International Journal of Project Management 19 (2001) 89101

www.elsevier.com/locate/ijproman

Management of risks, uncertainties and opportunities on projects: time for a fundamental shift
Ali Jaafari
Department of Civil Engineering, The University of Sydney, NSW 2006, Australia Received 26 October 1998; received in revised form 16 June 1999; accepted 30 June 1999

Abstract This paper makes a case for a shift to strategy-based project management, a component of which is real time management of risks, uncertainties and opportunities using a life cycle project management approach. Risk analysis and management should not be viewed as a separate planning and response operation. Risk and opportunity management is a way of thinking and a philosophy that should permeate the entire spectrum of project activities. Shifting to business objectives and focusing on the whole of life risks/ rewards are of paramount importance. Evaluation of risks must be based not only on delivering projects on time and within budget but also on crafting, developing and operating a long term business entity which can deliver the business objectives of the parties concerned while meeting or exceeding community expectations. # 2001 Elsevier Science Ltd and IPMA. All rights reserved.
Keywords: Strategy; Project management; Life cycle; Decision making

1. Risk and uncertainty denition Risk is dened as the exposure to loss/gain, or the probability of occurrence of loss/gain multiplied by its respective magnitude. Events are said to be certain if the probability of their occurrence is 100% or totally uncertain if the probability of occurrence is 0%. In between these extremes the uncertainty varies quite widely. On projects it is necessary to dene one or a number of objective functions to represent the project under consideration and then measure the likelihood of achieving certain target values for them. Examples of such functions include capital expenditure, completion time and so on. Risk management involves modelling the project's objective functions against project variables, which include such variables as cost and quantities of input resources, external factors, etc. Since the project variables are often stochastic in nature and dynamic (i.e. exhibiting varying degrees of uncertainty over time) it is quite natural that the objective functions will also exhibit uncertainty. Project uncertainty is the probability that the objective function will not reach its planned target value.
E-mail address: a.jaafari@civil.usyd.edu.au (A. Jaafari).

If the project variables could be identied and characterised well in advance and provided that these were to remain basically unchanged during the currency of the project then it would be possible to estimate the risks and or variances of the objective functions. However, not all of the project variables are always identiable at the outset or new variables surface during project life or their probability of occurrence may shift over time. Their impacts (both positive and negative) could also change as would their inter-relationships. These will then make the task of risk management extremely dicult. The ideal situation is to have a single measure representing the project uncertainty (Fig. 1). For example, the probability that the project will not break even could be considered to be representative of the whole project uncertainty. This can then be evaluated against the project variables and used as the basis for decision making and risk reduction throughout project life. On projects proceeding normally within a stable environment, uncertainty will typically be high at the time of project conceptualisation and will be increasingly lowered via proactive planning and prudent decision making. However, on complex projects within a changing environment, uncertainty will not necessarily diminish over time [1]. Thus, it will be necessary to continuously

0263-7863/01/$20.00 # 2001 Elsevier Science Ltd and IPMA. All rights reserved. PII: S0263-7863(99)00047-2

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sense the project variables, re-evaluate the status of the objective function, take action and re-adjust the project strategies. 2. Introduction Today's projects are subject to uncertainties due to the three principal sources: external factors, shifting business objectives and poorly dened methods for project realisation. The latter is not only due to poor knowledge and experience of the project team but also due to project complexity and absence of repetition (most projects are unique undertakings). Examples of external factors include commercial and competitive pressures, collision of social, political and institutional norms and rules with project nancial and technical goals, shifting requirements of project stakeholders etc. Early resolution of project variables is not often possible as the basic information needed to make decisions is not available or it is fuzzy and changes with time. Even when the status of a project variable has been determined it could change over time. This then creates unknown exposure to risks. New risks can be encountered during the currency of the project and seemingly unimportant risks pose new threats. The combined eects are often so complex that many issues cannot be foreshadowed clearly early on in the life of a project, despite the magnitude of planning and evaluation eorts typically spent on most projects. Uncertainty surrounds many aspects of the project or its parts. Against this background of complexity and uncertainty the challenge is to pursue project objectives earnestly and to look for opportunities to further improve the project's base value.

