The Successive Principle Proactive management of uncertainty.

The Successive Principle Proactive management of uncertainty

Introduction

Procedure

Example

Introduction

As you surely know, it happens that the budget for projects will be more then planned. It’s always many moments and in bigger projects a lot of

unique solutions for the projects. Which add up in difficulty to determining an accurate budget.

Successive principle is used to reduce the uncertainty, by finding the most critical elements.

History

First used as a tool for fast and early estimating and scheduling in the construction industry

Developed into a proactive management instrument used to efficiently handle uncertainty in the decision making process

The principle was developed through research by Steen Lichtenberg in 1970 and then furthermore through a research group including researchers from Stanford,

MIT as well as universities in UK, Sweden and Norway

Successive

Since 1970 the method has been used with successes in a wide range of projects through a varying type of areas

such as the Construction, Event and Telecom business

For over 25 years and over 300 analysed cases there hasn’t been any negative feedback!

...according to Steen Lichtenberg!

Example

Lillehammer Olympic GamesOriginal budget $230-385 million

Realistic cost identified by use of the successive principle $1230 MillionBudget after project was reorganised $800 million

Final building cost $800 million

Ericsson first mobile phoneSuccessive principle used in the decision making process

The idea of a cell-phone was not a high priority item for EricssonThe successive principle revealed otherwise.

The phone became Ericsson’s greatest commercial success ever!

Step A Establish a suitable analysis group

The group should consist of experts from the major key areas in the project. Both young and old who are specialists and generalists.

Step BClarify the goals and objectives, as well as any form preconditions

The team will have a prepared draft who will be discussed and do adjustments until it’s fully understandable.

Step CIdentify all issues of potential importance

Each person in the group will make their own list of key words of issues. By this brainstorming the team will usually identify 50- 100 issues. It’s important not to only

think about the technical issues!

Procedure

Step D

Organise the issues into discrete groups, and define for each group a base case assumption and how it could change for better

or for worse

By grouping issues together into statistically independent groups,

often 8-12.

Step E

Quantify all uncertain elements using triple estimates and good evaluation techniques

By calculating with triple estimate technique:

(min) + (3 x Norm) + max /5

Step F

Calculate a provisional overall result and draw up a top ten list of the most critical items or activities

Step G

Specify the most critical elements in successive steps, guided by the current top ten list

The top ten list is broken down and are evaluated to see which part needed more attention.

Step H

Once a satisfactory result has been arrived at, complete the analysis work with a suggested action plan

When the team have done a couple of cycles of step G, usually 8 – 12 cycles the group completes the analysis with a suitable action plan.

Case

Oslo spektrum Arena

The design concept

Norway's capital Oslo needed a new multi purpose arena that also could serve as a landmark for the city.

The winning proposal in the architectural competition that was held for the arena was at first estimated at £28 million.

Funding the project

A unique multi-purpose arena

The city council secured the funding for the project and 1995 decided to proceed with the construction. The appointed consultants developed the concept to meet all the

needs of all events that the venue should be used for, with a high mechanisation that allowed for short lead times between events and small permanent staff.

The arena should have a popular appeal and be a monument in the city and function at a multipurpose arena for event such as congresses, concerts, exhibitions and artists.

Local use of the successive principle

The appointed project manager initiated a a two day risk analysis session using the successive principle to evaluate the risks and the uncertainty and to

realistically estimate the total cost of the arena.

The further development of the concept and a the result of a first optimistic budget had now raised the estimated cost for the arena from the first

£28m up to £68m

The main target for the analysis of the project was to:1. Identify the final project costs and related safety margin for the re-designed project.

2. Rank and find the major sources of uncertainty3. Support the team building process and creativity

The objective of the analysis:

Re-Design and Re-analysis

This was of course un-acceptable which lead to a re-design and a re-analysis and that the client had to plan for additional funding.

The new target budget was, after a review of the design and functional requirements, set to £48 million.

Scope of budget

Major pre-conditions

The scope includes all projects costs exclusive of loan charges and other finance servicing costs.

The project is allowed to proceed with the planned support from the major interested parties without any disagreements.

Normal problems and side effects involving the many interested parties are included with a few exceptions

Major accidents, disasters or similar force major incidents are not included and has to be analysed separately

Planned milestones

Basic facts

The project had extremely difficult foundation engineering and access conditions.

The façade with mosaic and allot of advanced technology had to be taken into account.

From the analysis period: one and a half year to construction start and a building period of two and half year. Which is a tight schedule for such a

complex project as this one was.

Including

Excluding

All design and construction costs as well as all supplies necessary for the future operation period

All price changes which are distinct form inflation generally

All normal types of problem as well as the use of new and improved techniques and innovations

The indirect effect of expected minor changes in the program, as well as in the design

Major changes in functional or political requirements

Additional “safety reserves”

Force majeure events

Capital charges

The analysis procedure

The official project board ordered the use of an analysis based on the successive principle.

The analysis was performed by a a multi disciplinary group of key personal in the project and was supported by a few external

construction experts. The group work was also guided by two experienced facilitators.

Except from some preparation work and the final report the analysis was conducted during two full day meetings.

Estimate calculation

Calculation of mean value with triple estimate:Example inner walls

0,45+(3x0,50)+0,7/5 = 0,53

Top 10 list

Statistical S-curve

Result and conclusion

The result was a mean value of 42M£ and a standard deviation 4.84M£. With a reserved margin from budget with 6M£.

Overall the physical items had been broken down effectively and further more would only reduce the variance by a few cents.

These recommendations were followed and accepted for the project.

Project was completed 4 month before the target date with a official cost of 42 M£.

tack!

Further readingwww.lichtenberg.org

Proactive management of uncertainty using the successive priciple, S. Lichtenberg (2000 )