Complexity: A Transient Condition Precedent to Project Failure

Robert C. McCue, P.E.
MDCSystems®
Consulting Engineer

MDCSystems® has been providing Forensic Project Management (FPM®) services for over forty years for industrial, transportation and institutional capital projects. Using this extensive knowledge base, MDCSystems® develops and conducts seminars for the public and private sectors on many topics including the topic of Complexity and Systems Thinking.

One of the key realizations based on our long history and experience is that the failure rate for projects in general has remained high. Our understanding of key failure mechanisms and the necessary intervention actions to correct troubled projects has evolved over time and it is now apparent that the condition of Complexity is driving the high failure experience for modern capital projects. How did this problem emerge, why is it so prevalent today and how does the project management team recognize the condition and develop and implement strategies to overcome it?

Modern project management is increasingly driven by shorter delivery cycles, more complex undertakings and greater financial pressure. Design and Construction schedules are finely tuned around “best case” scenarios and often lack the necessary contingencies in either time or money. These projects and their fully integrated plans have all the appearances of being well planned and managed undertakings, however the lack of contingencies in both time and money means that any one unplanned event can derail the entire project.

How can a large, well-funded capital project fail to achieve its technical, cost and performance goals, and why is this still an all-too-frequent outcome? These projects are typically undertaken by teams of personnel from the Owner, Architect and Engineer firms and Contractors. How can such a collection of talent, carefully selected based upon experience and expertise, fail to deliver? The answer lies in part in the inherent instability created by the contractual structure of the participants, (which results in incentives/disincentives to proactively solve problems and engage in CYA activities), and partly in the new and emergent phenomena of Complexity.

Far too many modern engineering and construction projects are perceived to be failures by their originators or the public at large. Delays in completion and exorbitant cost increases are the most visible symptoms of the perceived failures in the execution of the project. Why is this the case? Haven’t the advances in management science, computer technology and communications been effectively brought to bear on the engineering and construction business? What about the advertised beneficial impact of 3-D CAD, Computerized CPM Schedules and BIM Technology? Are today’s engineers and contractors just not as good as those who built the mega projects of yesteryear like the Panama Canal, Empire State Building, Hoover Dam, the Apollo project, etc?

In his book entitled “The Black Swan,” Nassim Nicholas Taleb recounts in detail the “modern” statistical approach to determining the likelihood of events occurring. As he points out, we simply discount the rare and infrequent events because they may not happen in a normal lifetime. However, when they do occur, they disrupt the business environment in such a way that all of the underlying assumptions used to develop the project plan and execution strategy are revised and the reactions to and/or effects of the event are disproportionate and transient. Normalcy may not be quickly recovered and the resulting secondary interactions of the event/events further confuse the situation.

The project team’s reaction to the occurrence of events may be determined in part by the context of the particular project and the perceived difficulty of achieving the goals of the original project prior to a “Black Swan” type event unfolding.

To place the discussion in the proper project context, let’s first consider the categories of projects that Snowden and Boone first itemized and their understanding as presented in their important paper to gain some insight and understanding into the categories of projects being considered and how the emerging failure phenomena that we see today can be recognized and managed.

Simple Projects: Characterized by straightforward relationships and fundamental activities that can be managed with typical applications of the PMBOK skill set. Multiple solutions are available and readily determined from PMBOK principles.

Complicated Projects: Characterized by subtle relationships and proportionate cause and effect interactions—“known unknowns.” This is the domain of Experts and Expert solutions to the problems presented by the execution of the work. One right answer exists and there is at least one right Expert to reveal it. PMBOK principles and understanding is necessary but not sufficient to solve the problems facing the project.

Complex Projects: Characterized by multiple hidden relationships between activities and agents, re-adjusting and disproportionate cause and effect relationships and many “unknown unknowns,” all restricting project progress. This is the domain of emergent leadership and emergent solutions. Trial and error attempts to define what works and what does not, are required to force progress. Leaders/Experts do not have answers and cannot formulate the correct questions. Leaders must impart the correct insight and awareness characteristics to their agents and allow the solutions to develop while the trial and error iterations are being conducted. Failure is palpable and panic is a constant companion.

Chaos: All options have been tried and failed to provide a viable solution. Wildly varying/changing disproportionality between inputs and outputs is rampant and all previous measurement metrics and experience/intuition is useless. Survivability of the undertaking is in question and instinctive individual self preservation reactions take control of the project participants.

In the simple case above, analysis of data yields solutions for the project. For the complicated case, analysis does not advance the solution, however Systems Thinking approaches provide insight and allow Experts to determine a solution. The Complex case requires the application of Systems Thinking concepts, Design Thinking approaches, an understanding of Complexity and requires reflective insightful leadership to shepherd a path to completion. In Chaos, all hope is lost and failure is certain.

At the beginning of projects all participants are optimistic and believe that by using the “Best Practices” of project management they have minimized the chances of project failure. They model their construction projects in 3-D CADD systems and then schedule the work activities in computer driven CPM schedules using best estimates of resource availability and skill level.

However, because construction projects are collections of linear self-organizing activities and will proceed at some pace regardless of the “scheduled” time allotted, control of the project is tenuous at best and subject to independent action by the agents (contractors and participants) to the project.

Unfortunately, once the real interactions of the agents, contractors, vendors and work activities begin, the management’s ability to “control” the pace of the work is greatly diminished. This comes about because the interactions of the planned work activities are considered to be well-defined and knowable. Systems Thinking concepts reveal that the interactions are more critical than the activities themselves. In reality, the interactions of the key work elements are constantly evolving and under the influence of events not accounted for in the project plan or CPM schedule. All plans and construction schedules assume that the input and output relationships remain constant over the course of the project and that proportionality, for example, between man-hours and achievement of completion percentages will also be constant. As discussed below these assumptions are overly simplistic and lead the project team to take the wrong actions when Complex situations emerge.

