Professorial Lecturer: Managing Project UNCERTAINTIES

Dr. Domingo T. Balse, Jr, LPT Lecture Notes

Managing Project Uncertainties

After the completion of this unit, students can:
•Describe the dimensions of project uncertainty as they apply to a specific project.
•Apply uncertainty assessment tools such as risk mapping, failure modes and effects analysis (FMEA), gut-feel, Delphi, and
fishbone diagrams.
•Design contingency plans to prepare for uncertainties and revise project plan.
•Develop a plan for monitoring uncertainties during a project’s life cycle

Introduction
Most projects have an element of uncertainty to them. In many cases, you can use well-established risk
management practices to deal with this. However, for cutting-edge projects, or for ones that must adapt to
constantly changing conditions, you may not be able to foresee all risks when you start out. In these situations,
you can manage uncertainty instead of trying to manage risk.

The Four Common Types of Uncertainty

Professors Arnoud De Meyer, Christoph Loch, and Michael Pich analyzed projects across a wide range
of industries, and, from their research, identified four major types of uncertainty. They set out their findings in
the MIT Sloan Management Review in 2002. Their four types of uncertainty are:
1. Variation.
2. Foreseen uncertainty.
3. Unforeseen uncertainty.
4. Chaos.

Managing the Four Types of Uncertainty

1. Variation
Variation refers to a small degree of change in a project schedule. For example, you may need to
manage short delays if team members are sick, or if you need to prepare additional documents for stakeholders.
Individually, these issues have a minimal impact on the overall project. However, if there are many of
them, they can lead to longer delays and added costs.

Managing Variation
You don't need to anticipate every kind of variation that might affect your project. Instead, plan for small
amounts of it when you create project schedules.
Divide your project into phases, and then build contingency buffers into each phase. Only use these
buffers if you really need to, and don't bargain them away.
Make sure that you've established procedures to monitor progress, and that your people know that they
can discuss the impact of small changes with you. (If there are many changes, and these start to affect the project
schedule, you'll need a formal scope control process to manage the impact on the project schedule.)
Finally, determine the point at which you'll take corrective action. For example, are you comfortable if
the project falls two days behind schedule? What about a week or a month behind schedule?

2. Foreseen Uncertainty
Foreseen uncertainties are those that you can identify and prepare for.
Unlike the small changes brought about by variation, foreseen uncertainties are larger events that may
need risk management and contingency planning.

Managing Foreseen Uncertainty

First, conduct a risk analysis to get an idea of the uncertainties that you could face. Next, prioritize these
risks with a risk impact/probability chart, and develop contingency plans to deal with them. Set aside time to
monitor your foreseen uncertainties regularly, and to communicate how you'll handle them with your team and

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 Professorial Lecturer: Managing Project UNCERTAINTIES
Dr. Domingo T. Balse, Jr, LPT Lecture Notes

key stakeholders.

Tip: As with variation, if scope creep is a foreseen uncertainty in your project, practice careful scope control.
This will help you keep your project's timeline and budget within the bounds that you agreed with your project
sponsor.

3. Unforeseen Uncertainty
Unforeseen uncertainties are events that you can't anticipate, or that you consider to be so unlikely that
you don't need to create a contingency plan to address them. These kinds of uncertainties are common in
technology projects, or in those that focus on uncertain markets.

Unknown uncertainties – also called "unknown unknowns" – are also often caused by the knock-on
effects of known risks. This "risk-layered-upon-risk" can be very hard to predict.

Managing Unforeseen Uncertainty

Instead of trying to anticipate unknown uncertainties, view them as problems to solve as they arise.
Open communication is essential in this situation. Meet with your team members regularly to discuss the
changes, threats, or opportunities that they've noticed. Encourage everyone to be open about any problems
they've spotted, and to come up with solutions.
Stakeholder management is also important in these situations, because you will have to convince key
stakeholders to accept unanticipated project changes. So, work on building trust with everyone involved in the
project – this will make it easier for you to work together when unanticipated changes arise.

4. Chaos
Sometimes, you can't clarify plans at the outset of a project, perhaps because the market is changing
rapidly. In fact, you may find that the expectations you had at the start of the project change completely as work
progresses.
De Meyer, Loch, and Pich described this kind of situation as "chaos." This term has negative
connotations, but, in this context, it simply means that you can't make reliable plans up-front. This shouldn't stop
you going ahead, however – it just means that you should adjust your approach appropriately.

