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Managing the unknown: a new approach to managing high uncertainty and risk in projects

Author: Loch, Christoph H. ; De Meyer, Arnoud ; Pich, Michael T.INSEAD Area: Technology and Operations ManagementPublisher: Wiley, 2006.Language: EnglishDescription: 292 p. : Graphs/Ill./Photos ; 24 cm.ISBN: 9780471693055Type of document: INSEAD Book Online Access: Click here Note: Doriot: for 2012-2013 coursesBibliography/Index: Includes bibliographical references and indexAbstract: This book makes two main contributions to understanding the management of novel projects with uncertainty. Typically, novel initiatives with high competitive significance have these characteristics yet, performance of such projects is often poor. First, we offer a different way of looking at the problem of managing novel projects: rather than working harder, straining to consider more possibilities in planning and formal risk management, we propose that one must recognize that project novelty fundamentally renders planning approaches insufficient. In such cases, project managers must make use of two fundamentally different approaches to project management: learning, or a flexible adjustment of the project approach as one learns more about the project, its environment and their interactions (as opposed to a contingent approach that utilizes planned 'trigger points'), and selectionism, or pursuing multiple approaches independently of one another and picking the best one ex post. Second, these approaches must be managed differently from each other and from the traditional planning approach; they require different project mindsets, different project infrastructures, and different supplier and stakeholder relationships. Organizations must be aware of these differences if they are to build the organizational capabilities critical to managing novel projects and to properly support these novel projects within an often hostile environment. The book offers a conceptual framework of looking at these management approaches, managerial examples, and actionable recommendations on what to do.
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INSEAD Book Asia Campus
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Print HD69 .P75 L63 2006
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Doriot: for 2012-2013 courses

Includes bibliographical references and index

This book makes two main contributions to understanding the management of novel projects with uncertainty. Typically, novel initiatives with high competitive significance have these characteristics yet, performance of such projects is often poor. First, we offer a different way of looking at the problem of managing novel projects: rather than working harder, straining to consider more possibilities in planning and formal risk management, we propose that one must recognize that project novelty fundamentally renders planning approaches insufficient. In such cases, project managers must make use of two fundamentally different approaches to project management: learning, or a flexible adjustment of the project approach as one learns more about the project, its environment and their interactions (as opposed to a contingent approach that utilizes planned 'trigger points'), and selectionism, or pursuing multiple approaches independently of one another and picking the best one ex post. Second, these approaches must be managed differently from each other and from the traditional planning approach; they require different project mindsets, different project infrastructures, and different supplier and stakeholder relationships. Organizations must be aware of these differences if they are to build the organizational capabilities critical to managing novel projects and to properly support these novel projects within an often hostile environment. The book offers a conceptual framework of looking at these management approaches, managerial examples, and actionable recommendations on what to do.