Thus, project conceptualisation, planning and implementation is a complex, dynamic and evolving process. It should be managed on the basis of a set of strategic objectives, which themselves would be subject to change (in response to the project's shifting environment), on a fully uid and exible basis. Further, a holistic and integrative framework is needed in which not only planning and proactive management of technical and nancial factors receive attention but equally the social, environmental, political and community aspects are placed at the centre of decision making. The objectives chosen should embrace the project's viability in its broadest sense, over its entire life, and should facilitate management of the process using a continuous risk and uncertainty reduction within a uid and exible management framework. This paper suggests a framework for conceptualisation and implementation of complex projects following a strategy-based decision making philosophy. It will be argued that risk and uncertainty management should not be seen as a discrete set of activities taking place at the time of conceptualisation. Rather, risk and uncertainty management permeates all decisions and should form a component of all evaluations and decisions made during the currency of the project. In particular, management of risks and uncertainties should be seen as a continuous real time operation integrated with other project management operations. It is to facilitate the realisation of the strategic objectives underlying the project. 2.1. Project management and risk management According to the Project Management Body of Knowledge [2], risk management forms one of the socalled nine functions of project management (the other eight being integration, communications, human resources, time, cost, scope, quality and procurement management). The traditional view is that these functions should form the basis of planning and that each should be the focus of attention in each phase of the project. This approach is fundamentally awed due to the following reasons: . It is a disjointed approach as project decisions are evaluated against individual functions using their respective plans. . It is neither proactive, nor dynamic, as it follows a stepwise (planimplementmonitor) and somewhat linear approach. . It focuses on the implementation process and activities, whereas most risks and uncertainties are associated with the project outcome and its viability as a business entity. On many projects risks and uncertainties are particularly high during the pre-implementation stage [3].

Fig. 1. Schematic representation of uncertainty to achieving project objectives at dierent project stages.

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Resolution of uncertainties prevalent during the currency of a project must be based on attaining optimal project outcomes in respect of the project's strategic objectives. So project management should be seen as means of developing and applying a philosophy and framework plus associated tools and systems which enable evaluation and optimisation of the project's strategic objectives. This paper proposes a strategybased project management philosophy and methodology which integrates planning, decision making and risk management, and enables real time optimisation of the project's strategic goals versus its variables. 3. Formulation of strategic objectives Dierent prospects and strategic business considerations motivate project promoters, including securing a presence in a particular market, entering global competition and maintaining technological supremacy. However, more often than not, the overriding motivator will be the prospect of achieving a target EIRR [4,5] (Equity Internal Rate of Return). Generally speaking, the promoters' interest on a project can be classied as one or a combination of the following [4,5]: . Limiting up-front expenditure on a project prospect (minimising risk money), while protecting any resultant rights. . Achieving a target EIRR. . Limiting or transferring to other parties risks and liabilities. Risks arise from the likely impacts the proposed project may have on the host community, the surrounding environment, users and other stakeholders. (Risk management will only be plausible when the probability of occurrence and magnitude of impacts can be estimated with a reasonable degree of accuracy.) . Putting in place a proactive system to reduce project uncertainty continuously. . Building up a desired corporate prole. Notice that promoters are not always investors, and the investors' interests may be dierent in the sense that many institutional and individual investors are not active participants in the management of the process but invest funds in return for receiving dividends and capital gain. Put dierently, promoters' objectives are to create a long-term nancially viable and balanced business entity of which the facility delivery is only one part. The eventual project is a compromise between the promoters' interest and the interests of the community at large. If the objectives are to create a viable business entity then the processes of development and decision making must also be proactively and deliberately directed to achieving the same.

As seen from the above review, the basis for project development and implementation should be a set of strategic objectives reecting the worth of the project as a business and tying in the project decisions to strategic business decisions. These are referred to as life cycle objective functions (LCOFs), and classied into the following classes [6,7]: . Financial, i.e., those which relate to the nancial state of the project, such as project net worth, EIRR, total life cycle cost, cost/worth ratio and similar functions. . Customer satisfaction, i.e., those aecting project utility, operability, quality and safety aspects. . Due diligence, concerns management of statutory and tortious issues, particularly if the project is located in populated areas or adjacent to sensitive ecological systems. The challenge is to plan the project proactively vis-a-vis its variables, and manage it optimally in respect of its LCOFs. An aspect of this involves real time minimisation of project uncertainty [6,7]. Are projects typically conceptualised and implemented using a set of strategic objectives? Further, are project variables assessed and managed to optimise a project's strategic outcome as a business entity? A review of current risk and uncertainty management practices has been undertaken to answer these questions objectively. 3.1. Typical risk variables and treatments On large projects the following risk variables are typically encountered: promotion, market, political, technical, nancing, environmental, cost estimate, schedule, operating, organisational, integration and force majeure risks. Table 1 shows the current state of the art in practice in respect of the evaluation and treatment of each of these risk variables [8]. As seen, the treatment of the individual risk variables is far from satisfactory. Table 1 reveals clearly that strategic and holistic risk variable assessment and decision evaluation/optimisation are absent from the current practices. In particular, the thrust of management eort tends to be on the individual risk variables and provision of legal protection, should risk variables materialise. 3.2. Risk management philosophy and framework As stated already, risk management literature and the so-called best practice tend to approach risk analysis and management virtually as a separate activity to alert managers to the likely sources of risks and uncertainties. Worst still there is scant attention to proper modelling and quantication of risks. Some planners and project managers believe that quantitative modelling is imprac-

