GPM First
Chapter 11 of Project Management for Supplier Organizations (978-1-4724-1109-9) by Adrian Taggart

Management of Changes

Chapter 11

Irrespective of whether your organization is a Supplier Organization (SO) or an Owner Organization (OO), anyone involved in projects must develop a keen understanding of change; the causes of change, its enormous potential for wreaking havoc and how it must be managed carefully.

In Chapter 4 we discussed how, the later in the project lifecycle the change is made, the higher the cost.

This relationship is sometimes referred to by the formula 1:n:n2:n3 (Turner, 2007) and relates to the cost of implementing change during Feasibility, Design, Execution and Closeout. Within this, ‘n’ is an integer that depends upon the type of project. Turner offers n=3 for shipbuilding and n=10 for information systems giving ratios of 1:3:9:27 and 1:10:100:1000 respectively. Dramatic numbers indeed!

How Changes Affect Projects

This increase is easily understood if we consider what is involved at the various stages of, say, a commercial construction project. Imagine changing the type of brick used to face the building with another brick type of similar cost.

The change instigated during Feasibility would involve only minor changes to drawings and will be of negligible cost. The same change during Design would not be catastrophic but would involve the revision of many more documents and drawings. Making the same change during Execution would not only involve changing all the earlier documents but also actual construction work would need to be abandoned and reworked. The same changes during Closeout would be truly catastrophic since in addition to all the earlier costs, most likely, there will be the cost of dismantling earlier work before rework can commence and, since so much of the costs will be time-based (in, say, maintaining the construction site infrastructure), the additional delays would have a further impact. Such delays will also probably delay the operation of the new asset and hence impact on revenue.

However, even this brief description understates the cost of change since many of the costs are not immediately visible. Consider the following.

On receipt of a request for a change such as that suggested above, it is most likely (and highly advisable) that a prior assessment of the implications would be carried out. Imagine calling a meeting to do just this, but who should be involved? To ensure a thorough understanding we would need the architect, the site manager, the procurement manager, etc. In short, we would need to invite all the key members of our project team.

Immediately after the meeting starts let us pause to consider the implications of our actions, regardless of what the eventual outcome of the meeting is.

Firstly there are the direct costs. Have you ever sat in a meeting and worked out how much the direct cost of the meeting is in terms of the salaries of the attendees? Add in their on-costs and travel and accommodation at the venue and the figure is colossal. Someone has to pay that cost!

Secondly, what would they be doing if they were not at the meeting? They would, of course be carrying out the jobs they are paid to do; coordinating the designers, controlling the site, managing the suppliers. Whilst they are at the meeting the project is deprived of their services. This is the ‘opportunity cost’ and is the value we forgo by taking the chosen option. In respect of employees, their opportunity cost is always greater than their direct cost, otherwise it would not be worth employing them.

Thirdly, what will happen on the site as soon as the manager leaves to discuss a change that will render further work abortive? Have you ever done some fantastic work only to be asked afterwards to tear it down because someone gave you the wrong specification? Changes, even just the threat of changes, destroy motivation, team spirit and, perhaps most importantly, faith in the leader. What will happen next time the team is asked to do something by the same person who gave the wrong instructions last time?

Fourthly, in considering the change, new versions of drawings and specifications will need to be created. Despite the best efforts of the finest configuration librarians, the more versions there are of a document, the more opportunity there is for confusion and serious technical errors.

All these have a detrimental impact on the project that will be incurred regardless of whether the change is actually approved or not, and are in addition to the cost of the actual rework.

More often than not, the advantages of change are overestimated and the costs underestimated, especially since, as discussed, even the mere threat of change has enormous capacity for damaging projects. Especially in the later stages of a project, changes should be resisted.

Avoiding the Need for Changes

With this in mind it would be helpful to avoid the need for changes in the first instance. Chapter 4 first introduced the trends of ‘Uncertainty’ and ‘Cost of Implementing Change’ shown in Figure 11.1.

