CHAPTER 16
Applying Complexity Thinking to Projects with Significant Risks, Dependencies, and External Constraints

Complex projects include those that are high risk because they involve multiple dependencies and external factors. Project leaders should pay particular attention to managing risks and uncertainties on these types of projects.

WHAT MAKES PROJECTS WITH SIGNIFICANT RISKS, DEPENDENCIES, AND EXTERNAL CONSTRAINTS COMPLEX?

Large-scale change inevitably involves cross-functional and cross-project dependencies, external constraints, and changes to the external environment that will require adjustments. For regulated industries, failure to comply with ever-changing rules and regulations may create significant exposure. Additional dependencies and constraints that are difficult to identify and manage involve complex behaviors (of humans and systems), reactions to changes, and unintended consequences of interventions. Projects that involve outsourced products, services, or solutions pose risks because control of major deliverables has been delegated to third parties.

Experience has demonstrated that these dependencies and constraints are dynamic and are sometimes difficult to identify. They are likely to change not only throughout the project, but also after the new solution is deployed. These dependencies and constraints need to be identified, owned, and managed by a senior person on the project leadership team.

COMPLEX BEHAVIORS AND REACTIONS TO CHANGES

Because of interdependencies and complex feedback loops, the effects of changes on complex projects are not discrete events that can be studied in isolation. Small changes can combine to produce very complex behaviors that are virtually impossible to predict. For instance, many minor schedule delays may combine to cause a cataclysmic effect. This phenomenon is known as the butterfly effect, whereby a small change at one place in a complex system has large effects elsewhere (e.g., a butterfly flapping its wings in Mexico City sets in motion a series of events that leads to a change in the weather in St. Louis).

On a complex project, it is impossible to understand the full effect of an environmental change by looking at individual parts of the system—such as solution components; project team members; customers and users; cost, schedule, and design components; and individual or sets of requirements. As a result, the project team must constantly adapt to changes as they evolve and are recognized.

UNINTENDED CONSEQUENCES OF INTERVENTIONS

As project managers, we are constantly making decisions to change or correct our plans. In a complex project, these interventions don’t always have the effect we expect. In fact, they often cause unintended consequences that require additional intervention. The project manager is often unable to recognize, analyze, and control multiple feedback loops.¹ As a result, a cycle of never-ending changes, leading to unpredictable effects, is created. This causes the project team to constantly adapt to events as they are identified.

OUTSOURCED PRODUCTS, SERVICES, OR SOLUTIONS

Outsourcing components of the solution adds significant complexity and risk to projects. “Every outsourced project by definition is a goal-oriented undertaking of multiple tasks, often interdependent in nature, increasingly involving multiple parties, including customer, principal supplier, supply-chain partners (subcontractors), and other third-parties, to develop or provide products, services, or solutions within a given period of time.”² Project managers relinquish a certain amount of control over their projects when they engage an outsourcing partner, which can lead to a failed project if the outsourcing relationship is not managed appropriately.

CROSS-FUNCTIONAL AND CROSS-PROJECT DEPENDENCIES

Complex projects almost always involve inter-project dependencies that must be managed. These could involve deliverables produced by another project, e.g., the purchase and installation of office space, supplies, and business equipment that are needed to implement a new business solution. In addition, because business processes are horizontal, a change made by one functional group may cause unknown impacts on another functional group. Again, these dependencies need to be identified, owned, and managed by a senior person on the project leadership team.

REGULATORY AND ENVIRONMENTAL CONSTRAINTS

Compliance issues such as those imposed by building codes, environmental tolerance levels, and food and drug safety policies pose potential risks to projects operating within a regulated industry. For projects that are subject to regulatory compliance, it is important for the project leadership team to keep abreast of emerging regulatory issues and be aware of developments that have the potential to lead to government rulemaking. The project team must be able to craft workable solutions before conditions are imposed from outside the project.

INTEGRATION ISSUES

Complex projects almost always involve multiple, intricate integration issues. Integration applies to all components of the solution: process integration, organizational integration and optimization, data integration and normalization, IT solution component integration and application system interfaces, and integration and optimization of technical infrastructure components. Changes to one component of the solution may cause unintended consequences to the integration and operation of others.

HOW TO MANAGE PROJECTS WITH SIGNIFICANT RISKS, DEPENDENCIES, AND EXTERNAL CONSTRAINTS

To manage high-risk projects with multiple dependencies and external factors, we recommend techniques for managing risks and uncertainties, dependencies and external constraints, and outsourced projects.

RISKS AND UNCERTAINTIES

The concepts of risk and uncertainty are often used interchangeably in the context of complex projects, but it is important to distinguish between them. A risk is defined as “an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives.”⁴ A risk may or may not occur. In the context of complex projects, an uncertainty, in contrast, is a present reality. Complex projects are riddled with uncertainty. Although conventional project management wisdom tells us to resolve all uncertainties before project execution, this is usually not feasible on a complex project. So we must learn how to make progress in the midst of uncertainty.

Risk management involves planning to accommodate future events that may or may not happen. Uncertainty management is the proactive effort to make sense of the project and reduce ambiguity in the present.