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Table 1 Typical risk variables, treatments and deciencies Risk variable Promotion risk Market risk, volume Market risk, price Political risks Description Probability that the investments made to fund the front-end activities will be lost (project abandoned) Probability that the forecast sales volume will not materialise Probability that the actual unit price will turn out to be less than the forecast price Expropriation, discriminatory legislative or regulatory changes covering tax regimes & environmental laws; concession; political force majeure such as riots, strikes, civil unrest, wars, invasions, terrorism, & religious turmoil Probability that the project will not perform to the required technical standards (e.g. not meeting its license conditions) or produce substandard products or have excessive operating cost energy consumption Probability that the project revenues will not be sucient to repay the debts, and hence, no nancing can be organised Probability that the project will have adverse environmental impacts beyond its permitted limits and increased liabilities Probability that the funds allocated to the project will be insucient to complete the project Probability that the project will overrun its allocated duration Probability that the facility fails to perform its full functionality or its failure to generate adequate units of output or excessive consumption of resources Probability that legal and managerial structures put together to develop and operate the project will not perform well Probability that separate bodies acting as sponsor, developer (or client) and operator will not work in synergy Probability of events beyond control occurring, acts of God Conventional treatment Selective, innovation in concept or nance, strategic partnerships Use strategic planning & supply curve & base forecasts on competitiveness [7,8] Generate probability distribution for unit price and test against potential price variations [7,8] Secure insurance from Export Finance, Overseas Investment Corporation (US) or World Bank's Multilateral Investment Guarantee Reliance is made on expertise of design consultants and adequacy of the client's brief. Clients undertake own strategic planning separate from project delivery Apply rules of thumb, such as setting minimum interest and debt coverage ratios EIS and environmental impacts monitoring plans are often used Collateral warranties that additional funds will be available Collateral warranties plus imposition of liquidated damages for delay Frequent reviews and validation of project design concept, plus front-end simulation or pilot plant operation Normally an incorporated company is used plus clear lines of authority Legal reviews and various legal provisions to cover all foreseeable eventualities Insurance coverage, emergency plans Deciency No guarantee to success, aggressive competition a major risk Markets may shift during the project development and implementation unless locked in via sales/ guarantees/contracts Markets may shift during project development and implementation unless locked in via sales/guarantees/ contracts Scope of guarantees are limited and not always available or eective, particularly if major upheavals are experienced Poor integration of conceptual design & prone to many errors & omissions. Often projects fail to live up to their expectations due to sub-optimal design Incapable of detecting interdependencies or testing various scenarios objectively Exposure to long term liabilities not covered by EIS processes. Complicated process and often prone to disputation Wrong approach in the sense that true risks are covered with paper not tackled Wrong approach in the sense that true risks are covered with paper not tackled Not all of the pertinent data are normally brought to bear on conceptualisation & implementation of project Contractors and designers are not part of the major decision processes Heavy reliance on legal provisions and entanglements which may not work Insurance not always available/cheap

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Technical risks

Financing risks Environmental risks Cost estimate risk (completion risk) Schedule risk (delay risk) Operating risk Organisational risk Integration risk Force majeure

