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Chapter 2: Investigating the risk management potential of a stage/phase-gate project management approach8
« I have also found that the overall effectiveness of a risk management process is primarily determined by two factors, namely, technical sophistication and implementation efficiency. »
Edmund H. Conrow
2.1 Introduction
A set of phases and gates adopted within a company often forms the basis of a comprehensive project management methodology of the company; policies and procedures relating to a variety of aspects such as cost management, risk management, environmental, safety and health, procurement, project communication, amongst others, are defined for each phase of a project. Criteria that need to be met regarding each of these aspects are defined for each project phase.
At first glance it would seem that stage/phase-gate models could be applied with success to CDM projects. This is true if the CDM risk management literature (see previous chapter) and the distinguishable deliverables of a CDM project is taken into account. This said, more investigation is needed and Chapter 2 focuses on investigating stage/phase-gate models.
Labuschagne (2005) and Brent and Petrick (2007) attempted to establish some conformity between a range of views regarding project management phases; sixteen different references that suggest various project lifecycle phases or stages are listed (2007). Table 2.1 gives an adapted version of the latter work with the different phases, aligned as far as possible to generate a generic project management model.
The risk management advantages of such a staged/phased project management approach are much neglected in literature. The objective of this chapter is to investigate how a staged/phased project management approach may lower project risk.
The risk managing potential considered is both overall and within project phases by considering project life-cycle phases as stages. Historically stage/phase and gate processes were primarily used for product development projects. Risk reduction that results from the overall staged/phased approach is differentiated form risk reduction achieved by each of the embedded stages/phases. At a micro risk management level (the level of the embedded stages/phases) each phase/stage of a project should contribute to systematically reducing the risk associated with a project. This is briefly addressed by Anderson (1996) when he states that risk is managed by allocating development funds based on the successful completion of each phase/stage of development. For a more detailed discussion see Lotz et al (2009).
Project lifecycle stages and phases
Projects are, by definition, unique endeavours. This implies unknown factors, uncertainty and risk. The cumulative cost of a project typically follows an S-curve. Initially, during the early phases such as the idea phase and feasibility phase, costs rise gently. During the design or definition phases, costs increase somewhat and as the implementation/construction/manufacturing phase is reached, costs – and therefore risk – rise exponentially. Therefore, while relatively accurate, detailed plans for the immediate future are possible, only “broad-brush”, “rough-cut”, high-level plans are possible for the longer term. The use of phases and gates is underlying to rolling-wave planning that implies that, while overall, high-level plans should always exist, detailed plans are only developed for an imminent phase of a project.
Each phase has the objective of reducing the risk of subsequent phases in a cost-effective way; a relatively small amount of money is spent on a phase to lower the risk of subsequent phases. If the risk of subsequent phases cannot be reduced sufficiently, the project can be terminated at the end of an early phase.
The project manager can provide a high-level plan for the overall project and a detailed plan for the imminent phase only. Ideally the project manager commits himself only to the detail plan for the imminent phase.
The end of a phase is an important milestone in the lifecycle of a project where the project team typically presents the work performed to a project review board (comprising of customers and other stakeholders). If one considers the customer to be the client of the CDM project developer then this can be seen as a feedback session to the client. The benefit will be that the client is kept up to speed with project development. This point also serves as a gate that needs to be opened for work on the succeeding phase to be authorised.
The review board therefore has two functions to perform at the milestone: to look back to validate the work performed during the phase, and looking ahead to evaluate detailed plans for the subsequent phase as well as updated high-level plans for the rest of the project. The function of looking ahead also involves assessment of risks and authorisation of the next phase. Allocation of project funds for each phase is based on the successful completion of the preceding phases and where a preceding phase does not succeed in reducing risk satisfactorily, it can be addressed; for example additional work may be requested before authorization is given to proceed to the next phase.
Looking back should prove that the objectives of the phase and all criteria set for the phase have been met. The review board evaluates, validates and approves the work performed during the phase and formally accepts the deliverable or deliverables of the phase. Before the phase is formally closed out, it is confirmed that there are no outstanding issues. Payments are typically made following such formal approval.
As the work performed during a project phase typically provides more information, the overall plan for the rest of the project can be updated. Also, the completed phase typically provides inputs for detailed planning of the succeeding phase.
