An overall framework for understanding changes in megaprojects a Norwegian approach

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1 Available online at Procedia - Social and Behavioral Sciences 00 (2012) Procedia Social and Behavioral Sciences 26th IPMA World Congress, Crete, Greece, 2012 An overall framework for understanding changes in megaprojects a Norwegian approach Youcef J-T. Zidane a, Anandasivakumar Ekambaram b *, Agnar Johansen c a NTNU, Trondheim, Norway b SINTEF, S.P. Andersens vei 5, NO-7465 Trondheim, Norway c SINTEF, S.P. Andersens vei 5, NO-7465 Trondheim, Norway Abstract Projects are also one of the means to make a change in this world; however, they themselves cannot escape from undergoing changes. During the last decades there has been intensive research about managing change in projects. Several researchers indicate that change should always be avoided and project team should be proactive in dealing with it. However, change is not always deleterious; some changes are beneficial and can also lead to new opportunities. The focus of this paper is on changes in megaprojects. These have a very significant impact on the society as a whole. These projects are known for their characteristics, such as large scope, high cost capital, long duration, with high complexity and uncertainty. Furthermore, they are open to dynamic environment. These characteristics are some of the major reasons why these projects are exposed to continuous change in their scope, cost, plan, etc. Many of these projects are famous for their inefficiency (cost overrun, time delays, and quality defect) in producing the intended output. They even fail occasionally to meet the desired outcome measured in terms of their effectiveness. Scholars suggest several reasons for the failure. Their suggestions point out the importance of looking at factors such as flexibility, complexity, uncertainty and stakeholder management. This paper considers all these factors and presents a project change model that illustrates the dynamic of changes with respect to effectiveness and efficiency. This paper provides a comprehensive literature study accompanied with empirical results obtained from Norwegian companies. The study related to this paper is based on interviews, case study, and surveys, and it presents a Norwegian approach to managing changes in megaprojects Published by Elsevier Ltd. Selection and/or peer-review under responsibility of IPMA "Keywords: Megaprojects; Project Change; Complexity; Uncertainty; Flexibility." * Corresponding author. Tel.: ; address: siva@sintef.no

2 2 Zidane,Ekambaram, Johansen/ 26 th IPMA World Congress, Greece (2012) 1. Introduction Generally speaking, what really happens with megaprojects is highly unsatisfactory. Several megaprojects end up as failed and abandoned and not meeting the anticipated outcomes / objectives (effectiveness). This is true despite the tremendous investments that are made (Bar-Yam, 2002). Likewise, failure to meet the desired efficiency (that is translated in terms of cost overrun and time delays) is also a common practice in the world of megaprojects (Flyvbjerg et al., 2003; Morris and Hough, 1987). Many scholars have attributed this kind of failures to changes at various stages of a project (Sun & Meng, 2009), which are originated from either external or internal pressures (Love et al, 2003). Changes in projects may be deleterious or beneficial, affecting the cost, the schedule and the project duration, either directly or indirectly. In this paper, we adopt the term project change to include all the changes that may occur during the whole life cycle of the projects. This paper contains five parts. They are: 1. Introduction 2. Research methods 3. Description of theory 4. Discussion and solutions 5. Reflections and Concluding remarks 2. Research Methods The paper is based primarily on literature study. Given the large volume of published work, there was a need to set a limit to the scope of the study. Hence, we chose to focus on the topic of causes and effects of changes at the project level and its relationship with other project management concepts. The work related to this paper is also influenced by a number of case studies and personal experience from consulting and research engagements. When it comes to the case studies, a research methodology based on the works of Yin (2009) regarding case studies as a qualitative paradigm has been used. One of the characteristics of case studies is that multiple sources of information are used, including archives, interviews and observations. In addition, qualitative surveys had been made. 3. Description of theory: Project Change and the Anatomy of Megaprojects There is no exact definition of a megaproject. Moreover, there is no definite understanding of what differentiates it from any other large or complex project. The only common agreement among practitioners and researchers is the concept of a large scale project with a price tag in excess of one billion dollar (Fiori et al. 2005), that frequently leads to cost overruns (Flyvbjerg et al. 2003). Megaprojects are invariably described by using superlatives (the prefix mega is already one of them). They are called the giants among the projects (Grün, 2004) or the new animal (Flyvbjerg et al., 2003). While such projects are large, they are not unparalleled in history. Megaprojects are only new as subjects of research. Grün (2004) puts the emphasis on the aspect of multi-organizational enterprises and characterizes these by (1) singularity (uniqueness), (2) complexity, (3) goal-orientation (technical, financial, time) and (4) the nature and number of project owners. The label megaproject is not used by all authors. Some refer to them as large-scale engineering projects (Hassan et al., 1999), and describe them by five attributes: (1) high capital cost, (2) long duration but program urgency (high pace), (3) technologically and logistically demanding, (4) requiring multidisciplinary inputs from many organizations, and (5) leading to a virtual enterprise for the execution of the project.

