Recent studies in complex project management have also shown that projects have to deal with ever growing complexities, as well as a higher degree of uncertainties at the same time confirming the inefficiency of existing models and techniques that focus on mono-criteria used in small projects while neglecting the complex interactive nature of large-scale projects.
In this article, we aim to reduce project risk and uncertainties in large-scale projects by the application of systems thinking. Systems thinking analyzes risks by analyzing the risk element as part of a complete system. The article will identify the interactions and relationship among processes and how risk affecting a part of a project would affect other parts and the system as a whole.
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Systems thinking, a branch of complex system, has proven both efficient and effective in solving complex organizational problems by explaining the interrelationship of processes within elements within organizations without neglecting the human factors. In this article, we will discuss how the applications of systems thinking to large-project scenarios could help organizations in making projects more efficient by reducing risks and uncertainties.
Existing Problems in Managing Complex Projects
The effectiveness of current risk management frameworks in large-scale projects has sparked a lot of debate among recent project managers and management scholars. Existing research in project management literature identifies factors such as improper forecasting, non-interactive nature of large-scale projects and the ineffective nature of existing risk analysis methodologies as some of the major causes of project management risk.
As at today, forecasting is one of the most common risk management techniques in project management. Forecasting has, however, been identified as one of the primary causes of risk in projects. Existing forecasting methodologies, such as estimate of viability, the cost benefit analysis and the cost and demand forecast, used in analyzing large projects are often misleading and usually inaccurate by a large percentage. The outcome of making the wrong forecast is that it presents critical decision-makers with wrong information in making managerial decisions, therefore increasing the probability of failure in large projects.
The major challenge with using forecasting as a risk management technique is that humans are generally known to be optimistic and overconfident when forecasting, therefore underestimating cost and challenges while overestimating benefits of a project, especially at the initial stage.
Lack of Adequate Data
It’s becoming common knowledge that project risk is higher at the beginning of a project and, as the project progresses and more information is known about the project, the risk reduces. Risk management is all about preparing for that which is about to happen. The challenge with this is that the information available as at the time of preparation might not be adequate to effectively plan for risk.
Figure 1. Project risk vs. Knowledge of project
Although risk is mostly perceived to be negative, risk can also be positive. The inability to effectively prepare for risk means an organization would not just be vulnerable to negative risks, but also miss the opportunities to exploit. By the time adequate data is enough for planning, risk would have reduced tremendously and major risks might have occurred already.
Independent Risk Analysis
The challenge with most of the current risk analysis techniques is that dependent risks are analyzed independently. This means that, once a risk is identified, the project team analyzes the identified risk. These risks are, however, analyzed independently of other activities within the project. Several studies have been conducted to show risk interdependencies in project. Gap theory and systems methodology are some of the most common theories that identify the need for interrelationship of activities in risk management.
The risk of analyzing risk alone, without considering the resultant effect on other activities, is enormous. We often create one challenge by trying to solve another. For example, after identifying government policies as a major risk factor in setting up an ICT hub in China, you decided to change location to Italy. While the risk identified might have been solved as a result of a friendly Italian government, other risks would arise as a result of the new location. Risks such as cost of labor, location of consumers, change in shareholders, etc., would become factors to contend with. It is therefore advisable to focus on analyzing the risk network rather than the individual risk.
Systems Thinking and Project Management
Figure 1 below shows the type of project by plotting the number of interactions against the number of components, while Figure 2 shows the corresponding project management methodology that can be used to handle the project.
Fig 1. Types of systems and project
Fig 2. Types of project management methods\
A high number of interaction and a high number of components are regarded as making a complex system or project. This can be managed using systems thinking as a complex project management research tool and this has been proven to be beneficial to project managers. This methodology to risk management is, however, not yet common, as most project managers have not adopted it.
A system is described as more than the sum of its parts and this is often as a result of the dynamic interaction between its parts. Systems thinking is therefore a problem solving method, which analyzes individual processes with respect to the whole (system).
While consultants have largely accepted systems thinking as a problem-solving approach in organizational management, it has not been well received in project management. Both organizations and complex project management can be regarded to as systems, as they are made up of numerous individual parts functioning together to make a performing whole.
The Concept of a System
When using systems thinking, it is important to understand the concept of the system. According to Wikipedia:
A system is composed of parts.
All the parts of a system must be related (directly or indirectly), otherwise there are really two or more distinct systems
A system is encapsulated, has a boundary.
The boundary of a system is a decision made by an observer or a group of observers.
A system can be nested inside another system.
A system can overlap with another system.
A system is bounded in time.
A system is bounded in space, though the parts are not necessarily co-located.
A system receives input from, and sends output into, the wider environment.
A system consists of processes that transform inputs into outputs.
A system is autonomous in fulfilling its purpose. (Car is not a system. Car with a driver is a system.)
In complex project scenarios, the systems would consist of all the activities that make up the project. Risk management when using systems thinking would focus on the risk networks analyzing the effect of risk on an activity on the network as a whole.
There are three main types of systems that can be used when using systems thinking as a problem-solving methodology.
Hard systems methodology—This involves the use of computer simulations and scientific techniques and calculations. Hard systems methodology analyzes risk in a system by focusing on the system and activities in isolation from the human elements in the systems.
Soft system methodology—When using the soft system methodology for risk analysis, it factors in the human elements of a project. It is largely used for risks that cannot be quantified (qualitative risks). It is very useful for understanding the root cause of problems, perspectives, and diagnosing viewpoints when identifying and managing risks.
Evolutionary systems methodology—This is a complex project risk management system. When using the evolutionary systems methodology for risk management, it combines the social aspect of a system with the soft systems. It takes a comprehensive and holistic approach to management and focuses on the dynamism of a system. This methodology is used in large-scale projects that are very susceptible to change. It is also known as the dynamic systems methodology.
Analyzing risk from a different perspective often produces a different results. Traditional project risk managements methodology are problem-centric, trying to reduce the identified risk in an activity and thus neglecting the resultant effect on other activities and the system as a whole. Systems thinking is a problem-solving tool that is being adopted to complex risk management. Analyzing risk from the perspective of a system gives the project manager the ability to address activity interdependencies and relationship. The result is often better and comprehensive risk management within organizations.