The sharp upward turn of the ‘Cost of Implementing Change’ at ‘ti’, is associated with the commencement of the Implementation phase since after this point it is hardware and not just paperwork being changed. For the project, there is nothing cheaper and quicker than ‘getting it right first time’ during the Implementation phase.

 
Figure 11.1 Avoiding the need for changes

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However, the likelihood of not ‘getting it right first time’ and hence the need for change, is indicated by the degree of uncertainty ‘ui’ appertaining at the start of Implementation.

There are a number of ways in which this uncertainty ‘ui’ can be minimized. Firstly, the Implementation can be delayed. The reduction in ‘Uncertainty’ is primarily associated with the planning activities during the earlier phases. Simply increasing the amount of prior planning, by delaying the start of Implementation (or bringing forward the start of planning) ensures Implementation commences with much diminished residual uncertainty. Readers may be more familiar with the correlation of this, with those projects deemed to be super urgent and prematurely pushed into Implementation. Chaos, change, cost overruns and delays are inevitable.

Secondly, the profile of the ‘Uncertainty’ curve can be altered. Selectively increasing the resources devoted to planning activities and risk mitigation will erode uncertainty quicker. Thus reducing the uncertainty at Implementation to ‘Ü’ and hence risk of change (see Figure 11.2).

In both these instances prolonged and diligent planning should be viewed as being an active risk mitigation strategy.

 
Figure 11.2 Accelerated erosion of uncertainty

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There is a third option whereby the profile of the curve of ‘Cost of Implementing Change’ can be altered by delaying significant and expensive work until later in the project. Although this has the same effect, it is more complex to manage.

Two further points are worthy of note here.

Firstly, a change can only be recognized as such if there is a discernible difference between what is happening and what was expected to happen. It can seem, therefore, that vague plans are a good thing, but this is not the case.

Secondly, the frequency of change requests can be as important as the magnitude of individual requests. An excessive rate may indicate that the project has too much latent uncertainty and has been implemented too soon. In such instances it may be worth suspending the current phase and repeating the previous phase.

Change and the Supplier Organization

Management of changes is especially important to the Supplier Organization (SO) since it can have either a negative or positive effect on profit, depending upon whether responsibility for the instigating change lies with the SO or with the Owner Organization (OO).

It was suggested above that, from the perspective of the OO, the need for making a change during an Implementation phase is largely mitigated by diligent planning in the preceding phase. Such linkage across sequential phases is the case for the SO too. Specifically, diligent work in the pre-contract phases of Marketing and Selling is crucial to the successful avoidance or management of changes post-contract. This is especially so in relation to the work concerned with clarifying scope.

The Inevitability of Change

Given the destructive nature of change it would be convenient to eliminate it, but, unfortunately, there are practical limits to the degree to which uncertainty can be reduced prior to Implementation.

The rate of uncertainty reduction decreases over time (the gradient of the curve in Figure 11.1), so, since many project costs are time-based, eventually the cost of further delays to Implementation will exceed the benefits to be had from the marginal reduction in uncertainty.

There are consequences of this.

Firstly, there is an optimum period of planning for a project. Secondly, there will always be a residual element of uncertainty at the commencement of Implementation.

Consequently, changes are an inevitable feature of a project implementation and so a process to manage changes is essential.

Change Control Processes

Simple Protocol

Irrespective of whether one is a project manager in an OO or a SO there are two golden rules when it comes to managing changes:

  1. Do not implement any change without appropriate authorization.

  2. Do not implement any change until the consequences have been thoroughly considered.

 

Both of these objectives are addressed in a change management process. Figure 11.3 describes a basic example of such a process. It would be suitable for an OO managing a modestly sized project using ‘in-house’ resources only.

Firstly, a potential change is formally recognized by completion of a Change Request Form with a description of the proposed change and why it is thought to be a good idea. All suggested changes are usually recorded in a second document, a Change Log, which simply tracks each suggested change and the decision reached. It will reference the serial number on the Change Request Form and so the need to duplicate all of the information is avoided.