3 Zidane,Ekambaram, Johansen/ 26 th IPMA World Congress, Greece (2012) 3 Project Change: In this paper, project change is considered in broad sense than the change in scope or scope management. In engineering and construction projects, a change refers to an alteration to design, building work, project program or other project aspects caused by modifications to pre-existing conditions, assumptions or requirements. Construction, as a project-based practice, is particularly prone to a high degree of change for a variety of reasons (Sun M. & Meng X., 2009). Ibbs et al. (2001) indicated that any additions or deletions to project goals or scope are considered to be changes, whether they increase or decrease the project cost, schedule or quality. Arain and Pheng (2005) defined that project change is any modification to the contractual agreement provided by the contractors or owners. When changes occur in projects, then there will be certain consequences. The impact of project changes can either be significant or trivial as it may affect the operation and progress of the project. The Construction Industry Institute (CII, 1994) established a concept for project change management where change is considered as a modification to an agreement between project participants. The CII s report defined the project elements that are subject to change and that will affect the change process as project scope, project organization, work execution methods, control methods, contracts and risk allocation. Lazarus and Clifton (2001) define the change in a construction project as anything that affects: 1) The scope, requirements or brief for the project; 2) The capital cost, whole-life cost or value of the project; 3) The time required to design or construct the project; 4) The project team relationships and appointments; 5) Project-associated risk allocation or scope; 6) The form of procurement. Our description of change will be presented later in this paper. However, we could say that our description touches upon issues such as efficiency, effectiveness, complexity and flexibility. Efficiency: efficiency is a question of doing things right and producing project outputs in terms of the agreed scope, cost, time and quality. An important point should be clarified here; quality is not a constraint per se, but often a by-product of the other three factors (scope, time and cost), and one that generally suffers when the others are not properly managed. Changes have direct and indirect effects on efficiency; change effects lead to time extension, to indirect and direct cost increase and to a scope creep in some cases. Effectiveness: Effectiveness is more about ensuring / adding value for owners and users; owners and users are giving more concerns to the project effectiveness; in our case, let us say the planned and desired goals (long term effects) and objectives (short term effects) as outcomes from the project, which will affect the concerned stakeholders by those outcomes. So the measure of effectiveness is more related to the project stakeholders. Williams (2002) emphasizes the importance of managing both internal and external stakeholders. As we see it, stakeholders are one of the characteristics of the project. Stakeholders focus more on the project outcomes; they will try to influence the outcomes, modify them or shape them based on their needs. Stakeholders' influence tends to generate modifications within the project, and thus leads to deviation from the original plan. The effectiveness is one of the most important, potential sources of changes in projects. Project complexity Project complexity can be seen as high density of the varied elements of the project and the interdependencies of these elements (structural complexity) as defined by Baccarini (1996). Complex project is a project in which the project behaviors and outcomes are difficult to predict and difficult to explain. Complex projects, by their nature, comprise multiple interdependencies, and involving nonlinear relationships which themselves are dynamic (Howick et al, 2011). Project future behavior is determined by its initial conditions; a consequence of sensitivity to initial conditions is that if we start with only a finite amount of information about the project where it is always the case, then beyond a certain time the project will be no longer predictable. Large scale engineering projects are

4 4 Zidane,Ekambaram, Johansen/ 26 th IPMA World Congress, Greece (2012) complex systems. Changes in one part may have effects on other parts of the system, which can in turn trigger further changes in other parts and so on. Lorenz (1963) argued that minute changes can have major and unpredictable consequences in non-linear systems, which is known as the butterfly effect. A small change in initial conditions of a project can cause a chain of events leading to higher level of complexity. It should be noted that uncertainty is considered as a part of the project complexity in this paper. Project Flexibility In project management, project flexibility is an enigma. Projects need constancy and control to be executed efficiently (cost, time, and scope). However, lack of information in the planning phase to make present or future decisions create a need for flexibility options (Olsson 2006). Project flexibility includes preparations to manage both internal and contextual uncertainty, such as scope change management, iterative decision process, and adjustments related to uncertain funding in general. In product development, Verganti (1999) mentioned that the purpose of flexibility is to handle uncertainty during implementation and meeting project efficiency. Proposed Project Change Model The project change in this paper is the deviation from the intended change to the realized on (Figure 1). By intended change, we mean the conception of a project itself; a project is carried out in order to make a change, and we call this change as the intended change. Once we know what change we want, we implement that change. This is represented in the Figure 1 as deliberate change (Planning and execution). During this period, which is supposed to be the longest in the sequence, some emergent change will appear and interfere. These changes can be gradual or radical; anticipated or arises spontaneously; elective or required. The sources of these emergent changes are the context or the content of the project itself. Once the deliberated change ends, we will get the realized change, which is the final deliverables of the project. By comparing the realized change and intended change, we could find whether there is a difference between them. This difference can be seen as a result of emergent changes and the unrealized changes. Emergent Change Conception (Plan for a Change by Project) Intended Change Implementation (Planning - Execution) Deliberate Change Operation Realized Change Fig. 1. Project Change Formation Unrealized