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tical, and that all required is to develop a table whose rst column will list the likely risks, classifying it for example as low, medium and high, and the second will present a few words on actions to be taken to mitigate the corresponding risk. On some projects, at the time of nancial feasibility studies, consultants typically undertake numeric sensitivity analysis and develop a table of the same. The ranges assigned to variables are generally the base values plus or minus a few percentage points. While these practices are certainly better than ignoring risk variables altogether, seldom will these produce the right results as has been shown by a number of studies (see for example Ref. [9]). The reality is that projects are subject to the shifting forces and constant changes due to the external factors, changing objectives and poor methods for project realisation. So the process of risk and uncertainty management must be continuous, holistic and conducted in real time to be of any value to project managers. The author has taken an entirely new approach to risk analysis and management, based on the following general principles: 1. Project risk assessment must not be based on a collection of individual assessment of project risk variables, but be based on assessing the likelihood of achieving project's strategic objectives. 2. Risk analysis must not be viewed as a stand alone activity; any strategies developed must not be seen as cast in stone commandants. Rather, these should be seen as a component of all decisions made continually to respond to project dynamics. 3. Because of the poor understanding of business objectives, scope, method of execution and as well as the shifting inuence of the project risk factors on complex projects the project uncertainty tends to be initially high, and dicult to evaluate. 4. Even with the best planning and evaluation eorts it will not be possible to gather all the relevant information quickly and craft a viable project, doing so will run the risk of achieving sub-optimal results. As such, the project options should remain open so that uncertainties surrounding the project variables can be resolved optimally at appropriate junctures to minimise their impacts on project objectives. 5. Life cycle objective functions must be formulated as the vehicle for analysis and management of risks. The use of LCOFs permits a holistic analysis of the project risks and within a life cycle framework. Knowledge of exposure to known events (however improbable they may be), will prompt planners and managers to develop appropriate strategies to mitigate their adverse impacts and capitalise on opportunities when these present themselves. As stated already, the

project options must be kept open throughout its formation and implementation stages. Despite advances in the art and science of forecasting future events and trends, it is not possible to foreshadow what lies ahead with any degree of certainty or reliability, so the major handicap is exposure to unknown events, such as presence of covert objectives [10] or a sudden change in safety regulations or introduction of new taxes or other external events [11,12]. So risk management philosophy and framework must be capable of quickly re-evaluating the project's options against surprise developments and provide a systematic basis for its re-structure. Even more important is to have an approach which always reevaluates the project viability against its original business objectives, otherwise the project may presume a life of its own independent of the original objectives [1,10]. Internally, there may be hidden weak links in the project concept, or new problems may be discovered half way through implementation. Often a supposedly minor failure may cause major dislocations in the project. Time will be needed to nd the exact cause of the problem and then to remedy the same. Such setbacks are not uncommon on many large projects containing an element of innovation (the projects which are executed for the rst time). Obviously, it is not practical to entertain the notion that only tested and tried technologies must be used, as the viability of technology-based projects is often dependent on the realisation of a new technology. Even on normal capital projects elements of new technology will often be present out of necessity. Another major risk for sub-optimal results on projects is escalation in decision making [1]. It is a not too uncommon situation whereby individual managers and/ or organisations get locked into a situation where a cascade of sub-optimal decisions are made over time to force an earlier sub-optimal decision to work. Sometimes personal ego and preoccupation with maintenance of individual's power position may blind the manager to make questionable choices and stay with these right through to the end. The departure from rationality in decision making is not a risk that can be foreshadowed or remedied easily. However, a strategy-based and endsfocussed approach is the most eective defence against such departures from rationality and objectivity. 3.3. Key success factors for successful project management The author's research on management of complex projects has highlighted the following key success factors. 3.3.1. Recognition and proactive management of complexities Projects are complex dynamic systems, and systems' science (in its broadest denition) should be the principal discipline for the design of specic project frameworks

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to suit objectives. `Complexity' is created not only due to the interdependencies among project hardware and software parts but more signicantly it is created due to the environment and the inuence of stakeholders. Successful management of project complexities is, therefore, dependent on the real time management of a wide range of variables and inuences vis-a-vis strategic objectives. 3.3.2. Strategy-based decision making Management of projects is about the real time evaluation and making of decisions proactively in order to maximise the chances of achieving or surpassing the targets set for project objectives. To ensure that the project does not deviate from its strategic objectives and that means-end reversal does not prevail [1], it is imperative that LCOFs are used for decision making and evaluation of all project options. 3.3.3. Integration of project phases Successful projects are those which focus on the relevant business objectives from the start to nish, and seek to integrate the information across project life cycle. The criteria should be maximisation of the project outcome in respect of the relevant business objectives. 3.3.4. Inclusion of environmental variables The inuence of environmental variables (soft and non-quantitative aspects, such as community perception, safety, environmental impacts, legal acceptability, political and social impacts and so on) on projects is often high. Clear understanding of the environmental variables and their integration with other decision functions is tantamount to successful project management. 3.4. How project managers actually manage projects The author has observed that on many projects classed as successful projects, the project managers tend to apply the above key success factors somewhat intuitively. Each manager tends to build his or her own's mental model of the project and its challenges, albeit based on his or her experience and professional judgement. This model is the basis for formulation of strategies, evaluation of project status and making of decisions, which will secure a successful outcome in the end. The entire process is experimental in the sense that the manager will try to see what will work. It is normally based on the manager's reference framework (knowledge and personal experience) and his or her ability to apply reective thinking. Thus, much of systems' thinking and derivation of strategies to steer the subject project to its successful conclusion takes place informally (inside the manager's mind) and sub-optimally (due to its limited experience and reference framework) alongside the formal pro-