Managing Chaos
The constant change of chaos-prone projects means that your team must stay flexible, as a fearful, over-
rigid approach could stall the project. Make sure that your team understands this from the start.
Agile project management is well suited to this kind of project. It allows team members to respond to
market changes or evolving technological situations, and to factor them into ongoing development.
Your team must be willing to try different approaches as your understanding develops. Encourage them
to come up with new ideas, and build opportunities to discuss these into the schedule.
Learn how to make confident go/no-go decisions at the end of each stage or sprint. If the project will
no longer deliver appropriate benefits, you may need to discuss whether you should cancel it.
Above all, focus on what you and your team can learn as the project develops: this will be a
powerful motivator.

Key Points
Every project comes with a certain amount of risk. However, it can be difficult – or even impossible – to
anticipate and plan for all types of risk, especially when projects are fast-paced or complex. In these situations, it
may be more practical to identify and plan for specific types of uncertainty.
You'll need to respond to each type of uncertainty differently depending on the costs involved, and the
extent to which you can predict the event happening.
Adopt an appropriate management approach, and encourage your people to be flexible, to share
solutions to problems, and to see uncertainty as an opportunity for development.

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 Professorial Lecturer: Managing Project UNCERTAINTIES
Dr. Domingo T. Balse, Jr, LPT Lecture Notes

Why is uncertainty important in a project?

-Knowing the sources of uncertainty will help a project manager get prepared for it and in such a way
improve project outcomes even if some unexpected events occur.

What is the role of risk assessment in project management?

The project risk management plan addresses the process behind risk management and the risk
assessment meeting allows the project team to identify, categorize, prioritize, and mitigate or avoid these risks
ahead of time. Risk assessment is a step in a risk management procedure.

What are the dimensions of uncertainty in project management?

Uncertainty is the negative result of project complexity (Vidal and Marle, 2008) and may be rooted in
the unpredictability of the project system, in the absence of complete knowledge, or even in ambiguity
(Raadgever et al., 2011). Thus, at least two factors that define uncertainty are noted: complexity and ambiguity.

Severity of Project Risks

The severity of any risk can be defined in terms of two quantities:
1. Impact - the effect that a risk will have on the project if it occurs; and
2. Likelihood - the extent to which the risk effects are likely to occur.

Does Likelihood mean the same as probability with respect to project risks?
-Risk Likelihood means the possibility of a potential risk occurring, interpreted using qualitative values
such as low, medium, or high. This is in comparison with quantitative assessments, which use data and numbers.
When using a quantitative assessment, you typically speak about Risk Probability and percentage.

Likelihood + Impact = RISK

What is the purpose of assessing risk in terms of Likelihood and impact?

-Assessing the likelihood and impact will help the Project Manager determine what areas need to
addressed and mitigated. Those items with higher likelihood and higher impact should be monitored and/or
addressed by the agency to ensure that systems exist to mitigate the risks.

What is the relationship between project outcomes and risk management?

In project management, risk management is the practice of identifying, evaluating, and preventing or
mitigating risks to a project that have the potential to impact the desired outcomes.

Risk Management Tools to Use in Project Management

Here are some risk management tools you can use when developing and implementing a project:
1. Time tracking - to monitor the progress of individual tasks regularly and ensure they're progressing
efficiently enough for timely project delivery.

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 Professorial Lecturer: Managing Project UNCERTAINTIES
Dr. Domingo T. Balse, Jr, LPT Lecture Notes

2. Risk data quality assessment - to review the data from potential risks and determine their relevance to your
current project.

3. Risk register - is a platform that controls potential risks you may experience in a project.

4. Resource management - to understand better if teams can take on new or unexpected tasks.

5. Probability and impact matrix - prioritize risks using your understanding of on their impact on the project.

6. SWOT analysis - to review a project's strengths, weaknesses, opportunities and threats.

7. Budget tracking - involves financial tracking tools with the key function of predicting future expenses and
comparing them to the actual amount of spending the project requires in the end.

8. Root cause analysis - helps address the cause of a problem instead of focusing on its symptoms. The root
cause analysis answers questions like:
What happened?
Why did this happen?
How did this happen?

9. Brainstorming - in assessing potential risks that could affect a project and strategic planning to eliminate them
or minimize their effect.

10. Reserve analysis - allows project managers to discover how much money they should set aside as a
contingency before the project begins.