5 Zidane,Ekambaram, Johansen/ 26 th IPMA World Congress, Greece (2012) 5 In order to understand the relationships between project change and all relevant aspects, a model is developed based on the works of Motawa (2005) and Sun & Meng (2009). The model is presented in Figure 2. Motawa (2005) defined project characteristics are factors or aspects that have an influence on the project and may initiate the causes of change. Causes of change are the direct causes of a specific change event when it occurs. And effects of change are the consequences of the changes on project parameters (e.g. cost, etc.). The model in Figure 2 indicates that causes and effects of changes in projects stem mostly from the project complexity including uncertainty (risk/ opportunity) along with project characteristics (highlighting stakeholders as a major source), that has been deduced by comparing the causes of changes to the elements of complexity and uncertainty. The effects of change have direct or indirect consequences on efficiency, and also they will have impact on project characteristics and increase project complexity. Fig. 2. Project change model Effectiveness is also to be taken into consideration. The P represents the percentage of effectiveness in the start of the project and P the percentage of the missing effectiveness (P+P = 100%). Let us assume that effectiveness of the project is (dealt with) 100% in the start. This means that the input to the project complexity and the causes of change will be 0. This further means that at the start of the project, effectiveness is perfectly dealt with so that it will have no impact on project change. The opposite of it will be a poor focus on effectiveness at the start (0% as a score) and the input to project complexity will be 100%. This means huge negative impact on the efficiency even the project may have to be cancelled. The sign plus minus (+/-) from the effects of change can, for example, mean the following: During the implementation of the project, some stakeholders come up with new requirements that affect the effectiveness of the project. The stakeholders did not consider the requirements in the early phase. It

6 6 Zidane,Ekambaram, Johansen/ 26 th IPMA World Congress, Greece (2012) means that the requirements will give a positive score for the effectiveness. But, it can probably give negative score (minus) to efficiency, since the new requirements can, for instance, lead to increase the cost and delay the project. Hence, lack of focus on effectiveness in the early project phases (conception and front-end phases) will likely to increase the complexity and uncertainty of the project. On the other hand, changes, for example in technology and politics can affect the intended outcome and thus effectiveness of the project. In this situation, it is less or no relevance to increase the efficiency. In other words, a positive score to efficiency in the execution phase may not ensure or improve effectiveness. Case Studies The two cases presented here are Norwegian megaprojects; the first case is from energy industry with around US$ 4 Billion as investment cost and five years from conception to delivery; this megaproject is in its end execution phase and it is supposed to end the first quarter of The second case is from construction project with less than a billion US dollar as investment cost and the duration of three years. This project was delivered by the fourth quarter of 2009 but still running in parallel with operation phase. During the data collection, we were making our research based on the defined change in this paper this means any deviation from the project aspects, comparing the intended change with the realized change during all the project phases. 3. Discussion The green line in figure 3 represents the level of change for the first case; the first project knew about a lot of changes already in the conception and early planning phases. Huge work has been done to score high effectiveness before even the start of the planning phase. During late planning and execution the project went very smoothly with fewer negative changes. The only noticed changes came from the weather (delay of 3 weeks) and bad cooperation between some subcontractors (a risk to delay the project some weeks). However, the project recorded positive changes which made the project to save one fourth US billion dollars from the original budget. These positive changes came from some changes in the raw materials and product used (cheaper and with a short product lifecycle and same quality). This project has a robust project organization and full control of the whole situation during the execution phase. Furthermore, this project had high flexibility in the start helped in scoring high level effectiveness. On the other hand, there was high control during late planning phase and still in the execution phases; this maintained the level of efficiency to more than the expected one. Opposite to the first case (red line in figure 3), the construction project did not meet the desired efficiency by a cost overrun of 20% comparing to the initial investment cost. In addition, there was delay in the delivery and there were quality defects. This project is still running even after its delivery. This case was having fewer changes in the conception and early planning phases. This is explained by the late involvement of the users in the project by the project owner. The users were asked about their requirements in the late planning phases. This caused a sequence of changes and scope modification by increasing the product quality. In other words, the effectiveness score of the project was very law in the start of the project, using the model in figure 3; the effectiveness input (output from effectiveness) to the causes of change and project complexity will be high, since the effectiveness score is low. This would lead to reduce the efficiency because attempts were made to increase the effectiveness to the desired level. The two cases can be compared with the project change model. From the discussed case studies, we come up with the management approach illustrated in figure 3. The green transparent colour represents zone 1 (including to unknown unknowns, most elements are known