cesses of project planning and documentation. The latter processes are often seen as compliance with the due administration and statutory requirements not as means of information collection, integration, evaluation and proactive decision making. Another signicant aspect often observed on successful projects is that the real decision makers (often called project directors) are dierent to the so-called project managers. The project manager is often seen as a dayto-day coordinator and paper shuer, who happens to produce reports and progress charts for project steering committee meetings and other purposes. The entire formal project management philosophy, knowledge base and tools and systems need redenition. The challenge is to restore the status of the project manager to that of true strategist and decision maker with the ability to deliver the business objectives of the client optimally. To aid this process the entire project management body of knowledge book has to be rewritten and the competency assessment of project managers revised to reect strategy-based project management competencies as opposed to the current training for process and activity-based project management skills. The research institutions and professional bodies must pull together to develop and install a more proactive (whole of life) decision based system in lieu of the current bureaucratic project delivery systems. 4. Life cycle project management Life cycle project management (LCPM) recognises and enshrines the above key success factors as the basis of project management. It installs life cycle objective functions as the basis of evaluation and decision making throughout project life cycle. It may be referred to as strategy-based project management to distinguish it from the current project management approaches (classed as process and activity-based project management). As seen from Fig. 2, the LCPM model presents a paradigm shift in terms of formulation and implementation of projects. 4.1. Project manager's role Under the LCPM model the role of project manager or the project management team is elevated to that of assuming a prime responsibility for both integration and achievement of the project LCOFs. The PM will preside over the project evolution and the planning of its entire life cycle activities, by evaluating team inputs vis-a-vis LCOFs in real time, vetting all decisions and integrating the upstream and downstream information to achieve the desired balance while reducing uncertainty associated with achieving the target LCOFs. Risk and uncertainty management will be part of the conduct

Table 2 Risk management within a life cycle project management model Risk variable Promotion risk Market risk, volume Market risk, price Political risks Description Probability that the investments made to fund the front-end activities will be lost (project abandoned) Probability that the forecast sales volume will not materialise Probability that the actual unit price will turn out to be less than the forecast price Expropriation, discriminatory legislative or regulatory changes covering tax regimes and environmental laws; concession; political force majeure such as riots, strikes, civil unrest, wars, invasions, terrorism, and religious turmoil Probability that the project will not perform to the required technical standards (e.g. not meeting its license conditions) or produce substandard products or have excessive operating cost energy consumption Probability that the project revenues will not be sucient to repay the debts and hence no nancing can be organised Probability that the project will have adverse environmental impacts beyond its permitted limits & increased liabilities Probability that the funds allocated to the project will be insucient to complete the project Probability that the project will overrun its allocated duration Probability that the facility fails to perform its full functionality or its failure to generate adequate units of output or excessive consumption of resources Probability that legal and managerial structures put together to develop and operate the project will not perform well Probability that separate bodies acting as sponsor, developer (or client) and operator will not work in synergy Probability of events beyond control occurring, acts of God Treatment under LCPM model Form strategic partnerships with customers or suppliers, lock in deals Use strategic planning and supply curve and base forecasts on competitiveness. Then form strategic partnerships as above Generate probability distribution for unit price and test against potential price variations. Then form strategic alliances Secure insurance from Export Finance, Overseas Investment Corporation (US) or World Bank's Multilateral Investment Guarantee. Also form local strategic alliances and risk assessment criteria This risk is managed via integration of downstream/upstream data & pooling of team expertise within a strategy based evaluation system and holistic approach Project is conceptualised & developed as a business entity, market-driven EIRR Environmental decisions are integrated into mainstream decisions and proactively managed to maximise benets Best team eort to estimate accurately and to deliver below LCOF targets set Best team eort to plan and deliver vs. LCOF targets set Integrated data and teams, real time evaluations versus LCOFs and simulation of project will ensure high operability Project alliance board & single agreement will ensure synergistic behaviour Less likely to arise due to the whole of life focus and early integration of data Reduced due to both insurance coverage and intelligent proactive risk management Remarks Upstream and downstream alliances will reduce promotion risk substantially Markets may shift during the project development & implementation unless locked in via sales/ guarantees/contracts Markets may shift during project development & implementation unless locked in via sales/guarantees/ contracts Scope of guarantees are limited and not always available or eective, particularly if major upheavals are experienced. Best to form strategic alliance with the host government agencies or industries Recursive and corrective actions will be avoided if the team undertakes to work on a unied set of information and with collective product/project denition The entire system focus is to create value and minimise risks (high marketability) Life cycle due diligence is a core LCOF. Environmental and other soft variables are managed in a holistic manner Less likely to arise as the fortunes of the parties are aligned with attaining LCOFs Best endeavour of all parties secured for the project. (LCOFs sensitive to delay) Focus on whole of life and integration of project activities across its cycle will ensure high operability performance All project participants will be part of the decision processes with unity of goals Coalition of parties for sponsorship, development and operation promoted Proactive risk management is vital particularly with no insurance coverage

