Project Managements

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Managing Project Uncertainty:

From Variation to Chaos
Uncertainty is an inevitable aspect of most projects, but even the most proficient managers have difficulty handling it. They use decision milestones to anticipate outcomes, risk management to prevent disasters and sequential iteration to make sure everyone is making the desired product, yet the project still ends up with an overrun schedule, overflowing budget and compromised specifications. Or it just dies. To find out why, we studied 16 projects in areas including personal-computer development, telecommunications, Internet startups, pharmaceutical development, iron-ore processing, airship development and building construction. Interviews with team members and scrutiny of project documentation over five years showed managers consistently failing to recognize that there are different types of uncertainty, each of which requires a different management approach. The lack of awareness is understandable, given that the commonly accepted definition of a project (“a unique interrelated set of tasks with a beginning, an end and a welldefined outcome”) assumes that everyone can identify the tasks at the outset, provide contingency alternatives and keep to the same overall project vision throughout.1 Those are fair assumptions for routine or well-understood projects, but not for novel or breakthrough initiatives, which require companies to rethink the traditional definition of a project — and the ways to manage it. (See “Beyond Risk Management.”) A more forward-thinking approach is uncertainty-based management, which derives planning, monitoring and management style from an uncertainty profile comprising four uncertainty types — variation,

Project managers can’t predict the future, but accurately gauging the degree of uncertainty inherent in their projects can help them quickly adapt to it. Arnoud De Meyer, Christoph H. Loch and Michael T. Pich

Arnoud De Meyer is dean and professor of technology management at INSEAD Singapore, where Christoph H. Loch is professor of technology management and Michael T. Pich is assistant professor of technology management. Contact the authors at arnoud.de.meyer@insead.edu, christoph.loch@insead.edu and michael.pich@insead.edu.

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MIT SLOAN MANAGEMENT REVIEW

WINTER 2002

Illustration: ©Eric Angeloch/SIS

foreseen uncertainty, unforeseen uncertainty and chaos. From variation to chaos, managers move progressively from traditional approaches that are based on a fixed sequence of tasks to approaches that allow for the vision to change, even in the middle of the project.

What Uncertainty Looks Like
Some projects have few uncertainties — only the complexity of tasks and relationships is important — but most are characterized by several types of uncertainty. Accepted practice is to classify uncertain events by their source (technical issues, market, people, cost, schedule and quality) or by potential impact.2 Our categories, however, emphasize uncertainty as it relates to project-management techniques. (See “Characterizing Uncertainty in Projects.”) Although each uncertainty type is distinct, a single project typically encounters some combination of all four.

take between 32 and 34 weeks, for example. At the start of projects characterized by variation, managers know the sequence and nature of activities and have clearly defined objectives. The project plan is detailed and stable, but schedules and budgets vary from their projected values. A shifting schedule causes the critical path (the train of activities that determines overall project duration) to move, forcing project managers to monitor variations across the board, not just critical activities. In a construction project, for example, myriad events (worker sickness, weather, delayed parts delivery, unanticipated difficulty of tasks) influence budget, schedule and specifications. Such influences are too small to plan for and monitor individually, but the project team...
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