No one has a monopoly on good ideas and so it is usual that any stakeholder is entitled to raise a Change Request Form, though the obligation of completing the form, helpfully, does tend to filter out frivolous requests.

 
Figure 11.3 Simple change control process

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Secondly, an assessment of both the costs and benefits of the change is made. These costs are not just financial. They will also include the impact on duration, the opportunity costs of the resource, the risk exposure and the performance of the project product.

Thirdly, a decision is made as to whether the change should be accepted or rejected.

If the decision is to reject the requested change then the log is updated and the matter closed.

If the change is accepted, then the log is updated, the project plans are modified and the change is implemented.

Considering the Implications of ‘Considering the Implications’

If the project in question is large or complex then the protocol offered above would become problematic.

As suggested earlier, it is not only the cost of making the change that is damaging to the project; the actual process of considering the implications of the change is also damaging.

In the simple example above, all requested changes will be assessed fully, but it is unlikely that this would be acceptable since a colossal amount of time and resources may be committed to just considering changes.

To prevent this, further steps are required such that before the implication of a change is considered, the implication of considering the implication is considered. This may well seem like bureaucracy gone mad but there is good reason for it (see Figure 11.4).

 
Figure 11.4 Enhanced change control process

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Authorisation of Changes

The decision whether to approve or reject changes requires familiarity with a number of disciplines and project topics. For modest projects, the sponsor is capable of the decision but for larger and more complex projects, the decision is often too complex for just the one person. In such circumstances a ‘Change Control Board’ representing a range of expertise becomes appropriate.

Managing Changes that Cross Contractual Boundaries

These considerations emphasize how complex the management of changes is. However, this complexity increases by an order of magnitude when we consider changes that migrate across contractual boundaries. When this happens it requires a party to do something which they were not originally contracted to do, or alternatively, accept something less than what they are contractually entitled to. Such changes have profound implications and need special treatment.

The Interests and Rights of the Parties

Firstly, what entitles the Owner Organization (OO) to instruct the Supplier Organization (SO) to make changes? If we order a meal at a restaurant and, just prior to it being served, we change our minds and order another dish, is the restaurant obliged to concede to our request? In all likelihood they would insist that we meet our obligations under the original agreement and pay for the first meal, before entering into a new agreement for the second meal.

There is no right enshrined in law that allows one party to unilaterally vary the terms of a contract. A contract is a deal and the whole point about a deal is that it commits each party to do that which they have promised to do.

This creates a difficulty.

The difficulty is particularly acute with Firm Price type contracts when both the scope and consideration are predetermined amounts.

Such changes can be made to the contract if both parties agree to the change, but this has drawbacks. Principal amongst these is the relative negotiating power of the Owner Organization (OO). As discussed in Chapter 10 the practicalities of the situation usually ensure that the OO is in a very weak position when trying to negotiate necessary late changes.

The problems are not just restricted to money. Often, when the need for a change is recognized, progress must be stopped until the change is implemented. Delays associated with negotiations can be devastating to the OO’s project, which can further weaken its position.

Many readers who work for an OO will recognize this predicament and the frustration and commercial detriment that it can represent.

Similarly, many readers who work for a SO will also recognize this predicament, but from a different perspective; one that recognizes the very significant commercial opportunity that such changes provide for a SO.

However, it is not all good news for the Supplier Organization (SO) since it is within the context of changes that it can be at its most vulnerable. Very careful management is required and many well-intentioned SOs, whilst attempting to be helpful and courteous to an OO, have put themselves in serious commercial peril.

Reserving the Right to Instruct Changes

This weak position, when instructing change post-contract, can represent an unacceptable risk to the Owner Organization (OO) and so most insist that a mechanism is included within the contract allowing them to vary the works, with immediate effect and without the prior consent of the Supplier Organization (SO).

In turn, this poses considerable difficulties for the SO. How can it ensure that it will be rewarded appropriately for such work? What resource planning and provision should it undertake in response to a contract that obliges it to conduct some, as of yet, undefined work at some unknown point in the future?