11. Risk mapping is an approach to illustrating the risk associated with an organisation, project or other system
in a way which enables you to understand it better: what’s important, what’s not, and whether the risk picture is
comprehensive.
Risk mapping is primarily qualitative and its benefits are:
- to improve your understanding of the risk profile and your ability to communicate it
- to force you to think through rigorously the nature and impact of the risks that have been identified
- to improve your risk models by building an intermediate link between the risk register and the model
- to improve your risk register by basing it on a more transparent and accurate understanding of the
system.

12. Failure Mode and Effects Analysis (FMEA) is a structured approach to discovering potential failures that
may exist within the design of a product or process.
Failure modes are the ways in which a process can fail. Effects are the ways that these failures can lead
to waste, defects or harmful outcomes for the customer. Failure Mode and Effects Analysis is designed to
identify, prioritize and limit these failure modes.

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 Professorial Lecturer: Managing Project UNCERTAINTIES
Dr. Domingo T. Balse, Jr, LPT Lecture Notes

FMEA is not a substitute for good engineering. Rather, it enhances good engineering by applying the
knowledge and experience of a Cross Functional Team (CFT) to review the design progress of a product or
process by assessing its risk of failure.

13. Intuition, also known as “gut feeling,” is an instinctive response or immediate understanding of something,
not always supported by conscious reasoning. It’s that inner voice or nudge that often goes against the grain,
challenging the prevailing logic of spreadsheets and data visualizations. In a world that’s becoming more
quantified by the day, where does this instinctual, almost primal sense fit in the decision-making process of a
Project Manager?

14. The Delphi technique is a project management technique used to make complex decisions based on a
consensus reached from expert opinions.

15. A fishbone diagram is a tool that can help you perform a cause and effect analysis for a problem you are
trying to solve. This type of analysis enables you to discover the root cause of a problem.
This tool is also called a cause and effect diagram or an Ishikawa diagram. These names can be used
interchangeably.

Ishikawa Diagram Structure

The left side of the diagram is where the causes are listed. The causes are broken out into major cause
categories. The causes you identify will be placed in the appropriate cause categories as you build the diagram.
The right side of the diagram lists the effect. The effect is written as the problem statement for which
you are trying to identify the causes.

Sample:

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 Professorial Lecturer: Managing Project UNCERTAINTIES
Dr. Domingo T. Balse, Jr, LPT Lecture Notes

The Importance of a Contingency Plan in Project Management

It’s inevitable that your project will encounter bumps in the road. But if you know how to properly
respond to them, you can prevent them from completely derailing your project. This is why it’s crucial to have a
contingency plan in place to keep your workflows operating seamlessly.
In project management, you can think of your contingency plan as your plan B for a project. It outlines
the actions you’ll take should a worst-case unexpected event occur.
Ideally, contingency plans allow you to react faster during times of uncertainty, which helps mitigate
potential damage and keeps your project on track as much as possible.
Risks requiring contingency planning can range from what you’ll do if a supplier shipment is delayed all
the way to how you’ll react if a team member has to suddenly leave the project team. Contingency plans should
take both internal and external risks into account — internal risks include the ones that can be controlled or
influenced by the project team, whereas external risks are those beyond the team’s control.
Contingency planning is a subset of risk management, although your contingency plan will only go into
effect once the risk has already materialized. This makes a contingency plan different from a risk mitigation or
risk management plan, which we’ll discuss later on.

When to use a contingency plan and why

Risk management is typically a key consideration during the project planning process already, although
many project managers focus solely on the identification of project risks rather than outlining what they’ll do
should the risk occur.
But once the project has kicked off and a worst-case scenario occurs, you’ll wish you had taken the time
to create a contingency plan earlier on. This is why it’s essential to do so early on in the project lifecycle —
ideally during the project planning phase.
You might be wondering whether it’s worth it to create a contingency plan if the likelihood of your risks
is small. In reality, the amount of time you invest into creating a contingency plan is substantially less than the
time you’d spend rearranging your project if something goes wrong.
Plus, this way, your team will have confidence in their ability to complete the project regardless of the
circumstances they may be faced with.

References
1. Brown, Karen. A and Hyer, Nancy Lea (2010); Managing projects: A team-based approach; InternationalEdition, McGraw-Hill.
2. Kumar, V. S. (2009). Essential leadership skills for project managers. Paper presented at PMI® Global Congress 2009—North America, Orlando, FL.
Newtown Square, PA: Project Management Institute.
3. Lester, Albert (2007); Project Management, PlanningandControl; 5thEdition, Elsevier.
4. Project Management Institute (PMI) (2013); A Guide to the Project Management Body of Knowledge (PMBOK®), 5thedition.

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