project management managing complex projects unit VII case study

MBA 6951, Managing Complex Projects 1

Course Learning Outcomes for Unit VII Upon completion of this unit, students should be able to:

5. Evaluate sources of project risk strategies. 5.1 Evaluate the sources of project risk within an organization.

6. Assess proven scheduling techniques.

6.1 Explain scheduling techniques that an organization might use to mitigate its risks.

8. Outline tasks associated with closing a project. 8.1 Explain specific tasks that an organization would use to manage a project.

Course/Unit Learning Outcomes

Learning Activity

5.1

Unit Lesson Chapter 17: Risk Management, pp. 599-623 Chapter 19: Contract Management, pp. 661-678 Unit VII Case Study

6.1 Unit Lesson Chapter 17: Risk Management, pp. 599-623 Unit VII Case Study

8.1

Unit Lesson Chapter 17: Risk Management, pp. 599-623 Chapter 19: Contract Management, pp. 661-678 Unit VII Case Study

Reading Assignment Chapter 17: Risk Management, pp. 599–623 Chapter 19: Contract Management, pp. 661–678

Unit Lesson What do you think of when you hear the term risk? The common train of thought may be negative in nature with images of the negative consequences of an action. The definition of risk is simply the probability of not achieving a defined project goal, usually associated with some level of uncertainty. This brings us to think about the probability of that occurrence happening and the ultimate impact of that event occurring. As a general rule of thumb, risk increases with hazard but decreases with safeguard. In applying this rule of thumb, a project manager needs to identify the hazards and strive to implement safeguards that can overcome these hazards. The field of risk management attempts to deal with these risks by planning, identifying, analyzing, developing risk response strategies, and monitoring/controlling these risks. The idea is to deal proactively versus reacting in crisis mode. The use of decision trees is a common practice for project managers as they look to identify and quantify the potential risks associated with a particular project. Most projects involve a sequence of steps or, as referred to in the project management world, decisions. Using a decision tree provides a visual of each decision and the chance points associated with each. Including the probability on each branch of the tree provides an analysis of the expected value of each decision, which gives the project manager a clear view on which decision would be the better one from the standpoint of value.

UNIT VII STUDY GUIDE

Risk Management and Contract Procurement

MBA 6951, Managing Complex Projects 2

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Decision trees can be useful when making many types of decisions, including those of personal nature. Click on the link below to access an interactive slide on decision trees. Click here to access the interactive slide. Click here to access the transcript of the interactive slide. The important thing is that risk is measured early in the process and is continually monitored to include changes that might influence the level of risk associated with the project. The ultimate goal of risk management is as described below.

1. Develop and document a strategy. 2. Determine methods to be used. 3. Plan for an appropriate amount of resources.

In looking at the types of project risks that project managers deal with, there are four main categories, which include financial risk, strategic risk, operational-technical risk, and operational-safety risk. Access the interactive slide below to learn about considerations and ways to reduce the four main types of risks. Click here to access the interactive slide. Click here to access the transcript of the interactive slide. Understanding that risks cannot be completely eliminated but, rather, can be mitigated is the first step in the risk management process. Including and collaborating with the appropriate stakeholders will bring in additional thoughts and ideas as well as the ability to build a team to overcome the risks. The monitoring and controlling process assumes a systematic tracking and evaluating of not only the risks but also the actions taken to mitigate the risk. This should not be confused with a risk elimination action but instead viewed as a risk monitoring methodology. Once the organization feels that they have implemented an effective risk management process, contract management needs to be addressed. This process involves the management of the contract through a series of six steps as viewed through the buyer’s eyes.