These very real concerns are addressed by further clauses that offer some protection to the SO, for example, by imposing limits on the magnitude of changes that the OO can instruct.

These clauses, that seek to ensure equitable treatment to both parties, can become complex and whereas there are common themes there are differences in the exact wording of them in different contracts.

Ability of the Supplier Organization to Manage Changes

Managing changes across contractual boundaries imposes significant burdens. Both parties, but especially the Supplier Organization (SO), will need to respond with specific facilities, skills and instincts. Consider the following.

Office Administration

Many aspects of a contract’s execution require significant administrative effort but prominent amongst these is the management of change.

In the first instance, contract clauses that address change, seek to ensure clarity of communication. They often require that formal variations and other significant notices are addressed in writing, in a predetermined format, between nominated individuals.

Further, to ensure the changes do not impose delays, there is usually a time limit within which replies must be sent.

It is said, especially by the experienced, that the party that triumphs in any contract dispute is the party with the best record. At minimum, the project manager (PM) of a Supplier Organization (SO) must ensure that the correspondence and information in relation to changes are documented and archived contemporaneously, and that this is not compromised by a desire to keep the Owner Organization (OO) happy nor to uphold progress with the work at hand. There are many heart-breaking stories of SO who, with the best of intentions, have neglected to defend their own position in favour of servicing the immediate needs of the OO and its project. More than a few have been rendered bankrupt as a result.

Suitable provision must be made within the resource plans of Supplier Organizations (SO) to service this administrative burden and many SO who are moving from the routine operations to the project arena are taken aback at its magnitude.

Commercially Astute Project Managers

Some Owner Organizations (OO) manage projects using just in-house resources and in these cases the OO PM need have no requirement to administer to contracts but, by definition, this is not a luxury that can be afforded to Supplier Organizations (SO). The PM of a SO will always be responding to an incoming contract and (in common with the project managers from OO who are engaging SO) they will need to be comfortable with the administration of contracts and be commercially astute.

For instance, the exact alteration to the scope, price and duration of any individual change will need to be negotiated and agreed. This will often involve the SO submitting an offer, to which the OO will offer a counter-offer or acceptance.

It becomes clear that the negotiation of change becomes an exercise in selling and buying. For the Owner Organization (OO) this requires its PM to have a capability in the discipline of buying, and for the Supplier Organization (SO) this requires its PM to have a capability in the discipline of selling.

Further, the PM within a successful SO will be sufficiently commercially astute to recognize the opportunities for further work. This requires the skillset of the PM to include aspects of marketing.

However, the PM for both an OO and a SO must recognize the potential threat from changes. They must be diligent in what they say and do. The OO must be careful not to inadvertently lay itself open to a claim for compensation by asking for something outside of its contractual entitlement. The SO must resist the desire to ‘keep sweet’ the OO by simply acceding to OO requests even though they may seem innocuous.

Claims and Counter-Claims

There is often an overriding need to maintain progress with the Owner Organization (OO) project and so the rights reserved in the contract, by the OO, to instigate change usually allow for such changes to be made immediately. This postpones much of the administration, including calculation of the compensation to which the Supplier Organization (SO) is entitled, until well after the event. Accordingly the presentation of the various claims and counterclaims, and negotiation of the final settlement between the parties, often occurs after acceptance of the final product.1[23]

The PMs of both parties must be sufficiently competent so as to be capable of undertaking these major negotiations. Apart from the soft skills involved there must be sufficient knowledge of the technical aspects of the work; knowledge of the contract; and also the legal framework within which it operates. In extremis, the settlement may require the involvement of a third party such as an adjudicator and in these circumstances the PM will need to be able to write a case that articulates their claims, or defence against a counterclaim, and is capable of withstanding legal scrutiny. Whilst both parties have an interest in these settlements, the outcome is often more significant for the Supplier Organization (SO) since its profit is directly affected; the sole reason for engaging in the project in the first place.

