusing attention on completeness,taking into account all different kindsof factors relevant in the evaluation ofthe "best" bid. Even though MADMtechniques seem to be particularly suit-able to many decision contexts, andtheir area of application will probablyextend in the future, there are few ex-amples of multiple factor evaluation(see, for instance, Seydel and Olson,1990; Titolo, 1994). This paper aims tofill this gap by focusing on the applica-tion of an AHP (Saaty, 1980) frame-work to competitive bidding. The modelis presented with reference to a real-world case, i.e. design and constructionof a process plant.

A multi-criteria framework forcompetitive biddingIn the previous section it was recognisedthat bids should be evaluated on thebasis of multiple factors considering themain aspects which take value for theowner. From the owner's point of view,the application of MADM techniquesin the competitive bidding context re-quires the following steps:1. identification of all the factors

supporting bids competitive value.These factors will constitute theset of evaluation criteria theowner uses to compare bids.Possibly the evaluation criteria areorganised into a hierarchy

2. assessment of the importancegiven to each criterion

3. evaluation of competing bids withrespect to each criterion

4. calculation of the priority indexrepresenting the relative competi-tive value of each bid

In industrial practice (e.g. Tito-lo, 1994) scoring methods are common-ly adopted since they are simple, flexi-ble and capable of integrating non-ho-mogenous information (quantitativeand qualitative, objective and subjec-tive), taking advantage of the full spec-trum and variety of information availa-ble from managers' and practitioners'expertise and perception.

The AHP is a robust and flexibleMADM technique which formulatesthe decision problem in a hierarchicalstructure and prioritises both the eval-uation criteria and the competing al-

ternatives by pairwise comparison. Thetop level of the hierarchy reflects theoverall objective of the decision prob-lem (see the simplified hierarchy for bidevaluation in Figure 1). The factors in-fluencing the decision are representedin the intermediate levels. The lowestlevel comprises the decision alterna-tives. The application of AHP to com-petitive bidding is promising consider-ing that AHP has the same strengths ofscoring methods and gives a better de-cision support, since:1. it effectively manages to organise

the decisional problem into ahierarchical structure. Structuringany decision problem hierarchical-ly is an efficient way of dealingwith complexity and identifyingthe major components of theproblem

2. the methodology is reliable due tothe pairwise comparison processand the consistency check tool. Itis common experience thatestimates based on pairwisecomparison are more reliable thandirect absolute estimates. This iseven more true for qualitativefactors and also for quantitativefactors where insufficient data isavailable to make absolute esti-mates. In addition, the elicitationof redundant judgements, whichcharacterises the standard applica-tion of AHP, is useful to check theconsistency of the decision maker'sopinion. The level of inconsisten-cy can be calculated and, if itexceeds a given threshold (i.e. 0.1;Saaty, 1980), the expert must

review judgements more carefully(see the inconsistency ratio intables on the right in Figure 1)

3. it deals effectively with groupdecision making (Ramanathanand Ganesh, 1994)

A significant number of applica-tions in similar decision contexts (Saaty,1980; Saaty, 1994; Armacost et al.,1994; Min, 1992; Mustafa and Al-Ba-har, 1991) confirm the potential of themethodology.

The identification of the relevantfactors which can be used to assess thebid competitive value and the structur-ing of the decisional hierarchy is the firstand most important step in the evalua-tion process. This step should pursuethe following objectives:

- completeness, i.e. it is importantto identify all main relevantfactors

- single counting, i.e. factorsshould be considered only once

- comparability, i.e. it should beeasier to compare the alterna-tives with respect to the last-level factors than with respectto the first-level factorsIn other words, the set of deci-

sional factors should be complete, fac-tors should preferably be mutually ex-clusive and the decomposition processshould continue down until alternativescan be easily compared.