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Financing risks Environmental risks Cost estimate risk (completion risk) Schedule risk (delay risk) Operating risk

Organisational risk Integration risk Force majeure

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of any activity and evaluation of any plan put forward by project team members. The process will be highly dynamic and the project team under consideration will be searching creatively for solutions which will satisfy the often conicting inuences described earlier. The planning and decision making processes are neither linear nor static in nature, meaning that repeated cycles of planning-evaluation and re-planning are required to arrive at optimal solutions. Since the state of project variables and constraints change with time, it will be necessary to re-evaluate the status of LCOFs and the extent of uncertainty associated with achieving target values set for LCOFs continuously. The project manager has a key role in reducing uncertainty as project develops (Fig. 1). 4.2. Life cycle project risk management A system for successful life cycle project management will thus have risk and uncertainty management at its core. Risk assessment will be the real time evaluation of the probability at which LCOFs will fall short of their target values. A high value indicates a high project failure risk. Given multi-dimensional project variables as well as non linear and context-based relationships, it is not possible to assess the variables and evaluate the project uncertainty using typical project management software (most of which are scheduling and performance monitoring, as was shown by Jaafari and Mani-

vong [14]). Thus, a smart system is needed to facilitate the application of the above concepts. Such a system (known as Integrated Facility Engineering) [6,7,13] has been under development at the University of Sydney since 1996. Table 2 shows the approach to management of typical risk variables under the LCPM approach. There are several distinct dierences in this approach compared to the conventional approach shown in Table 1, viz.: . All project procurement strategies and sales and marketing eorts on strategic deals are based on the LCOFs and sharing of risks and rewards on these. . All project decisions are based on all project life cycle information (including both downstream requirements and business objectives). Such information will be generated, integrated, shared and accessed by teams throughout project life cycle. . The LCPM approach employs concurrency as well as pooling of the expertise of project participants within an integrated organisation (Fig. 2) and establishment of a shared design space as well as a facility to integrate and evaluate inputs in real time. . The LCPM approach attempts to integrate decisions on soft variables with decisions on the core technical and nancial objectives so that a holistic approach to the management of the project is promoted.

Fig. 2. The life cycle project management approach.

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. The evaluation of all project variables and associated uncertainties are based on LCOFs, at any given juncture, so project completion, cost estimate and other implementation risks will be considered as intermediary risks and evaluated only for communication purposes or for meeting intermediary objectives. 5. Integrated facility engineering The Integrated Facility Engineering (IFE) is a name given to a system which has been conceptualised and designed by the authors and his research assistants to facilitate the uptake of life cycle project management methodology. Fig. 3 shows the various modules of this system. The IFE: . provides a consistent and ecient platform for development of a candidate project from concept to completion and through to facility operation; . integrates project information across project life cycle and provides a distributed (client server) system for information entry and for sharing of project reports; . provides for holistic analysis of project variables and execution of project management functions, using LCOFs as the basis for evaluation; . supports scenario analysis and oers an integrated environment to eectively and interactively apply `What-if' planning; . provides a consistent framework for interdisciplinary communication and teamwork; . provides an eective means for conveying the planning results to the eld; . allows early problem detection; and