Managing Subcontractors

Many Supplier Organizations (SO) engage other SO as subcontractors. A SO that is obliged to accept changes instigated by its client must consider how, in turn, it can secure the same rights over its own suppliers, since having to reimburse one’s suppliers for changes and not being able to recover this from one’s client is a potential disaster for the SO.

A simple response is to use identical contract terms and conditions with its own suppliers, i.e. a ‘back to back’ arrangement, though in practice it is rarely as straightforward as this. As discussed in Chapter 8, as we descend through the procurement chain, in terms of both product and also contractual agreements, there is a move away from the bespoke and towards the routine. The lower in the chain they are, the less able is the Supplier Organization (SO) to respond to requests for exotic contractual terms and also to bear risk.

Supplier Organization Originated Change

When supplying goods in response to a contract, the Supplier Organization (SO) loses a degree of autonomy in deciding the fate of changes it instigates itself.

If the changes have no impact upon whether the requirements of the contract are met then the processing and authorization of the change can remain within the SO, but if this is not the case, then the matter must migrate across the contractual boundary.

Imagine that the manufacture of a complex part has a minor accident whereby one dimension is slightly less than that required by the drawing. If the dimension in question does not compromise the performance of the item, and especially if the cost and time required to remanufacture the part are excessive, then the SO may request that the OO accept the part as it is. A reasonable OO may accede to the request in which case it becomes an authorized change.

Such requests are not rare when making complex bespoke equipment and are referred to variously as Concession Requests or Derogations, and the protocol for managing them is often dictated by the terms of the contact.

These become far more complex when the error is not inconsequential; when they involve the Owner Organization (OO) performing significant extra work to assess the implications of the proposed change; or when they require the OO to provide extra facilities within the project to accommodate the change. In such instances the SO may be required to compensate the OO.

Sub-Supplier Originated Change

The Supplier Organization (SO) will also become involved in processing changes requested by its own suppliers. In turn these may need to be passed up to the Owner Organization (OO) for final approval.

Sophisticated Change Protocol

As can be seen from the above, managing change is problematic enough in any case but managing changes which cross contractual boundaries is both complex and fraught with difficulties.

The relatively simple protocols addressed within the flowcharts earlier will need significant further enhancement to accommodate the differing contracting parties.

Firstly, they will need to reflect any processes specified within the contract in question.

Secondly, since for the Supplier Organization (SO), changes can originate from within its own organization, the Owner Organization (OO) or from the suppliers, any protocol must deal with the source of change (and hence liability for it).

Especially in the context of the latter point we can see how correspondence in relation to changes may flow up or down many tiers within the procurement chain, involve a great many individuals and account for a considerable consumption of resources. The cost of these must be met and, whereas some costs can be recovered from the party responsible for necessitating a change, it is unlikely that all such costs can be recovered.

NEC Family of Contracts

Change can set Owner Organizations (OO) and Supplier Organizations (SO) in direct conflict. Historically, the management of contracts, particularly those in engineering and construction, secured a reputation for significant adversity between the two parties.

This was seen by some as a major impediment and one individual, Dr Martin Barnes, set out to improve the situation. The result was the NEC (originally known as the New Engineering Contract).

The NEC is now a comprehensive family of contracts, covering many diverse sectors and widely applied around the world for the management of relationships between the parties engaged on major projects.

These contracts differ from the more traditional contracts in that they were drawn up specifically to promote good project management techniques and ensure the relationship between the parties is one of collaboration rather than conflict. This was achieved via three characteristics (NEC, 2009):

  1. It stimulates good management of the relationship between the contracting parties.

  2. It is flexible so as to allow its use in a wide variety of commercial situations.

  3. The language and structure of the document is clear and simple.

 

A consequence of this is the moving of change resolution away from retrospective management associated with post-contract claim resolution, and towards a proactive approach. For example, Owner Organization (OO) instigated changes are described as ‘Compensation events’ and rather than being managed largely after the fact, changes must be dealt with immediately. This is achieved by a strict system of rapid notification and by requiring the Supplier Organization (SO) to provide quotations for the new work within a strict time frame and before they are enacted.