Once the hierarchy has been con-structed, the decision maker begins theprioritisation procedure to determinethe relative importance of the elements(factors or alternatives) in each level of

the hierarchy (see Figure 1). Competi-tive factors at the first level are pairwisecompared with respect to their contri-bution to the bid competitive value andsub-factors are compared with respectto their contribution to the upper levelcompetitive factor. The last-level sub-factors represent the criteria which areused to pairwise compare the perform-ance of the alternative bids (A, B andC).

The comparison takes the form:"How important is element 1 whencompared to element 2 with respect tothe element in the immediately upperlevel?" The decision maker can expresshis preference between each couple ofelements verbally as: equally preferred(or important or likely), moderatelypreferred, strongly preferred, verystrongly preferred or extremely pre-ferred. These descriptive preferenceswould then be translated into absolutenumbers 1, 3, 5, 7 and 9, respectively,with 2, 4, 6, and 8 as intermediate val-ues expressing a compromise betweentwo successive qualitative judgements.The verbal scale used in AHP enablesthe decision maker to incorporate sub-jectivity, experience and knowledge inan intuitive and natural way. Pairwisecomparisons are structured in matricesand the eigenvector method is used toderive the relative weights of the ele-ments at each level with respect to theelement in the adjacent upper level(Saaty, 1980). The overall weights ofthe decision alternatives are then de-termined by aggregating the weightsthrough the hierarchy. This is done byfollowing a top-down path through the

Figure 1. Example of AHP application to a simplified bid evaluation case


hierarchy and multiplying the weightsalong each segment of the path. Theoutcome of this aggregation is a normal-ised vector of the overall weights of thealternatives.

The use of the AHP to model andanalyse real world problems can bemade much easier using a software im-plementation of the method such asExpert Choice (Forman et al., 1983). Itmakes structuring and modifying thehierarchy simple and quick and elimi-nates tedious calculations.

The case studyThe case refers to the evaluation ofthree short-listed contractors (namelyA, B and C) competing to be awardeda contract for the design and construc-tion of a process plant in a developingcountry. The relevant evaluation crite-ria, i.e. competitive factors, have beenidentified through direct interviewswith a number of potential owners andcontractors. The primary research ques-tion has been: "How should contractorsperformances be evaluated? What dis-tinguishes excellent performance frommediocre or poor performance? Whatfactors are the determinants of highcompetitive value?". The answer tothese questions may depend upon thestakeholder who is asked. Although theowner is the one that actually assessescontractor competitive value, contrac-tors may capture some additional cru-cial points in the evaluation processthat owner may have failed to consider.The participants were briefed on theobjectives of the study and on the use

of a MADM technique, and then pro-vided a list of potential performanceevaluation criteria, among which tochoose the 10 most important accord-ing to their opinion and experience.Table 1 provides an overview of themain competitive factors identified withspecific reference to the design and con-struction of a process plant in a devel-oping country.

The identified competitive fac-tors and the three short-listed bids havebeen arranged by experts into the hier-archy shown in Figure 2. Competitivefactors have been grouped by expertsinto homogeneous macro-criteria (serv-ice level, plant performance, financialconditions, contractual conditions).Experts were also asked to express theirpoint about interrelationships betweenfactors (i.e. dependencies) and the pos-sible effects on the bid evaluation proc-

ess (see the following section). Thethree short-listed bids have been final-ly assessed on the basis of the competi-tive factors identified. The outcome ofthe evaluation process is presented inFigure 2, in which only the importanceweights of the competitive factors arereported.

Discussion: dependencies amongcompetitive factorsThere is a dependence between com-petitive factors if it is possible to identi-fy a common "driver" which partly ex-plains the importance of both factors.For illustrative purposes, delivery timeand liquidated damages clause are mu-tually dependent, since there is a com-mon driver, i.e. risk endured by the con-tractor, that determines somehow theimportance of both factors (Figure 3).In fact, the contractor offers delivery

Table 1. Relevant factors in competitive bidding

Figure 2. Hierarchy of the competitive factors (with weights) and bids in the case study

time and liquidated damages penaltiesconditions in line with its highest ac-ceptable risk level, that may be trans-lated in shorter delivery time with low-er penalty (lower delivery time reliabil-ity), or longer delivery time with high-er penalty (higher delivery time relia-bility).