. integrates the management of the processes of planning, engineering, documentation, procurement, and construction management throughout the project life cycle. 5.1. Risk analysis and management using IFE The IFE system will enable the project manager to estimate the probability that LCOFs will fail to reach or exceed their target values, as well as the mean value and the variance for each LCOF, provided that it can be modelled and quantied. Capital cost and project duration variances can also be obtained from the IFE system. However, these should not be used as the decision functions, particularly from a business perspective. As has been stated earlier, LCOFs are the real drivers. As seen, the IFE model seeks to facilitate non-stop value addition where opportunities present themselves throughout project life cycle. The system sets up a unique model for each project from the outset. A model of this type will initially be a collection of parts or constituent sub-systems. It will be an evolving model in the sense that new parts and products will be added to and existing ones omitted from the model, progressively as and when the project becomes better known and dened. Project parts are not just hardware and software parts but also downstream and upstream business systems and activities, such as marketing, operation, environmental and community management plans, etc. One fundamental departure from traditional project management structures is that of the project team organisation. The traditional hierarchical structures are ill suited to life cycle objective based project delivery systems. Concurrent project management is the right organisational structure for strategy-based project

Fig. 3. The IFE architecture.

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management. Jaafari [6] has dened elements of this approach; suce to state that integrated teams are formed and each is assigned complete responsibility to formulate, design and deliver the part under consideration. Fig. 4 shows the relevant project organisation structure. Notice that under this structure the project management team assumes a critical role for the eventual fate of the resultant facility. It extends well beyond the traditional coordinating role, as the project manager must preside over the formulation and conceptualisation of the project, its real time optimisation in accordance with the LCOFs criteria, and its ecient and eective development as a business entity. This does not mean that the project manager should be expert in every aspect of the project under planning. The core expertise is to understand the client's business objectives and know its underlying dynamics so that risk reduction/value addition can be pursued in earnest over the entire project. The integration of the teams' input into a sound total concept is the responsibility of the project management team. The integration risk will generally be lower in this mode of delivery compared with the traditional methods. This is because under an integrated and concurrent team approach not only all the downstream operational information and business requirements are used to

make decisions at the outset, but also the project teams are formed into composite teams with membership from each of the relevant disciplines/participants who will collectively make decisions on project parts and systems [6]. The pooling of expertise and information, as well as unhindered communication will no doubt aid greater project integration and reduced risk of failing to meet the project's strategic objectives. The need for concurrent communication will thus be acute, both at team-to-team and at discipline level (Fig. 4). The team-to-team interactions are for proposing project parts/products and receiving endorsements or comments on these. The interactions at discipline level are for systems' integration, such as ensuring that the system elements relating to a number of parts will form a coherent and whole system in compliance with the relevant codes. At each discipline level, the expertise specic to that specialisation is applied using disciplinespecic computer systems where necessary. 5.2. Linking project strategies with project implementation Fig. 5 shows how the project model integrates information on parts with the relevant implementation work packages. As seen, achievement of parts or products requires execution of one or a number of work packages

Fig. 4. Concurrent organisational structure for life cycle project management.

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or activities. A sub-contract is a work package, though the tasks contained in it are planned and executed by the sub-contractor, who may be a member of the team responsible for the given part (Fig. 5). The sub-contractor's tasks and resources may also be codied and linked to the part under consideration. The design deliverables for a given part is treated as a work package (similar to a sub-contract). 5.3. Collaboration and data transfer via IFE The following assumptions have underpinned the development of the IFE system: 1. Since project data gathering and inputting of information is an expensive exercise; information

should ideally be entered by creators at points of generation regardless of the geographical location (information uploading will be from client machines over to the server banking the information). 2. Since management of a project under a concurrent project management approach focuses on parts, parts should be tracked over the currency of the project and information relevant to these should be created and entered at appropriate times (Fig. 6). 3. To facilitate real time interaction among teams reports and communication processes should be accessible at the point where teams are working or via Internet for virtual team functioning. 4. Since the project manager has a central and pivotal role in the evolution of the project under con-

Fig. 5. Integrated project hierarchical information model.

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sideration, including accumulation of parts and integration of these into a whole viable business entity, the IFE should facilitate the real time analysis of LCOFs versus submissions received from teams. The IFE system may automate a number of

tasks, such as cross checking and sharing of information and production of numerous reports. This approach should reduce redundant data entries, replace multiple pieces of software (currently in use) and thus economise on human resources.

