Strategizing for anticipated risks and turbulence in large-scale engineering projects

https://doi.org/10.1016/S0263-7863(01)00047-3Get rights and content

Abstract

Large-scale engineering projects face an increasingly turbulent environment, which limits the validity of traditional planning approaches. Using the grounded theorising method, based on 60 project cases, we elaborate a conceptual framework for project strategic systems. Based on the distinction between anticipated but uncertain risks, and unexpected events produced by environmental turbulence, we develop the notions of system robustness and, respectively, governability. By comparing the features and performance of three common types of project, we show that achieving high project performance requires strategic systems that are both robust with respect to anticipated risks and governable in the face of disruptive events.

Introduction

For many years, the project-management field has been oriented toward the long-range operational planning of projects. This paradigm assumed an environment in which the range of issues facing a project was more or less constant and current quantitative trends could be easily extrapolated into the future. However, in the last 20 years, the environment in which large-scale engineering projects, such as power plants, highways, bridges, tunnels, and airports, are developed has become increasingly characterised by turbulence resulting from radical shifts in institutional frameworks, political and economic discontinuities, a rise in environmental and social activism and, to a lesser extent, technological changes and innovations. Such changes clearly limit the validity of traditional planning approaches.

In this article, based on a study of how the sponsors of large-scale engineering projects actually deal with these new conditions, we propose a conceptual framework and a series of propositions regarding the strategic approaches for dealing with turbulence. We will try to show that the only viable approach is to emphasise the strategic shaping of projects, starting very early in the project life cycle, to both prepare for anticipated risks and develop the ability to react in the face of disruptive events.

Emery and Trist [1] (p. 26) define turbulence as the dynamic processes produced by the increasing complexity of the “causal texture” of the environment, which produces “a gross increase in the area of relevant uncertainty” (emphasis in original). They argue that, as a result, the consequences of strategic actions “become increasingly unpredictable”. A renewal of the interest in this notion occurred recently, as firms are seeking new approaches for dealing with the intense turbulence caused by technological change and competitor moves [2], [3], [4], [5]. In a seminal paper, Bettis and Hitt [2] propose two alternative strategic avenues for dealing with turbulence—robustness and flexibility:

  • 1.

    Robustness: Bettis and Hitt [2] suggest that managers should design organisations to make performance immune to uncontrollable environmental fluctuations1 (inspired by Taguchi's approach to quality by design [6]).

  • 2.

    Flexibility: Bettis and Hitt [2] (p. 18) argue that strategies for turbulent environments must also include flexibility, that is the ability “to rapidly (1) sense the change in the environment; (2) conceptualise a response to that change and (3) reconfigure resources to execute that change.2

Despite the call by Bettis and Hitt [2], the notions of strategic robustness and flexibility are relatively underdeveloped and are rarely mentioned with respect to projects. In this paper, we propose a conceptual framework, grounded in the study of the large-scale engineering projects, which attempts to theorise the strategic management of large-scale projects in the context of uncertainty and turbulence. Large-scale engineering projects have long temporal horizons and require large, irreversible commitments with large potential downside loss but limited upside gain. The study of 60 such projects reveals that in turbulent environments managers have to deal both with many anticipated but uncertain adverse circumstances and with a constant flow of totally unexpected situations. This prompted us to base our theoretical development on the distinction between the risks that project participants anticipate and the unexpected events the project encounters during its development and execution, and to analyse the conditions that enable managers to deal with these two types of situations. Using the grounded theorising method [27], we developed two notions referring to project strategic systems called respectively robustness and governability. In our view, robustness refers to the properties of a strategic system that enable the project to deal with anticipated risks. On the other hand, governability is a group of properties that enables the project to react to unexpected events. Governability develops and complements Bettis and Hitt's [2] notion of flexibility. For instance, our study of large-scale projects shows that, as projects are increasingly being developed by coalitions grouping many firms, a frequent reaction to unexpected events is the unravelling of coalitions. Hence, governability depends, among other conditions, on the cohesion of the strategic system, on its ability to maintain its integrity, or coupling, while it is being restructured.

In the next section, we detail the distinction between anticipated risks and unexpected events and between robustness and governability. The subsequent section presents in an empirically grounded manner the notion of robustness and shows the categories of strategic measures that managers use to deal with anticipated risks. Then, we discuss three common forms of project strategic system, which we abstracted from our data. In the following section, we discuss several dimensions of governability in the face of unexpected events. Some of these dimensions, including cohesion, are absent from, or only implicit in, the flexibility and loose-coupling thought. The subsequent section analyses the three common forms of strategic systems with respect to their robustness and governability and makes predictions regarding their performance in conditions of turbulence. We conclude that the best performing strategic systems are not necessarily those most robust with respect to anticipated risks but those who are also governable in the face of unanticipated events. A discussion section concludes our argument.