Digitized

Managing the Unknown A New Approach to Managing High Uncertainty and Risk in Projects Contents Introduction................................................................................. 1 Project Management and Project Risk Management (PRM)............................................................ 1 Operational Risk Management and PRM ........................ 4 Contribution and Plan of the Book....................................5 Part I A New Look at Project Risk Management ................................................ 9 Chapter I PRM Best Practice: The PCNet Project........................... 13 1.1 Background............................................................. 13 1.1.1 The PCNet Project............................................. 15 1.2 Risk Identification .................................................. 16 1.3 Risk Assessment and Prioritization.......................... 18 1.3.1 Impact Assessment........................................... 18 1.3.2 Risk Prioritization............................................. 19 1.4 Risk Monitoring and Management ........................... 20 1.4.1 Proactive Influencing of Risk Factors ................ 20 1.4.2 Monitoring and Reporting ................................ 21 1.5 Managing Residual Risks......................................... 22 1.6 Learning and Sharing Across Projects ..................... 25 1.6.1 Learning over Time ........................................... 25 1.6.2 Learning from the Residual Risks...................... 26 1.6.3 Overall Success of the PCNet Project and Learning Applied to Other Projects............................. 26 v vi Contcnts 1.7 PRM as a Method and as a Mind-Set ......................... 26 1.8 Summary and Conclusion......................................... 29 Chapter 2 The Limits of Established PRM: The Circored Project..... 33 2.1 Early Design of the Circored Technology.................... 34 2.1.1 Cliffs' Strategic Business Idea............................ 34 2.1.2 The Circored Technology and Early Preparations.. 35 2.2 Joint Venture and Business Plan............................... 38 2.3 The Construction Phase, May 1996­April 1999 ......... 40 2.4 The Startup Phase, May 1999­Summer 2000 ............42 2.5 A Management and Design Change............................43 2.6 Market Turmoil ........................................................ 44 2.7 The Limits of PRM: Unforeseeable Uncertainty........... 45 2.8 Summary and Conclusion......................................... 47 Chapter 3 A Broader Look at Project Risk Management ................... 51 3.1 Understanding the Fundamental Types of Uncertainty................................................................. 51 3.2 Foreseeable Uncertainty and Residual Risk ............... 52 3.2.1 Variation............................................................. 54 3.2.2 Foreseeable Events............................................. 57 3.2.3 Residual Risk...................................................... 62 3.3 Complexity ............................................................... 63 3.3.1 Task Complexity: Control-and-FastResponse....... 65 3.3.2 Relationship Complexity: Contracts as Risk-Sharing Tools ..................................................... 67 3.4 Unknown Unknowns................................................. 71 3.4.1 Two Fundamental Approaches: Learning and Selectionism ............................................................... 73 3.5 Expanding the Toolbox: Fundamental Approaches to Project Uncertainty......................................................74 Part II Managing the Unknown.............................................. 81 Chapter 4 Diagnosing Complexity and Uncertainty............................ 85 4.1 Diagnosing the Unforeseeable at Escend Technologies 86 4.1.1 Background........................................................ 86 4.1.2 Diagnosing the Unforeseeable ............................ 87 4.2 Diagnosing Complexity.............................................. 90 4.3 A Process for Diagnosing Uncertainty and Complexity at the Outset................................................. 93 Contents vii 4.4 Evolve the Complexity and Uncertainty Profile .... 98 4.5 Conclusion 100 Chapter 5 Learning in Projects ................................................... 103 5.1 Learning at Escend Technologies........................... 104 5.1.1 Planning and Firefighting............................... 104 5.1.2 Diagnosis and Learning ................................. 107 5.1.3 First Results and Further Adjustments .......... 110 5.2 Types of Project Learning ...................................... 112 5.2.1 Three Types of Learning.................................. 112 5.2.2 Double-Loop Learning through Improvisation or Experimentation ................................................ 113 5.2.3 The Trade-off Between Learning and Progress ................................................................. 116 5.3 Back to Escend: Drawing the Lessons .................. 117 5.3.1 Interpreting the Escend Example ................... 117 5.3.2 An Experimentation Process........................... 118 Chaplet' 6 Multiple Parallel Projects: Selectionism....................... 123 6.1 Selectionism at Option International .................... 125 6.1.1 Company Background ................................... 125 6.1.2 The Challenge: An Unpredictably Changing Market .................................................................... 127 6.1.3 Selectionist Trials to Find a New Business Model127 6.2 Explaining the Principles of Selectionism............... 130 6.3 What Makes Selectionism Work? .......................... 133 6.3.1 In What Space Are Alternatives Developed? . .. 133 6.3.2 How Many Parallel Trials? ............................. 134 6.3.3 When to Stop Trials........................................ 135 6.3.4 Ensuring Selection and Commitment to the Chosen Trial ....................................................................... 136 6.3.5 Leveraging the Benefits of the Nonselected Outcomes ............................................................... 137 6.4 Conclusion ........................................................... 138 Chapter' 8 Selectionism and Learning in Projects ........................ 141 7.1 Selectionism and Learning at Molecular Diagnostics ................................................................ 