Whereas this maintains the pace of the project and the currency of the documentation, it does impose significant obligations upon the parties, particularly the SO to maintain an administrative capability that can deal with the communication duties imposed upon it.

Further alignment with good project management practices is an inherent encouragement for the parties to avoid the need for changes by diligent prior planning and preparation, especially pre-contract. As Dr Barnes (2012) puts it:

[There is a mechanism built in from the 1st edition of NEC that] every time somebody gives a new instruction to the contractor there is the potential for costing the client money … [so the] pressure to get it right before you went out to tender would be stronger.

The widespread adoption of the NEC family of contracts and its inherent approach is a glowing testament to how it improves the management of relationships between parties managing projects. However, the management of changes is still a complex and difficult topic and one that requires attention and resources.

Notes

[1] Usually, the product is the unique element of a project but this is not always the case. For instance a project may be initiated to create a standard product but to do so using a different manufacturing technique, or by using alternative equipment, or in a different location. In each of these cases the challenge is to do something which has not been attempted before and as such the word ‘unique’ is applicable and hence the use of the word ‘project’ justified.

[2] The troubled facility created for the 1976 Olympic Games in Montreal, the chaotic preparation of the stadia for the FIFA World Cup in Brazil in 2014 and the reconstruction of Wembley Stadium in 2007 are notable examples in this respect.

[3] Many readers will be employed by organizations that deliver successive projects and the completion of one project does not lead to termination of employment. These types of organizations are referred to as ‘matrix’ organizations and have special characteristics, some of which they share with organizations engaged in non-project work. They will be addressed in some detail in Chapter 2 but for the purposes of this chapter it is appropriate to consider what may be referred to as a ‘pure project’, like our stadium project, a characteristic of which is its temporary management structures.

[4] In practice, the involvement of individual project team members is even more volatile than the life of the overall project team. Most likely, an individual will be a member of a sub-team which will only exist until the fragment of the project for which the sub-team is responsible, is complete. For this reason the make-up of the overall project team is always changing.

[5] This may stretch the historical knowledge of some of our younger readers but suffice to say that after vinyl records, the favoured medium for storing music was a spool of magnetic tape contained within a plastic case; the cassette tape.

[6] The various levels of project success and the interplay between products and benefits is addressed in detail in Chapter 16.

[7] There are instances where organizations may choose to move in the opposite direction, and for good reason, but this book does seek to address their concerns.

[8] Ultimately, all expenditure is for the engagement of people since all material comes out of the ground (either mined or harvested) and at this point is free of charge.

[9] For the mathematically minded it is the integral of the earlier curve (area under the curve) and its gradient, or steepness is equal to the value of the previous curve, at any individual point in time.

[10] The name derives from ‘S’ being an abbreviation for ‘Summation’, since these curves are most properly referred to as ‘Summation Curves’. This explains why, very often, real ‘S-curves’ do not look much like an ‘S’. The important features are, firstly, that it is always ascending (the cumulative expenditure never reduces) and, secondly, the gradient, on a large scale, is shallow-steep-shallow, even though locally, on a finer scale, there may be some variation in gradient.

[11] The decision made at the gates involves the marginal benefit and marginal cost. Actual expenditure to date is ignored on the basis that it is a ‘sunk cost’ and cannot be recovered in any case. This is a reason why, especially at the later Decision Gates, a project may be continued with, even though the total benefits may be exceeded by the total costs.

[12] Further detailed analysis and comparison of strategic and tactical control is offered in Chapter 16.

[13] There is again an analogy to our own lives. Shakespeare once famously wrote about the ‘Seven Ages of Man’ and yet Hinduism talks about the four stages of man. Each is describing the same life; the same journey from cradle to grave, and yet they choose to decompose it in different ways, each to reflect their own understanding and their own emphasis.

[14] Readers may wish to note that in some countries, most notably the United States, the mandate document that bears the authorizing signatures is a ‘Project Charter’. This is a standalone and separate document that will refer to a Business Case.