The existence of dependenciesdoes not usually generate any ambigui-ty in the expert judgement when de-pendent factors are direct competitivefactors, i.e. it is easy to assess their con-tribution to the bid competitive value,and decisional criteria for bid evalua-tion as well, i.e. it is easy to comparealternative bids with respect to thesefactors. In fact, dependence is implicit-ly considered when factors are assessedwith respect to their relative contribu-tion to the bid competitive value andwhen alternatives are compared withrespect to each factor. The latter is thecase when considering, for instance,delivery time and liquidated damagespenalties. In fact, the expert can easilyexpress the relative importance of thosecompetitive factors with respect to thebid competitive value assuming the

same hypothetical risk level and it iseasier to compare alternative bids withrespect to delivery time and liquidateddamages clause than with respect to therisk level.

On the other hand, dependenciesmay generate ambiguity when there issome inconsistency in the constructionof the decisional hierarchy. It generallyhappens in two different cases:a) when a sub-factor influences a

large number of competitivefactors so as to become a competi-tive factor itself in the mind of theexpert

b) when a competitive factor repre-sents a driver for many otherfactors, giving a decisive contribu-tion to their performance (forinstance, personnel training mayenhance safety and availabilityperformance of the plant) and it isdifficult to implicitly consider alldependencies

By way of example, the produc-tion performance is certainly a compet-itive factor concerning plant perform-ance; nevertheless, since it is difficult

to compare bids with respect to such anaggregate factor, the expert generallyrefers to two different sub-factors (Fig-ure 4): target production rate and plantdependability.

Indeed the former measures theideal level of plant production while thelatter is an estimate of the plant capa-bility of being run with a given produc-tion rate. Generally, the target produc-tion rate is a design requirement strict-ly fixed by the project tender documentsand it is hardly useful to differentiatecompeting bids. The expert thereforetends to substitute the plant productionperformance factor with plant depend-ability in the hierarchy. Unfortunately,since plant dependability is a criticaldriver for some other competitive fac-tors such as safety (cf. Figure 4), train-ing and technical assistance, the abovesubstitution introduces a potential am-biguity in the hierarchy. If the expertconsiders dependability as a proxy ofproduction performance in the assess-ment of importance weights, he willprobably understate the importanceweight of plant dependability not con-sidering it is a driver for other factors.

Figure 3. Example of common driver between evaluation criteria: dependence deployment

Figure 4. Partial hierarchy with inconsistency: dependability substitutes production performance


It is possible to manage the de-pendencies between competitive fac-tors in three different ways:1. relying on the ability of the expert

to take implicitly account ofpossible dependencies in theelicitation of the importancejudgements (e.g. the case ofdelivery time and liquidateddamages clause factors)

2. deploying the hierarchy in order toinclude all relevant drivers,making explicit the existence andthe nature of dependencies amongcompetitive factors

3. considering techniques for de-pendence analysis within an AHPframework (e.g. Saaty, 1996; Saatyand Takizawa, 1986)

The choice of the most suitableapproach should be made in the lightof the nature and number of depend-encies in the hierarchy and on the baseof the level of complexity characteris-ing the above approaches. As thenumber of relevant dependencies in-creases, and especially those betweenfactors belonging to different macro-criteria, it is progressively more risky torely, for dependence consideration, onlyon the expertise of the owner. It wouldbe better to further deploy the hierar-chy and show the most important com-mon drivers. The subsequent phases, i.e.weight attribution and bid assessment,would benefit an improved clarity andtransparency. Unfortunately the latterapproach may be hardly applicablewhen the number of relevant depend-encies is very high, due to an explosionof the levels and elements of the hier-archy, and it should be preferable to re-sort to techniques for dependence anal-ysis in an AHP framework. These tech-niques need a specific expert knowledgeconcerning AHP advanced techniquesand thus only complex decision con-texts justify their adoption.