Managing Risks

Even though the process is well defined in the PMBOK® Guide and many other books on the subject,⁵ risk management is one of the most neglected aspects of managing complex projects. In fact, most project managers simply do not perform rigorous risk management on their projects. For complex projects, however, risk management is not an option—it is essential. David Hillson and Peter Simon, in Practical Project Risk Management: The ATOM Methodology, note that effective risk management requires four elements:⁶

• A supportive organization Competent people

• Appropriate methods, tools, and techniques

• A simple, scalable process.

Hillson and Simon present the simple, scalable process they refer to as ATOM (Active Threat and Opportunity Management). They use a project sizing grid not unlike our Project Complexity Model to determine how the ATOM methodology should be applied, from light to heavy. For a complex project involving risks, integration issues, dependencies, and interrelationships, their opinion is that bigger is better; they recommend applying the ATOM Process for Large Projects.⁷ We strongly recommend that leaders of complex projects become experts in this approach.

Managing Uncertainties

To manage uncertainty is to make sense of the current situation. Only when we understand the origins of the uncertainty, and attempt to identify patterns, can we determine the appropriate way forward.⁸ Sophisticated project leadership teams often use simulation and probability techniques to predict results in uncertain circumstances and to reduce sensitivity to random variability. Simulation techniques allow the project team to explore “what if?” scenarios to attempt to predict the future. Statistical probability analysis helps the team determine the likelihood of an event. Obviously, the high probability of an event occurring that would cause significant negative impacts should be addressed.

Matthew Leitch, an independent consultant and researcher specializing in internal control and risk management, presents a seven-step approach to managing uncertainty in his essay, “The Basics”:⁹

1. Identify uncertainties
2. Consider the impact of your uncertainties
3. Consider monitoring and research
4. Consider mitigation and exploitation
5. Clarify alternative future outcomes
6. Make risk-aware plans
7. Design internal control systems.

DEPENDENCIES AND EXTERNAL CONSTRAINTS

Large-scale organizational change alters much about the environment for many different groups across the enterprise. A change in one functional area may have unwanted consequences in another. In addition, a major transformation project is often dependent on key deliverables from other projects currently underway within the organization or from outsourced components of the solution. Our recommendations for managing dependencies and external constraints include:

• Identify inter-group and cross-project dependencies

• Assign ownership to dependencies

• Manage your project in the midst of changes in your IT environment

• Use edge-of-chaos management to adapt to changes in the external environment.

Identify Inter-group and Cross-Project Dependencies

The most difficult part of dependency management is identifying the dependencies. Interrelationships across functional groups are often invisible and difficult to identify and define. Business analysis practices that analyze the value chain and develop functional and process models are designed to make these dependencies visible. As the processes and functions change, new dependencies will emerge and existing dependencies might need to adapt. The core project leadership team needs to spend a great deal of time and effort continually monitoring and adapting its dependency management strategy as the organizational changes take place.

Inter-group dependencies might be among people, information exchanges, policies, business rules, functions, processes, or IT application systems—virtually anywhere across the enterprise. As these dependencies are identified, use visualization techniques to literally map the interdependent processes on the wall. Review and refine often as more is learned. Make key decisions with the dependencies in mind.

Assign Ownership to Dependencies

As dependencies and interrelationships are discovered, assign someone from the core leadership team to serve as the dependency owner who will interact with the interdependent functional groups or the other project team creating the deliverable. A best practice is for dependency owners to attend meetings of the dependent group or project to demonstrate the importance of the dependency and to monitor its status firsthand.

Manage Your Project in the Midst of Changes in Your IT Organization

Your IT environment may impose new constraints after your project has begun execution. Virtually all large-scale transformation projects involve changes in IT services. It is important to be aware of change initiatives currently underway in your IT group to improve performance. As part of the improvement process, your IT organization may impose new standards or methods that require you to change your project approach.

In her book Leading Culture Change in Your Software Organization, Rita Chao Hadden highlights five highly effective conventional project management practices that she contends any project team should use.¹⁰ Following these practices will go a long way in keeping your project on track even if your IT organization is still be immature and your environment is in a state of flux:

• Work with your customers to clearly define, validate, prioritize, and agree on requirements and perform change control.

• Carefully plan before executing your project, developing specific strategies to address key concerns early in the project.

• Track your progress by key work products and deliverables, not just milestones, and take early corrective action. Resolve issues, external dependencies, and risks to closure, escalating proactively.

• Perform effective peer reviews for your key work products and deliverables.

• Manage your configuration items throughout your project.

Use Edge-of-Chaos Management to Adapt to Changes in the External Environment

In addition to changes in your IT environment, your team is likely to experience events and changes both within and external to your organization that will impact your project. These may include:

• Changes to the regulatory environment that constrain your decisions and pose new requirements

• Changes in the business environment that pose new interrelationships, dependencies, and perhaps new requirements, such as mergers and acquisitions

• Changes in the competitive environment that establish new interrelationships and dependencies, which may also impose new constraints or requirements

• Changes in zoning or building codes (for projects that involve construction).