Section snippets

Risks, unexpected events, strategizing and governance

Our study shows that, in turbulent environments, given the large downside potential of large scale projects, the managers pursuing a project opportunity attempt to secure the most favourable conditions for the project by identifying and dealing with potential adverse circumstances, such as the enactment of a law or the failure of a contractor, which could block the project or harm its profitability, social acceptability and technical performance. The practitioner-oriented project management

Strategizing to build robust systems

Building a strategic system for a project relies on the identification of events and processes likely to have significant negative impacts. Large-scale projects potentially face several classes of risks: sponsorship/development, market, social acceptability, regulatory and political, financial, execution, and operation. In a given context, some risks, such as market demand, are partly tackled by institutional future-stabilisation mechanisms. The other risks are addressed with project-specific

Archetypes of strategic systems

The diversity of concrete means that managers use in practice would make difficult the systemic analysis of projects with respect to their overall robustness and governability. However, we observed that the managers of a given project seem to select from all this diversity the strategies that embody, across all five categories, the same basic idea. Hence, most strategic systems resemble a few coherent configurations that we term strategic system archetypes, following Greenwood and Hinings [36]

Instilling governability properties

Strategic systems aim at coping with risks that can be anticipated. However, across the 60-project sample, managers responded to hundreds of unexpected events. Four basic kinds of response were observed: adapting–that is, changing something in the technical or organisational structure of the project to avoid or sustain the consequences of the event; fighting the course of events that threatened the project; exiting, usually the strategy of one of the participating firms as it attempted to quit

Implications for performance

In conditions of high adversity and disruption, both robustness and governability are needed to achieve high performance on the dimensions of completion, social acceptability, and economics. Fig. 4 presents the ‘logical scheme’ of the conditions that lead to performance.

As Table 3 indicates, projects in both the rational-adaptive and relational archetypes lead to good project performance. Only entrepreneurial projects fail to achieve high levels of performance. However, the performance of the

Discussion and conclusions

Our study is a first attempt to systematically analyse and classify, based on the study of numerous real large-scale projects, the strategies used in conditions of turbulence, and to theorise how systems of such strategies lead to high performance. The study has shown that building a strategic system for dealing with anticipated risks was the preferred approach for dealing with turbulence in large-scale engineering projects. A rich array of strategic means can be incorporated into the

References (37)

  • J.I.M. Halman et al.

    Diagnosing risks in product-innovation projects

    International Journal of Project Management

    (1994)
  • J.H. Klein et al.

    An approach to technical risk assessment

    International Journal of Project Management

    (1998)
  • C.B. Chapman

    Project risk analysis and management-PRAM the generic process

    International Journal of Project Management

    (1997)
  • F.E. Emery et al.

    The causal texture of organisational environments

    Human Relations

    (1965)
  • R.A. Bettis et al.

    The new competitive landscape

    Strategic Management Journal

    (1995)
  • S.L. Brown et al.

    The art of continuous change: Linking complexity theory and time-paced evolution in relentlessly shifting organisations

    Administrative Science Quarterly

    (1997)
  • B. Chakravarthy

    A new strategy framework for coping with turbulence

    Sloan Management Review

    (1997)
  • A.Y. Illinitch et al.

    New organisational forms and strategies for managing in hypercompetitive environments

    Organisation Science

    (1996)
  • G. Taguchi et al.

    Robust quality

    Harvard Business Review

    (1990)
  • W.R. Duncan

    A guide to the project management body of knowledge

    (1996)
  • P.R. Garvey et al.

    Risk matrix: an approach for identifying, assessing, and ranking program risks

    Air Force Journal of Logistics

    (1998)
  • S. Grey

    Practical risk assessment for project management

    (1995)
  • B. Boehm

    Software risk management: principles and practices

    IEEE Software

    (1991)
  • M.J. Carr et al.

    Taxonomy-based risk identification (CMU/SEI-93-TR-6, ADA266992)

    (1993)
  • Sisti FJ. and Joseph S. Software risk evaluation method: Version 1.0 (Technical Report CMU/SEI-94-TR-19,...
  • D.F. Cooper et al.

    Risk analysis for large scale projects

    (1987)
  • G. Bond et al.

    Financing private infrastructure projects

    (1994)
  • P.A. Cordukes

    Submission and evaluation of proposals for private power generation projects in developing countries

    (1994)
  • Cited by (167)

    • Toward a systematic understanding of megaproject improvisation

      2023, International Journal of Project Management
    • Understanding project resilience: Designed, cultivated or emergent?

      2023, International Journal of Project Management
    • Performance measurement methods in megaprojects: An analytical review

      2022, International Journal of Project Management
    View all citing articles on Scopus
    View full text