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Ward S C and Chapman C B. 1988. DevelopingCompetitive Bids: A Framework ForInformation Processing. Journal of theOperational Research Society. 39. Pages123-134.

About the Authors

Enrico Cagno, MS in Production andManagement Engineering at the Politec-nico di Milano, Italy. He is a PhDstudent in Industrial Engineering with theDepartment of Mechanical Engineering,Politecnico di Milano.

Franco Caron is an Associate Professorwith the Department of MechanicalEngineering at the Politecnico di Milano,Italy, where he teaches Project Manage-ment. He also teaches Industrial Logisticsat the University of Brescia.

Alessandro Perego is a Research Professorwith the Department of MechanicalEngineering at the University of Brescia,Italy, where he teaches IndustrialLogistics.

Paolo Trucco, PhD, is a Research Officerwith the Department of MechanicalEngineering, Politecnico di Milano.

Enrico Cagno

Department of Mechani-cal Engineering, Politec-nico di Milano, PiazzaLeonardo da Vinci 32,20133 Milano, Italy


Franco Caron



Alessandro Perego

Department of Mechani-cal Engineering,Università degli Studi diBrescia, Via Branze 38,25123 Brescia, Italy

Paolo Trucco



Santa Clause is coming to town � but what if he does notdo it in time? Or what if his deliveries include damaged goodsor altogether wrong products? This is the starting point forthis short, easy-to-read book about managing change in theorganizations. Santa Clause has loads of unsatisfied custom-ers and complaints are coming all around the world - to stayin business, the way things are done around in the Santa'sworkshops must be changed radically.

The authors take the reader through the change projectby telling the story of how old Santa little by little learns theessentials of managing the change and empowering his peo-ple. The story is divided into 12 chapters, each presentingone of the "twelve C's of Christmas" - i.e. critical success fac-tors of a change project as the authors see them. Each chap-ter is concluded with checklists of the issue at hand to guidethe reader around the obstacles to change.

Does the cover story sound ridiculous? Well that's howit feels when you read it: a naïve story about redesigning thetoy factory of Santa Clause with lots of supposed-to-be-fun-ny anecdotes and simplistic solutions with less than plausi-ble links to the real life situations we are facing when chang-ing our organizations. Some of the dialogue and the instruc-tive situations are more sickening than entertaining, and allthis is topped up with clumsy drawings that are neither fun-ny nor illustrative.

Yet there is much more to this little book than the sug-ar coated gingerbread that is offered on the outset. The de-scription of the process of managing change from the earlyidentification of changed customer needs and the challengeplaced by them all the way to the celebration of the achieve-ments and continuation of the development process is oneof the more complete and thorough in contemporary changeproject literature. The sequence of actions rolls out logicallyand the approach offered is a well-balanced mix of peoplecentered organizational development issues, project manage-ment, and general management issues. The treatment of thesubject shows exceptional maturity and deep knowledge ofthe authors, only the wrapping of this present is somewhatannoying.

Establishing the need for change through commonunderstanding and analyses, participating key stakeholders,and creating a vision, deducting measurable goals from it andfinally planning and scheduling the project are all dealt with.Communication, managing changes in the project, coping

with resist-ance tochange andconf l i c t s ,t r a i n i n g ,monitoringt h eprogress, dealing with cultural issues, and defining roles areother issues that are addressed. The book finishes with cele-bration of achievements and acknowledgement of the im-portance of continuous improvement. All this is far morethan most other change management books can offer. Un-fortunately some of these issues are hidden in the SantaClause fairytale, some are addressed only in the checklists,and some in the introductory paragraphs to the chapters. Allthe ingredients are there, the book just fails to utilize themto full, as they are presented somewhat inconsistent manner.