It is generally considered and assumed that for construction projects the individual contracts of the contractors provide the necessary control mechanisms to harmonize the work of the various contractors to the needs of the overall project. This assumption is wrong. The contracts actually include strong but subtle incentives for each contractor to maximize their profit at the expense of the overall project. With each contractor working for their best profit picture and the inherent linear self-organizing nature of the work tasks, the stage is set for the failure of the project and it needs only one “Black Swan” event happening to any one of the prime participants to initiate a crisis.

Many owners believe that “Force Majeure,” (Black Swan) events are adequately covered by the contract, and in many cases the contract prescribes a time or money solution to the immediate event, however, the conditions emanating from the event may disrupt the project in ways (disproportionately) that are not immediately obvious or correctable and the effects may not become apparent for some time.

In order to understand why an “event” can lead to Complexity, it is helpful to consider Systems Thinking fundamentals. A fundamental precept of Systems Thinking is that the overall goal is to optimize the overall system and its output and not the individual parts of the system. Wouldn’t having all the best parts naturally lead to the optimum output? Not necessarily. In fact, optimum overall output is unlikely to be the result of individual component optimization.

Consider that a friend desires to have the best sports car in the world and asks your help in obtaining it. One approach, and probably the most fun, would be to test drive all of the models available and select one. However, another approach would be to take the best parts from the best production cars and assemble them, a solution that has inherent appeal to engineers and architects. Consider which approach is likely to lead to a predictable cost and schedule result.

Ultimately, the collection of best parts can be optimized to yield the best sports car, but the interactions of the various parts and their integration into an efficient working sports car lead to obvious compatibility and integration challenges with unpredictable intermediate outcomes.

Purchasing a finished sports car made-up of a system of sub-optimized parts that has been integrated allows one to have confidence in the overall performance of the assembled system—certainly of cost and predictable delivery date.

With this in mind, now look at the typical project delivery process in your organization, including contract drafting and development, selection of professionals, vendor and contractor selection processes and the construction plan for your next capital project. Are the individual parts of the system being optimized without a clear understanding of the impact/results on the overall project delivery system? Is the schedule being fine-tuned without regard to the work scope changes while the implications of these revisions are ignored on the budget? Insightful and skilled project managers have been managing projects with similar challenges to these examples for many years and succeeding.

If this is true, what added challenges have resulted in the failures that are the subject of this discussion? The answer lies partly in the modern Complexity of the undertaking, its environment and expectations for the project that might not be logical given the time and resources available for the work. The answer also lies partly in the “bad luck” situations that can still happen to any undertaking in the form of weather, shortages, strikes, war, earthquakes, etc.—the “force majeure” events sometimes itemized by contracts. Lastly, the answer lies partly in the result of using all of the modern tools of Computer Aided Design, Critical Path Method Schedules, BIM and accelerated Procurement incentives. These tools have created an expectation for the actual project that is simply not possible to achieve in the real world of complex, changing and sporadic interactions and competing priorities.

Owners and project sponsors are often impressed and overwhelmed by the seemingly precise schedules and forecasts that can result from the computer simulations of the virtual project and the completely unrealistic schedules and budgets resulting from these computer-generated project planning exercises which become the targets that are “sold” to the users.

Is it really good planning to utilize the most optimistic date for every element of a three-year engineering and construction project and expect to actually improve on the delivery date and at a lower cost, once the contracts are advertised for bid? Not really. A more rational approach would be to utilize Monte Carlo analysis to bind the time frames expected for the major design and construction tasks and then produce a schedule of most likely durations and completion dates given the most recent project histories for that particular environment. Incentive clauses could then be crafted to accelerate at a reasonable cost the interim completion dates for the various tasks. This approach would allow for the subsequent revision of the task completion dates based upon the reasonable likelihood of achieving the earliest actual project completion for the overall project.

Nevertheless, even with this informed and interactive management approach, “bad luck” can still happen. Black Swan events, (highly improbable but nevertheless possible), might still delay the project or conceivably prevent its completion at any cost.

In this short discussion on Complexity as it can be associated with Construction Projects, it is difficult to completely cover the subject area. However, examples of the occurrence are in the news constantly, but not identified as resulting from Complexity. When project cancellations are attributed to financing limitations and/or when anticipated utilization changes make the venture uneconomical, then Complexity is at work and it is unlikely that it is understood or recognized by the project participants.

The project team needs to be alert for the following subtle but unmistakable signs of Complexity taking hold of the project and pushing it to a condition of increasing instability, Complexity and possibly Chaos!

• Established project measurement metrics cease to be reliable indicators of completion
• CPM schedules show increasing numbers of “Critical” activities
• CPM schedule updates are overshadowed by events and outdated before issued
• CPM schedules of remaining activities place over 50% on the “Critical Path”
• Increasing levels of manpower resources do not equate to additional completion gains
• “Small” events trigger large impacts on multiple work activities
• Traditional management tools and metrics give confusing signals and conflicting direction
• Project team frustration develops at their lack of influence over events

These and other subjective signs foretell the arrival of Complexity to the project and as discussed above, the project leadership team must react with reflective, insightful leadership to shepherd a path for the project to completion or succumb to the impending Chaotic and uncontrollable future situation. Project Managers must implement trial and error approaches to allow emergent solutions to arise and instill and encourage team members to adopt exploratory approaches to discern and test likely solutions.

If you are interested in discussing how these new understandings of Complexity can be applied to Engineering and Construction projects do not hesitate to contact us at MDCSystems®.

MDCSystems® develops and presents seminars on this and other relevant Architecture, Engineering and Construction Management topics and these can be viewed on our website at MDCSystems.com.