[15] Some care is required here because there are some obligations of the SO that may not be explicitly stated in the contract. For instance, in any case, the SO is obliged to provide goods of ‘merchantable quality’ and this will confer ‘implied terms’ on the SO.

[16] The analysis is more straightforward if we assume the contract is of ‘Firm Price’ type (see Chapter 13).

[17] Some OO manage major assets and infrastructure (rail, water and telecommunication networks) and are constantly commissioning projects to create or refurbish assets. For them, projects are an ongoing feature, but they are the exception. For most OO their involvement in projects is sporadic.

[18] Like the lifecycle offered in Chapter 5, the lifecycle offered here is a model. To be useful, models need to be simple, however their principal weakness is always their simplicity. The nature of procurement is such that there are a great many combinations and permutations of payment terms, contract types, and the like that can result in variation in the exact Decision Gates and phases that apply. The model is offered as a generic model to assist in the understanding of what appertains to most SO, most of the time. Real examples may, and will, vary.

[19] Some legal obligations of the SO do live on beyond this point, for instance its obligations for latent defects.

[20] It should be noted, however, that this is not always the case. Acme Pool Services is selected on the basis that, unlike the Owner Organization (OO), it is experienced in the construction of pools. It has skills, equipment, knowledge, expertise and contacts that enable it to manage the building of the pool far better than the OO, such that it may well be able to do the work for a considerably cheaper sum and some of this saving may be passed onto the OO in which case the second scenario is both easier and cheaper for the OO.

[21] There are variants that do not contain such an agreement but are less attractive to the OO.

[22] The exact sharing of risk is determined by the wording and quantifications within each specific contract. The arrangement within a continuum offers an approximate guide only.

[23] Ideally such negotiations should be embraced as early as possible and not wait for the final phase but practicalities often result in them being held to the end.

[24] For example some EU legislation imposes constraints on publicly funded projects.

[25] Discrete probability distributions for time or cost of a project are rarely symmetrical. It is almost always the case that it is more likely to cost more, or last longer, than the ‘most likely’ figure, than less, i.e. the mean is very likely to be greater than the mode. This results in a distorted distribution curve with a longer tail to the right of the mode. It is for this reason that the single estimate derived by the three-point estimating technique is usually greater than the mean and a more representative figure of the overall distribution.

[26] Or other entity such as Work Package.

[27] The use of Product Breakdown Structures and Work Breakdown Structures (WBS) will be addressed comprehensively in Chapter 14.

[28] There is an opportunity to withdraw an offer by the offerer, before the expiry of any validity period, but it is limited and different legal systems have different approaches. It is, for instance, an area of inconsistency between English and Scottish law.

[29] For an OO the ‘why’ is addressed within the Business Case and the ‘Project Background’ section of their PMP is informed by this.

[30] This ‘locking’ of the estimate is sometimes referred to as ‘baselining’.

[31] It is the case for project control as it is for planning. ‘Scope creep’ (doing something that was not intended) impacts upon duration and cost and, without a scope baseline, ‘scope creep’ cannot be recognized and hence project cost and duration cannot be controlled.

[32] For projects with very large physical deliverables, such as machinery, many practitioners choose to draw up a PBS (Product Breakdown Structure) that decomposes the deliverable into discrete parts, as a prelude to creating the WBS.

[33] A Work Breakdown Structure Dictionary is a textual document that supports the WBS by containing additional information about individual Work Packages.

[34] ‘Cost’ is a complex entity and care is required here. Chapter 17 refers.

[35] Such ‘house standards’ will be key elements of the project management method adopted by the SO.

[36] Although presented in the context of management of resource, since time and cost are inextricably linked, they can be thought of as time or cost management techniques, depending upon the context.

[37] To many, this four-part cycle is known as the ‘Deming Cycle’ or the ‘Deming Wheel’ on the understanding that it was originated by W. Edwards Deming. However, in his book Out of the Crisis, Deming (1982) himself attributed the original design to W.A. Shewhart.