There are also some minor irritating discrepancies thattend to take the attention away from or blur the valuablecontents of the book. Forcing all the lessons to c-words con-fuses rather than provides a memory rule: the chapter dedi-cated to importance of training is labeled "Coping", as "un-derstanding that timely, targeted, effective training is one ofthe most prudent investments for coping with change". Theimportant issue of coordinating and monitoring the progressof a change project is hidden in the checklist of the "Con-centration" chapter, which mostly deals with setting priori-ties and focusing on the most important issues. And being aFinn I can't help mentioning that the real Santa lives in theFinnish Lapland, not in the North Pole, there are no rein-deers nor daylight in January in the North Pole, and the Arc-tic Circle does not cross the Arctic, let alone the actual NorthPole.

All in all, the book has an important message to telland it would be recommended easy reading for anybody deal-ing with changes in organizations if it only was written inmore tolerable manner. And I don't mean that this kind ofbook should not be funny or easy-to-read, only that a littlebit less naïve approach could help to reach far more readers.There is clearly a market for this kind of book, especially withthis kind of insight, but I'm afraid this is not the book to fillthat market need.

Antti Salminen

Managing Change in theWorkplace - a 12-stepprogram for successRalph L. Kliem and Irwin S. LudinHNB Publishing, New York, USA, 1999ISBN 0-9664286-1-7, 140 p.

Book Review


"Project Management: Planning & Control Techniques" is atechniques book designed for university degree programs, ex-ecutive management training courses, planning softwarecourses, and professional certification. There is also an In-structor's Manual available for lecturers. The book is alignedand structured in line with the Project Management Body ofKnowledge (PMBOK) standard by Project Management In-stitute (PMI), USA.

The book starts with an introductory chapter, a projectmanagement history review chapter, and a chapter on projectlife-cycle. The first three chapters clearly put the project inplace in the organizational context with stakeholders andtheir different needs, and introduce project management inrelation to the general management and technical manage-ment disciplines. The history part with its short and clearvisual illustrations of network computing methods and or-ganization charts - among others - conveys effectively theoperational technique-based basic foundations of the projectmanagement discipline. Current international project man-agement associations are mentioned and a related discussionof project manager's role, project management as a profes-sion, and project management certification schemes are in-troduced. Project management computing is recognized asan important area witch deserves a separate dedicated chap-ter at the end of the book. The project life-cycle chapterillustrates the important time-phased aspect and timely dy-namics in a project.

The first three chapters discussed above make a goodand compact start for the book with an overview of projectmanagement and techniques in the field. The chapters areenjoyable reading for a practitioner in the field for providinga compact and short explanation of the overall foundationalsetting. However, for a reader with no prior knowledge in thefield nor any business experience, the list-like presentationwith a large magnitude of definitions and terms without prop-er discussion about their content might not suffice for adapt-ing to the content properly. The compact writing style witha handbook type presentation and use of lists to convey theappropriate fact-based content to the reader is maintainedin the whole book. In general, it can be considered as a ben-eficial feature, and in the rest of the chapters (where tech-niques and methodologies are explained) the style mightappear even more effective also to an inexperienced reader.Due to the course book nature, the use of references andreference notations is not systematic nor accurate. However,at the end of each chapter the interested reader is providedwith hints about further reading on the chapter topic.

The next twochapters dedicatedon feasibility andproject selectiontechniques providea good content and reflect the author's justified choice toemphasize the importance of managing the early stages in aproject. The succeeding estimating and planning and con-trol cycle chapters provide some further important applica-tion areas of project management techniques. The rest ofthe chapters of the book then provide the reader with tech-niques in traditionally recognized application areas that cantypically be identified in the content of PMBOK and otherproject management standards.