Fig. 6. Information uploading on parts.

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6. Conclusions Uncertainty was dened as an unknown probability of occurrence of an event. On projects it is an unknown probability of impact of a project variable on its objective function. Projects are typically inuenced by multiple variables with varying degrees of uncertainties within the context of a changing environment. The author has argued the case for a major shift in practice, from the current task and activity based approaches to a strategy-based management within an integrated and collaborative framework, which has the potential to overcome traditional dispersion of responsibilities on these projects. Risk management should form a core function of this strategy-based project management approach, using life cycle objective functions as the main drivers for risk reduction and value addition. The author put forward a case for the employment of concurrent project management approach involving aligned commercial arrangements between the partners. Systematic management of complex projects needs smart management information and decision support systems which can combine the management of hard and soft aspects, and facilitate decision evaluation on a real time basis. The integrated facility engineering system under development in the author's University, was presented as meeting these requirements. Acknowledgements The author wishes to acknowledge that the Australian Research Council has partially funded the research leading to the development of the Integrated Facility Engineering system. The author's Doctoral students, particularly Kitsana Manivong and Michel Chaaya have contributed to the design and development of the IFE system. Also the facilities provided by The University of Sydney's Department of Civil Engineering for the conduct of research leading to this paper are gratefully acknowledged. References
[1] Drummond H. Are we any closer to the end Escalation and the case of Taurus? International Journal of Project Management 1999;17:1116. [2] Project Management Institute. The project management body of knowledge, PMI, 1996 [3] Hobbs B, Miller R. The international research programme on the management of engineering and construction projects. In: Fourteenth World Congress on Project Management, Ljubljana, vol. 1, 1998, p. 30210. [4] Seng TS. Risk management of build-operate-transfer (B.O.T.) power projects: a framework for project sponsors. M.Sc. Thesis, [5] [6] [7] [8]

[9] [10] [11] [12] [13] [14]

School of Mechanical and Production Engineering, Nanyang Technological University, Singapore Lam PTIA. Sectoral review of risks associated with major infrastructure projects. International Journal of Project Management 1999;17:7787. Jaafari A. Concurrent construction and life cycle project management. Journal of Construction Engineering and Management, ASCE 1997;123:42736. Jaafari A, Manivong K. Towards smart project management information systems. International Journal of Project Management 1998;16:24965. Jaafari A. Perspectives on risks specic to large projects. Keynote paper presented to National Infrastructure Strategy' 98. 2021 August 1998, Sponsored by the Institution of Engineers, Australia and The University of Sydney, 20 p Jaafari, A, Coles, J R and Anderson, R. Risk assessment on development projects, the case of lost opportunities. The Australian Institute of Building Papers, vol. 6, 1995 Fowler A, Walsh M. Conicting perceptions of success in an information systems project. International Journal of Project Management 1999;17:110. Jaafari A, Schub A. Surviving failures: the lessons from a eld study. Journal of Construction Engineering and Management 1990;116:6886. Morris PWG, Hough GH. The anatomy of major projects. New York: Wiley, 1987. Jaafari A. Life cycle project management: a new paradigm for development and implementation of capital projects. Project Management Journal, in press Jaafari A, Manivong KK. Synthesis of a model for life cycle project management. Journal of Computer-Aided Civil and Infrastructure Engineering, in press

Dr. Ali Jaafari specialises in project management, majoring in risk, opportunity and uncertainty analysis and management. His most recent executive position was Head of Project Management at the Snowy Mountains Engineering Corporation, Australia's premier international consultants and project managers. He currently leads the discipline of project management at The University of Sydney and has been a visiting professor at many Universities in the United States, Europe and Asia. He has over 29 years of international industrial, teaching and consulting trackrecord in project, technology and operations management, on projects situated in some 20 countries of the world. He has acted as an expert consultant to industry worldwide for more than 15 years. He has todate authored over 90 publications in project and programme management, including life cycle objective-based framework and philosophy, concurrency, management of technology and innovations, information management systems, TQM and education of professionals. He has conducted courses and seminars for over 2000 senior executives, managers and professionals in Australia, Asia and Europe. His current research eorts are focused on life cycle project management philosophy and framework, concurrency, alliance project delivery methods, cost and risk modelling for capital projects, dynamic and stochastic scheduling, smart information management systems, TQM and Management of risks and liabilities.