Others, such as Ronald D. Moen and Clifford L. Norman (2010) differentiate between ‘Deming’s Wheel’ and the PDCA cycle, attributing the latter to a reworking of Deming’s work by a group of Japanese executives after receiving a presentation by Deming in the 1950s.

[38] This can be considered as an example of the ‘Hawthorne Effect’ (Buchanan and Huczynski, 2004).

[39] As discussed in Chapter 7, through the life of a contract the SO has progressively less influence over the gate decisions than the OO. For example, once the contract is signed the opportunity for the SO to terminate the contract is negligible.

[40] For convenience we will consider a Firm Price contract.

[41] If the estimated cost within the baselines of the PMP is less than that within the pre-contract sales estimate it is inconceivable that SO management would not insist on the former being adopted as the target cost.

[42] Although it is easy to refer to just cost, the real goal of the SO is profit and so there is a pressing need to manage and control revenue, both in terms of expediting payments to which the SO is already entitled, and also maximising the amount of entitlement. The latter will involve the SO’s PM acting as a marketer and salesperson seeking out new opportunities within the context of the existing OO and project. Such activity is akin to the ‘farmer’ aspect of selling as opposed to the more conventional ‘hunter’ aspect, as addressed in Chapter 13.

[43] To some extent this is because this strategic level of control is not as easy to exert within an SO because, once a contract is signed, the SO has no option to withdraw.

[44] It is said that project managers spend upwards of 90 per cent of their time simply communicating with others (Heldman, 2009).

[45] Care is required here since some projects will have their own contractual requirements that may not be adequately serviced by the existing facility.

[46] This also helps to manage the risks associated with the unexpected departure of key project staff.

[47] Some practitioners also include the processes and documents required to manage change as being part of the Configuration Management System (CMS).

[48] For instance, to avoid potential for any contradictions such suites should, ideally, ensure that a requirement (such as a dimension) is only stated once, in one document, which is then referenced by the others.

[49] Or alternatively with a CMS imposed by a SO higher in the supply chain.

[50] Some recipients will receive a ‘Controlled Copy’ in which case they will automatically receive any subsequent updated versions. Recipients of ‘Uncontrolled Copies’ do not atomically receive updated versions.

[51] Further enhancement can be adopted when using a spreadsheet’s logic to colour the cells to indicate status (for instance: Green - Work Package has started/finished before its planned date Amber - Work Package has started/finished but after the planned date; Red - Work Package has not started/finished and it is after the planned date).

[52] The size (and hence number) of the smallest fragment into which the project is decomposed.

[53] Implicit within all these discussions of costs incurred by a SO, and their use in the strategic and tactical control of projects, is the assumption that costs can be attributed to each individual bespoke product. Those SO who currently only produce standard products and are looking to embrace the supply of bespoke products may find this requirement surprisingly onerous. This is because, currently, many will operate a cost collection system that uses only functional departments as cost centres and lack the facility to record costs against individual products. Converting such a system can represent a significant amount of work and may, for instance, include the need for employees to create timesheets. Cultural resistance can be expected as well as significant technical difficulties and additional complexity.

[54] Many SO choose to have a ‘Cost Management Plan’, as a subsidiary management plan within the PMP that contains such definitions and conventions.

[55] The precise point of commencement of the warranty period is defined within the contract in question.

[56] In some instances such access is an element within the original supply contract. It can be a useful negotiating token for the OO.

References

12 

Barnes, M., 2012. The NEC Story. Interviewed by Robert Gerrard, 11 July 2012. [online] Available at: http://www.neccontract.com/about/index.asp [accessed 11 April 2014].

13 

NEC, 2009. Procurement and Contract Strategies: An NEC Document. London: NEC.

14 

Turner, R., 2007. Managing Scope - Configuration and Work Methods. In: R. Turner, ed., 2011. Gower Handbook of Project Management, 4th edn. Farnham: Gower Publishing.

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