ACTIVITY TASKS

Presales Activity  Identification of potential customers

 Identification of competitors

Bid/No Bid Decision- Making

 Evaluating buyer’s solicitation

 Analyzing industry and competitors

 Deciding on whether to bid

Bid/Proposal Preparation

 Developing effective offer with the purpose of influencing

Contract Negotiation and Formation

 Negotiating terms and conditions with the goal of coming to an agreement

Contract Administration

 Ensuring that all parties are following through with their agreed upon obligations

Contract Closeout  Determining that all obligations as stated on the contract are completed

Through the contract process, the specifications must be determined. These would include design, performance, and functional specifications. Design addresses the physical characteristics, performance addresses the operational, and functional describes the result. These specifications are to be clearly identified within the contract as to provide clear communication of expectations. Additionally, the make or buy, lease or buy, buy or rent, and lease or rent options need to be considered. While there are overarching advantages and disadvantages to each alternative, the final deciding factor really comes down to the particular situation and needs of the organization. Project managers must also determine what type of contract would be the most beneficial for their particular situation based upon a variety of variables such as their needs, economic situation, urgency of project completion, competitor conditions, and overall industry health. The two most commonly used types of contracts are as shown below.

MBA 6951, Managing Complex Projects 3

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 Cost-plus-fee: This minimizes negotiations, expedites the process, and provides significant flexibility. The project manager will have his or her costs covered, but a fee for his or her services will be applied. This obviously reduces the risk for the project manager. The major concern is that the final cost could fluctuate.

 Fixed price/lump sum: This provides assurance of costs and the fastest completion at the lowest cost. The project manager and the client agree on a fixed price for the project. The project manager accepts high risk in this type of project. The major concern here is that the specifics of the exact project components must be determined beforehand.

Incentive contracts are extremely popular in that they provide incentives (usually financial) to the contractor if the project comes in below bidding price or if performance is better than stated. The old saying that money talks is supported here as project managers look to increase their profit margins through cost savings and higher quality work for the client. At the end of the day, this would also be considered a best practice because it would theoretically provide initiatives for repeat business. As discussed earlier, changes are one of the most prevalent deterrents of the completion of a timely contract. This is mainly due to industry and competitive changes, project scope changes, and organizational changes, to name a few. There are three main categories of changes that include those that are necessary in order to meet the objectives; those that are not a part of the original scope but are now important because of a change in the market, industry, or some other factor; and those that are changes that were not a part of the original scope and not necessarily a change because of industry or market changes. Many times, these are changes made by a high-ranking individual within the organization—a good idea recommended by this individual. Because of this, a process of managing change can be implemented by using a change management process. This is defined as the process, tools, and techniques used to manage the people and the organization through the change process. A certain percentage of this process is not only dealing with the changes but also is dealing with the realization of change. Change can be very costly with shifts in time, products, and services. The project manager needs to understand and plan for changes proactively. Prioritizing changes—ranking them based upon a predetermined and agreed upon criteria—will avoid gut reactions or emotional decisions that could affect the overall goals of the project. As a reminder, it is important to understand that the project manager needs to deliver a project that brings value to the client. It might be a solid reason to implement change in spite of the potential increases in costs if a client’s value proposition on certain components of the project has changed. One might conclude that this would again require significant communication between the client and project manager to ensure that all interested stakeholders are on the same page with respect to the project’s progress. Several commercial software packages on the market assist project managers specifically with change management functions. One last topic area of this unit is the field of project management. While you may be taking this course as a requirement, you may also be taking this course to understand the field as a potential career that you may want to pursue. The project management professional (PMP) tends to attract individuals that are innovative, quantitative, organized, methodical, self-motivated, problem-solving, and passionate about the completion of projects and the execution of deliverables. The need for project managers lies in a variety of industries including IT, banking/insurance, health care, manufacturing/construction, training/consultancy, and the list goes on. Whenever a project necessitates a series of steps involving a variety of individuals, it could benefit from the services of a project manager. Project managers are the best future CEOs of an organization because they know and understand best practices involved with scheduling, costs, and managing changing scopes. Additionally, they understand conflict resolution and how industry/competitor actions can quickly change the entire scope of a project and/or organization.

Reference Kerzner, H. (2017). Project management: A systems approach to planning, scheduling, and controlling (12th

ed.). Hoboken, NJ: Wiley.