7 Zidane,Ekambaram, Johansen/ 26 th IPMA World Congress, Greece (2012) 7 unknowns). It is the degree of flexibility the project should have during its lifecycle. At start, project management team should focus more about the effectiveness and make it 100% before the late planning phase. Being flexible in the conception and early planning phases can absorb all possible changes and increase the effectiveness. Fig. 3. Project Change and Project management approach The blue transparent colour which is zone 2 (most elements are known knowns) represents the level of control. The level of control grows up with the increase of collected information. There are several methods to control the project better. The late conception incorporates "locking" the effectiveness after making sure that all the intended objectives and goals are realistic. Involving the main concerned stakeholders during early planning, will increase the changes in the start and then decrease gradually. Having a robust project organization is of very high importance during execution, but still it is not enough; using all control management methods is also of high importance, for example, project control related to cost, time, quality, risk management and change management. This kind control is helpful during the execution phase. Zone 3 represents the unknown unknowns; the things happening in this zone are beyond the capacity of the project management team. The only way to deal with them is by improvisation or just accepting them. 4. Conclusion Changes can be seen as the only certainty in projects. The success of the megaprojects is determined by the ability of the project team to be proactive with managing the project change. Change refers here to all deviations from the plan, and the deviation could arise during the project life cycle. The project change model described in this paper aims to provide a comprehensive understanding of project change and its

8 8 Zidane,Ekambaram, Johansen/ 26 th IPMA World Congress, Greece (2012) relationship with other project management aspects. It presents a framework for academic researchers and practitioners to reflect upon the topic of managing changes in megaprojects, especially with respect to relationship between flexibility and control. References Arain FM, Pheng LS., (2005), The potential effects of variation orders on institutional building projects. Facilities 2005;23(11): Bar-Yam Y., (2002), Large Scale Engineering and Evolutionary Change: Useful Concepts for Implementation of FORCEnet, Newport Center for Information Age Warfares Studies. Construction Industry Institute (CII) (1994) Project Change Management, Special Pub Concise Oxford Dictionary (1990) 8ed., ed R.E., Alien Fiori, C. and Kovaka, M., (2005), Defining Megaprojects: Learning from Construction at the Edge of Experience 2005 American Society of Civil Engineers Construction Research Congress, April 5-7, San Diego, California. Flyvbjerg, B., Bruzelius, N., & Rothengatter, W., (2003). Megaprojects and risk: an anatomy of Ambition. Cambridge: Cambridge University Press. Grün O., (2004), Taming giant projects: Management of multi-organization enterprises. Berlin: Springer. Hassan S., McCaffer, R. and Thorpe, T., (1999), Emerging Clients Needs for Large Scale Engineering Projects. Engineering Construction and Architectural Management, 6, Howick S., Ackermann F., Eden C. Williams T., (2011), Delay and Disruption in Complex Project, Spring Science+Business Media, LLC. 2011, Complex systems in finance and economics p ISBN Ibbs, C.W., Wong, C.K., and Kwak, Y.H. (2001), Project change management system, Journal of Management in Engineering, ASCE, vo. 17, no.3, pp Lazarus, D, Clifton, R (2001) Managing project change: A best practice guide, CIRIA C556, Lond, UK Love PED, Smith J. (2003), Benchmarking, benchaction, and benchlearning:rework mitigation in projects. J Manage Eng 2003;19(4): Lorenz Edward N., (1963), "Deterministic Nonperiodic Flow". Journal of the Atmospheric Sciences 20 (2): ISSN Motawa I.A, Anumba C.J., EI-Hamalawi A., (2005), A systematic approach to modelling change processes in construction projects, Australian Jof Construction Economics and Building, 5(1), 23-31

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