Building Options at Project Front-End Strategizing: The Power of Capital Design for Evolvability

Featuring Nuno Gil - May 25, 2017

Overview

Capital projects are the source of myriad challenges for organizations, governments, and agencies. Due to size, scope, and function, these projects require a massive outlay of resources in both time and money for design, development, and delivery. Typically, design and delivery can take several years, and the final project result is expected to be operational for decades.

The challenge to design the end product for adaptability to future change can create tension and discord among capital project teams as they navigate the design phase. With divergent backgrounds, as well as differing levels of knowledge, power, and capabilities, a multi-stakeholder project team may struggle to agree on a design strategy that allows for adaptability to future change.

How do project teams overcome differences to adopt a design plan that strikes a balance between short-term affordability and long-term adaptability? In the book, Building Options at Project Front-End Strategizing: The Power of Capital Design for Evolvability, Guilherme Biesek and Nuno Gil cite research indicating the need for a formal framework to develop front-end strategies that ensure cost-effective management of the project through future change.

Biesek and Gil found limitations in the current practices and theory for management of capital projects, and turned to real options reasoning and design literature. Project teams often resort to real options reasoning, because investment in design flexibility is similar to buying options. If future changes are minimal or favorable the options can be exercised to adapt the design economically. In the event the future is not favorable to the project, a limited investment has been lost.

During their extensive research, the authors determined that current practices are not adequate for decision making during the design phase. In Building Options, the authors present a formal framework to assist project teams with sound, effective decision making. Based on project risk management concepts, real options theory, and experimental results, the proposed framework improves the quality of outcomes and increases the project team’s accountability during the design phase.

Biesek and Gil demonstrate how a formal framework for design flexibility on the front end encourages greater communication among project team members, helps avoid risks and reduce costs, and improves efficiency. While the uncertainties of the future will always be present, capital project teams can manage potential change more effectively by adopting these principals and designing for evolvability.

 

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Acknowledgements: Stephen Strickland and Kimberly Whitby

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