Following the approval of a completed phase, the project team typically presents to the review board a proposal or tender for the next phase, based on detail planning that has been done for the imminent phase. The review board evaluates the sufficiency of the detailed planning for the next phase, availability of resources, risks involved and the feasibility of the rest of the project. If the review board is satisfied, the next phase of the project is authorized.
The Stage-Gate process of Cooper (2001) is considered a typical example of a project management approach with stages (phases) and gates that include pre-project phases such as Discovery and Idea Screening (see Appendix A). The National Renewable Energy Laboratory (NREL, 2001) states that such a stage/phase-gate management process is an approach for making disciplined decisions about research and development that lead to focused process and/or product development efforts. The purpose of such a project management approach is to reduce costs and time to market for product development (NREL, 2001). A staged/phased-gate project management model is also used by companies in the process industry, e.g. Exxon and Rohm and Haas, system developers, utility companies, the construction industry, defence industry, and many others
Components of a staged/phased-gate project management model
As the name implies, this practice makes use of stages and gates, where a gate implies that a part of the project activity is reviewed and a stage defines a specific work load that has to be completed before moving on. A table summarizing what ought to be achieved and verified at each stage and gate respectively is provided in Appendix A (Cooper, 2001). The complete high-level five-stage process of Cooper (2001) that includes pre-project phases is illustrated in Figure 2.1.
The project reviewing at a gate has the following objectives (NREL, 2001):
- Proof that objectives of the previous gate and stage have been met;
- Proof that the objectives of the current gate have been met; and
- Set objectives for the following stage and formulate the next gate criteria
The gate evaluation process can contribute to portfolio management (Cooper, 2001). To prioritize projects a “right-hand side” was added to the block representing a gate and the relative importance of the project is compared to projects that require the same limited amount of resources. Figure 2.2 illustrates the proposed dual purpose gate structure. Gate evaluations can have the following outcomes (NREL, 2001; Riley, 2005; Ayers, 1999):
- Pass – the goals of the previous stage were met and it is decided to further pursue the specific project;
- Recycle – all goals are not met, the current stage needs further work/investigation;
- Hold – work on the project is suspended for various possible reasons; and
- Stop – the project is stopped permanently due to various possible reasons.
Chapter 1: Introduction and background
1.1. Climate change and the Kyoto Protocol‟s Clean Development Mechanism (CDM)
1.2. The CDM: A Project Based Approach
1.3. Rationale of the research
1.4. Related theory
1.5. Problem Statement and Research Objectives
1.6. Benefits of aligning CDM project management with standard project lifecycle phases
1.7. Importance of the research problem
1.8. Limitations and assumptions of the study
1.9. Proposed research approach and strategy
Chapter 2: Investigating the risk management potential of a stage/phase-gate project management approach
2.1 Introduction
2.2 Project lifecycle stages and phases
2.3 The risk management potential of stage/phase-gate models
2.4 An exploratory case study to illustrate the risk management potential of stage/phase-gate models
2.5 Chapter conclusions
Chapter 3: Investigating the need for a Clean Development Mechanism (CDM) specific stage/phase-gate project management strategy
3.1 Introduction
3.2 CDM opportunities for South Africa and Africa
3.3 Engaging the South African CDM industry
3.4 Proposed CDM project management model – Model α
3.5 Layout transformation
3.6 Model α layout transformation
3.7 Further discussion and clarification of Model α
3.8 Potential inefficiencies of the developed stage-gate Model α
Chapter 4: Validation of Model α
4.1 Introduction
4.2 Background on case study research
4.3 Case study approach
4.4 Discussion of case study protocol steps
4.5 Discussion of the proposed project management model of Case Study 1
4.6 Discussion of the proposed project management model of Case Study 2
4.7 Discussion of the proposed project management model of Case Study 3
4.8 Discussion of the reconciled model – Model β
4.9 Overall results, conclusions and next steps
Chapter 5: External validity of Model β
5.1 Discussion on the answered questionnaires and identified trends
5.2 Experts‟ input on what is considered to be the success and failure criteria for CDM projects
5.3 Expert comment on the proposed CDM model (Model β) regarding applicability, completeness, practicality, areas that are unclear or any other comment.
Chapter 6: Conclusions and future work
References
Appendixes
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