143 7.2 Choosing and Combining Selectionism and Learning144 7.2.1 Understanding the Cost of Darwinian Selection and Sequential Learning ............................................... 146 viii Contents 7.2.2 Value Comparison of Darwinian Selection and Sequential Learning .......................................... 147 7.2.3 Exploratory Learning and the Value of Partial Information ............................................... 149 7.2.4 The PR/VI Contingency Planning Approach ..... 153 7.2.5 A Combined Choice Framework ....................... 153 7.3 Reexamining the Circored Project with This New Framework .................................................................. 156 7.4 Conclusion ............................................................. 159 Part III Putting Selectionism and Learning into Practice .............................. 163 Chapter 8 Establishing the Project Mind-Set ................................ 165 8.1 Open-Mindedness: Expecting the Unexpected. . . ... 166 8.1.1 Choosing the Project Team with the Right Experience ............................................................... 166 8.1.2 Mindfulness: a Culture of Openness................. 169 8.1.3 Open-Mindedness among Project Partners ....... 172 8.2 Project Vision, or a "Map" of Unknown Terrain ....... 172 8.2.1 An Example: Rapid Manufacturing Technologies173 8.2.2 A Roadmap into Unknown Terrain.................... 174 8.3 Robust-Mindedness: The Ability to Cope................. 175 8.3.1 Sensemaking and Social Cohesion to Prevent a Team Breakdown .................................................. 175 8.3.2 A Sensemaking Breakdown in Automotive Development............................................................. 177 8.3.3 Robustness: Social Identity and a Map............. 178 8.4 Summary: How to Foster an Unk Unk Mind-Set...... 180 Chapter 9 Putting the Infrastructure in Place................................ 183 9.1 Managerial Systems in Project Risk Management......184 9.2 The Management Systems of Learning (Sub)Projects ............................................................... 187 9.2.1 Planning System.............................................. 187 9.2.2 Monitoring System........................................... 188 9.2.3 Coordination and Information System ............. 190 9.2.4 Evaluation and Incentive System ..................... 193 9.3 The Management Systems of Selectionist (Sub)Projects ............................................................... 196 Contents 9.3.1 Planning Systems........................................... 197 9.3.2 Monitoring Systems........................................ 198 9.3.3 Coordination and Information Systems .......... 199 9.3.4 Evaluation and Incentive Systems...................202 9.4 Integrating Learning and Selectionist Pieces into the Overall Project....................................................... 204 9.4.1 Buffers for the Subprojects Threatened by Unk Unks................................................................204 9.4.2 Clarify Dependence of Other Subprojects. . . .. 205 9.4.3 Transfer Preliminary Information.................... 205 Chapter 10 Managing Unk Unks with Partners ............................ 211 10.1 The Dangers of Project Contracts ........................ 212 10.1.1 The Eurotunnel Project ................................ 212 10.1.2 Other Examples ........................................... 218 10.1.3 The Limitations of and the Need to Extend Contracts ............................................................... 219 10.2 A Problem-Solving Process in the Face of Unk Unks................................................................220 10.2.1 Choose Partners for Competence They Contribute .............................................................. 221 10.2.2 Clear Risk and Reward Allocation and Flexibility.......................................................... 224 10.2.3 Fair Process ................................................. 226 10.2.4 Early-Warning Systems.................................228 10.2.5 Relationship and Trust Building .................. 229 10.3 Summary: A Process of Partner Relationship Management................................................................ 231 Chapter I I Managing Project Stakeholders ................................... 237 11.1 The Project of the Flying Car................................237 11.1.1 Concept Generation--Three Ideas Emerge. ... 238 11.1.2 From Concepts to Reality.............................. 239 11.1.3 Prototype Execution...................................... 240 11.1.4 Friction within the Development Team.......... 242 11.1.5 Friction among External Partners................. 243 11.1.6 Selling the Project to the Organization .......... 243 11.1.7 Management Systems for Selectionist Trials in Vol de Nuit ......................................................... 247 11.2 How Informal Stakeholders May Hold Up a Project ...................................................................... 249 11.2.1 Strategy and Economic Reasoning ............... 250 ix 11.2.2 Politics and Influence: Differing Interests and Network Structure ............................................ 251 11.2.3 Culture.......................................................... 254 11.2.4 Egos and Emotions in the Approach of Individuals ........................................................... 255 11.3 Lessons: Map the Decision Influence Levels to Sell the Project ............................................................ 256 Part IV Managing the Unknown: The Role of Senior Management................. 261 Chapter 12 The Role of Senior Management in Novel Projects ... 263 12.1 Choosing the Project Scope................................... 264 12.1.1 Understanding the Strategic Rewards............ 264 12.1.2 Shaping the Project Portfolio ......................... 265 12.1.3 Enforce Risk Reduction in the Projects in Which Novelty Is Not Critical ................................ 266 12.2 Building Organizational Capabilities .................... 266 12.2.1 The Project Management Team.......................266 12.2.2 The Project Infrastructure Structure............... 268 12.3 Sponsoring Novel Projects..................................... 269 12.4 Conclusion .......................................................... 270 References ............................................................. 273 Index ..................................................................... 285

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