The selection of the overall structure in terms of chap-ter topics and the contents of chapters are well designed. Inthe last chapter on project management computing, howev-er, one would have appreciated more discussion on function-ality characteristics of information processing applications,whereas the chapter content now builds mostly on aspects ofsoftware implementation, vendor selection, education andtraining on using a software, and benefits of a software. Inthis respect, the promise to 'cover the latest project manage-ment software with explanations of the calculations thathappen behind the computer screen' is implicitly fulfilledrather in the techniques-oriented discussion in all of the pre-vious chapters than in the last computing chapter.

The content of the book provides an effective fact-based entity and introduces many aspects and issues that arebased on the author's practical experience in the field. Thetechnique side is introduced by practical examples that helpunderstanding the empirical application of the techniquesintroduced. However, due to the compact writing style, a widevariety of terms, concepts and other included ingredients arepartly left without proper explanation.

Finally, the freshness of the book lies in the overallstructure and content that reflects author's practical experi-ence in the field. The structure of the book builds a founda-tion of major important issues in the beginning, and thengradually takes the reader through by well selected themesin subsequent chapters. The content of the book reflects wellmany concrete technique-related issues that are based onthe author's practical experience in the field. The book de-serves my recommendations. It is worth reading for anyonebelonging to the potential audience of project managementplanning and control techniques course books.

Karlos A.Artto

Project Management: Planningand Control TechniquesRory BurkeThird Edition, John Wiley & Sons Ltd, Chichester, England, 1999ISBN 0-471-98762-X, 343 p.

Book Review

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Board 1998

PRESIDENTKalle Kähkönen

VTT Building TechnologyP.O.Box 18022FIN-02044 VTT

Tel. +358 9 456 4560Mobile +358 40 553 3102Fax +358 9 456 6251E-mail: [email protected]

MEMBERSKarlos Artto

Helsinki University of Technology,Industrial ManagementSpektri DuoP.O. Box 9500FIN-02015 HUT


Matti HaukkaSuomen Projekti-Instituutti LtdSpektri Business Park/KvinttiMetsäneidonkuja 12FIN-02130 Espoo


Irja HyväriMartela LtdStrömbergintie 5FIN-00380 Helsinki


Simon IndolaNokia Telecommunications OyP.O. Box 360FIN-00045 Nokia Group

Tel. +358 9 51121Fax +358 9 5116 6280E-mail: [email protected]

P R O J E C T M A N A G E M E N T A S S O C I A T I O N F I N L A N D

Tapio SaarenpääTeollisuuden Voima OyFIN-27160 Olkiluoto

Tel. +358 02 8381 3310Fax +358 02 8381 3309E-mail: [email protected]

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Kari VainioNokia Telecommunications OyP.O. Box 370FIN-00045 Nokia Group

Tel. + 358 9 5116 6115Mobile +358 400 477 914Fax +358 9 5116 6280E-mail: [email protected]

Veikko VäliläTeollisuusvakuutus OyFIN-00035 Teollisuusvakuutus


DEPUTY MEMBERSMarkku Inkeroinen

JP-Terasto LtdP.O. Box 5FIN-01621 Vantaa

Tel. +358 9 8947 3949Mobile +358 40 566 7496Fax +358 9 8787706E-mail: [email protected]

Pekka KuuskoskiKuuskoski Consulting LtdKontti 2 EFIN-02130 Espoo


Editor-in-Chief:Professor Karlos A.ArttoHelsinki University of TechnologyDepartment of Industrial ManagementP.O.Box 9500, FIN-02015 HUTTelephone: +358 9 451 4751Fascimile: +358 9 451 3665E-mail: [email protected]

Call for Papersby April 30, 2000

Volume 6, 2000

ISSN 1455-4186

A world-widedistributed journal

linking industry andthe academic world

For more information about the journal and to get a copy of the jour-nal policy, please contact Editor-in-Chief Karlos Artto or visit our www-pages at the Project Management Association Finland web-site,URL: http://cic.vtt.fi/pty/index2.htm

PROJECT

MANAGEMENT

PROJECT

MANAGEMENT


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