Project Management

Just For The Record, Change Can’t Be Controlled

From the Game Theory in Management Blog
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Modelling Business Decisions and their Consequences

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Yeah, yeah, I know: “Change Control” doesn’t really mean we’re controlling change. In PM parlance, it means we’re taking a formal approach to altering our Scope, Cost, and Schedule baselines to accommodate differences in the project execution environment that were not foreseen when those baselines were originally established. But I have to ask: is that what we’re really doing when we set up our Baseline Change Control Boards? Are these changes truly confined to circumstances or events that could not have been reasonably foreseen, and necessitate added monies, or time?

Just as a quick aside, what exactly is “schedule contingency?” When we discuss budget contingency, I can understand what’s going on. The risk managers (no initial caps) do their whole Decision-Tree or Monte Carlo analysis thing on the existing cost baseline, and take a wild guess estimate an amount of money that the customer may or may not set aside for events that have a certain pulled out of thin air calculated value, in case those predicted events actually happen. If the customer does decide to set aside this amount, it can be placed in a bank, I suppose, or represented by some sort of promissory note attached to specific conditions that would allow the contractor to tap such funds. 

But how does that work with “schedule contingency?” Is there some time-bank that exists, where the customer can make a deposit of hours, days, or weeks corresponding to the amount that the risk managers (no initial caps) propose as the appropriate amount? I think it’s pretty obvious what’s going on here: the risk managers (no initial caps) derive this “schedule contingency” amount and document it as part of their risk analysis so that, should any of the events listed in said analysis actually occur, the PM can feel a little better about asserting to the customer “I thought this might happen, and look where I added X amount of days to the schedule contingency.” Perhaps I’m being harsh on our friends – for all I know there may actually be a gaggle of customers out there who can be placated by the ability to predict that something might go wrong on a project, which prevents them from becoming mad about late finishes.

The whole “schedule contingency” business kind of points back to the contingency budget version, in those instances where the contingency budget isn’t funded. Consider this version of the Game Theorists’ favorite tool, the payoff grid:

 

 

Contingency is Not Funded

Contingency Is Funded

Contingency Event Occurs

1 (A) Trouble

1 (B) Change Control Board, it’s up to you!

No Contingency Event Occurs

2 (A) Non-event

2 (B) What happens to the money?

 

Let’s dispense with Scenario 2 (A) right off the bat. Plenty of projects are sufficiently routine that no risk analysis is performed, no contingency budget established, and nothing so out-of-the-ordinary occurs that would lead the PM to request additional funds. Similarly, if a contingency budget is established, but no reason exists to tap into it, then it’s a big nothingburger, though I do wonder what happens to those funds. Were they invested? Should they have been? If the customer gets those funds back, do they go on vacation?

Where change control (ProjectManagement.com’s theme for November) becomes a critical function has to do with Scenarios 1 (A) and 1 (B). For Firm Fixed Price contracts, of course, contingency events are simply part of the game. The amount needed to overcome or accommodate them comes out of the total project cost, no justifications needed. But for Cost-Plus contracts, where the customer is sharing the projects’ risks, how such contingency events are handled becomes a bit trickier. If a contingency event occurs, but there are no additional funds (set aside or not) to cover its costs, then available responses can become severely restricted. In fact, I can think of only four: (1) reduce the scope elsewhere within the Work Breakdown Structure, (2) find additional monies somehow, somewhere (hopefully not the way Fred Smith [founder of FedEx®] did it, by going to Las Vegas and winning the shortfall playing blackjack[i]),  (3) get other Control Accounts or Work Packages to perform so well that they make up for the expense in underruns, and find an acceptable way to transfer the balance over to the afflicted CA, or (4) brace yourself to endure the consequences of a late, overrun project.

Finally, we have Scenario 1 (B), the nominally intended purpose of Baseline Change Control Boards, to evaluate baseline changes that have come about due to factors outside of the contractor’s control to see if they should be included in the scope baseline, funded and scheduled. Even here, though, BCCBs have to be vigilant, since adding budget or time to the respective baselines isn’t just the solution to contingency events – it’s also a pretty effective cover for a variety of PM pathologies, such as poor performance, or scope creep, or increased unit costs, or…

The list goes on and on, but one of the things they all have in common is that none of them can really be controlled, at least not in the precise use of the term. Influenced, resisted, avoided, dissuaded, sure. Controlled, not so much.

 

 


[i] From https://www.businessinsider.com/fedex-saved-from-bankruptcy-with-blackjack-winnings-2014-7 on November 17, 2020, 17:23 MST.

Posted on: November 17, 2020 08:05 PM | Permalink

Comments (5)

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Very interesting, thanks for sharing.

Pay Off Grid is quite fascinating, as always great share Michael.

#saaa

Thanks for sharing

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