These external constraints and dependencies require vigilance by the core project leadership team to identify, assign ownership, adapt as changes occur, and rigorously manage each constraint or dependency so that it does not hinder progress.

COMPLEX OUTSOURCED PROJECTS

Outsourced projects are by their very nature risky. The project leader and team must direct special attention to ensuring that the outsource partner understands requirements and is amenable to requirements changes as needed. We offer suggestions for establishing positive supplier partnerships, creating an integrated project management team, and establishing a framework for managing outsourced projects.

Establish Positive Supplier Partnerships

Positive supplier partnerships are crucial if we are to adjust as we learn, adapt as our environment changes, and manage project complexities. Seek out suppliers who are focused on quality and who routinely establish positive partnerships with their customers. Together, perform value-chain analysis, from the subcontractors to the prime supplier to your organization, through to the customers of your business. Ensure that all along the way on the value chain, everyone is focused on their requirements and the quality of their products and services. Review and adjust the value-chain processes as the project progresses and learning occurs.

Best practices gleaned from companies that have mastered the art of establishing positive outsourcing partnerships that have led to project success include the following:¹¹

1. Clearly define the scope and schedule for your project
2. Evaluate a service provider like you’d hire a full-time employee
3. Look for specific experience fit
4. Don’t choose a vendor based solely on price
5. Review portfolios and samples
6. Start small
7. Tie payment to clearly defined project milestones
8. Negotiate ownership of work up front
9. Don’t forget about support after the project is complete 10. Get it in writing.

Create an Integrated Project Management Team

Establish a small, integrated “tiger team” consisting of key members of the core program team, the supplier and major subcontractors, and the business. Involve all parties in the requirements elicitation, analysis, and specification activities so that they share a common understanding of the requirements themselves as well as the requirements management process. Schedule frequent feedback sessions where supplier and subcontractor representatives provide business representatives with prototypes, models, and increments of the solution for their review, feedback, and validation. Manage the suppliers and subcontractors as trusted partners. (See Chapter 10 for additional information on how to lead large, geographically dispersed, culturally diverse project teams.)

Establish a Framework for Managing Outsourced Projects

Managing complex projects becomes even more challenging when it involves coordinating processes, schedules, individuals, and teams around the globe. For an outsourcing partnership of any length or criticality, establish a solid management framework. One such framework involves four layers:¹²

• Governance layer, consisting of:

  • Offshore development strategy

  • Definition of the working model

  • Articulation, measurement, and monitoring of the service-level agreement

  • Stakeholder management

  • Dispute resolution.

• Management layer, consisting of:

  • Project management

  • Global team management

  • Appreciation for globalization, outsourcing, offshoring, and internationalization.

• Technical layer, consisting of roles and responsibilities for:

  • Program and project managers

  • Delivery managers

  • Business development managers

  • Core technical teams, comprising module leaders and developers

  • On-site coordinators.

• Communication layer, consisting of:

  • Defining communication protocols

  • Communication infrastructure

  • Optimizing time difference.

TABLE 16-1. Approaches for Managing Projects with Complex Dependencies and External Constraints

NOTES

1. Terry Williams, “Complexity in Project Management and the Management of Complex Projects,” presented at the PMI Research Working Session at the PMI Global Congress North America (October 2007).

2. Gregory A. Garrett, Managing Complex Outsourced Projects (Chicago: CCH Incorporated, 2005), 2.

3. Kirk Johnson, “Denver Airport Saw the Future. It Didn’t Work” (August 27, 2005). Online at http://www.nytimes.com/2005/08/27/national/27denver.html?ex=1282795200&en=55c1a4d8ddb7988a&ei=5088&partner=rssnyt&emc=rss (accessed March 2008).

4. Project Management Institute, A Guide to the Project Management Body of Knowledge, Third Edition (Newtown Square, PA: Project Management Institute, 2004), 373.

5. Ibid.

6. David Hillson and Peter Simon, Practical Project Risk Management: The ATOM Methodology (Vienna, VA: Management Concepts, 2007), 17.

7. Ibid., 149-170.

8. B. Michael Aucoin, Right-Brain Project Management: A Complementary Approach (Vienna, VA: Management Concepts, 2007), 140-141.

9. Matthew Leitch, “The Basics,” (March 2003) Online at http://www.managedluck.co.uk/basics/index.html (accessed March 2008).

10. Rita Chao Hadden, Leading Culture Change in Your Software Organization (Vienna, VA: Management Concepts, 2003), 17-18.

11. Keith R. Crosley, “Top Ten Tips for Outsourcing Success,” About, Inc. (2008). Online at http://entrepreneurs.about.com/cs/beyondstartup/a/uc041003a.htm (accessed February 2008).

12. Mohan Babu, “Managing and Implementing Outsourced Projects. Using an Offshoring Management Framework,” Computerworld Management (2005). Online at http://www.computerworld.com/managementtopics/outsourcing/story/0,10801,107069,00.html?SKC=outsourcing-107069 (accessed February 2008).