Meet cost and schedule commitments on major projects by embracing uncertainty… early

An accurate cost forecast alongside a realistic schedule of works are the cornerstones of all good project management. But on large multi-year projects, there are three primary reasons why it remains challenging for leaders to accurately determine, and stick to, cost and schedule commitments:

To get a project approved, leaders are often under pressure to provide early firm answers.

Finding politically acceptable answers to how long and how much a project will cost is a critical step that often happens at pace. Early estimates, however, are based on high-level information and emerging requirements, the implications of which are rarely well understood.

Once commitments are secured – there is a need to show demonstrable progress.

Once the go-ahead is given, large delivery and supplier teams are often mobilised quickly, as a proxy for representing early progress. This introduces fundamental delivery risks that are expensive and time consuming to resolve when they become major issues later on.

Once in-flight – multi-year timespans can result in changing objectives.

Major projects often span many years, occasionally decades, which leave them open to challenges from annual budget constraints and changes in strategic priorities (the slow reduction in the scope and ambition of HS2 since Royal Assent of Phase 1 in 2017 is a prime example). These changes inevitably de-rail projects introducing delays and cost increases.

So how should leaders of major projects tackle these challenges to increase the likelihood of their project meeting cost and schedule commitments?

Embracing uncertainty

Navigating the progression of cost and schedule estimating, through a myriad of uncertainties, requires honesty and openness in what is known, and what is at best, an educated guess. Here are four recommendations to aid leaders tasked with plotting this journey:

Use range-based forecasting as the basis for early project commitments

Range-based forecasting can help reduce the fixation of a single figure (date and/or cost), which is then difficult to remove from the collective consciousness. Acknowledging and documenting the level of uncertainty inherent in estimates, particularly at the early stages, will help shape the narrative around what is known and what areas are still loaded with uncertainty.

Industry standard approaches to financial forecasting typically includes the expectation that sensitivity analysis is applied to cost estimates. However, this rarely translates into stated figures for projects. Decision-makers should view these estimates as indicative, ensure that sensitivity analysis is applied, and understand the need for more detailed design input to refine them as the project progresses. This should be backed up by regular and thorough assessments to identify areas of uncertainty and potential risk events that could impact on cost and schedule estimates.

Actively own areas of high uncertainty resulting from project commitments

Senior leaders are responsible for securing sponsorship and funding necessary to get a project off the ground. Often this means commitments to sponsors need to be made that take the form of:

• setting a budget figure that is likely to be politically acceptable
• setting a requirement that is not well understood, for example the destination of a new inter-city train, or time to travel between two cities.

Range-based forecasting provides initial headroom at the commitment stage, allowing new projects to commence with major areas of uncertainty. Once project approval has been given, it is important that this uncertainty is actively managed by project teams, ensuring there are priority items for managing in the delivery phase. The uncertainty must also remain a focus area for governance boards, recognising that the journey from uncertainty to solution takes time. Options will need to be explored before recommendations can be put forward with high levels of confidence.

This approach requires shared ownership of the uncertainty by the project board, focusing senior attention until the associated risk is reduced to acceptable levels to avoid undermining the project at a later stage.

Focus on integration to manage uncertainty that may not otherwise be obvious

To show demonstrable progress, the tendency can be to design parts of the solution and commission suppliers early for delivery elements that can be easily packaged up. However, the benefits from most major projects can only be realised when the different delivery elements are integrated to work seamlessly as a whole. It is important, therefore, to recognise that areas of uncertainty exist, which may not be obvious in the early stages of a project. These often can be traced back to poor integration management. Specialist integration experts recruited early into the project team ensures that these areas of uncertainty are owned and actively managed. They have a critical role defining how work is partitioned between suppliers, and identifying and resolving interface issues early. These experts can then manage the delivery integration to ensure a smooth transition into the business.

Foster a culture of questioning and challenging assumptions

Areas of the cost estimate and schedule that are based on assumptions (to be held in a central register of assumptions) need to be continually reviewed and refined to reduce the associated delivery risks. Collective ownership of the risk, and regular challenge to cost and schedule assumptions, must be encouraged. This can be achieved by creating an environment of psychological safety. Teams able to operate in this way are better suited to expose and manage risks on major projects as highlighted in a recent Ministry of Defence report on the importance of psychological safety.

By effectively managing the level of uncertainty inherent on major projects, leaders can tread the careful path to success. Embracing uncertainty is the basis for providing clarity about commitment maturity, and for pro-active management of the highest areas of cost and schedule risk.