Prudent and Reasonable Project Management

David I. of Pittsburgh

Project Management December 1985, pp. 90-97

The purpose of this case is to present a general model for determining what constitutes "prudent and reasonable" project management. This model, re- ferred to as the project management system (PMS), is comprised of six inter- related subsystems, each having a specific purpose. Using the PMS as a basis, the overall management of the Trans-Alaskan Pipeline System (TAPS) project and the resulting problems are evaluated based on the definitions of reason- able and prudent. In the the state of Alaska alleged before the federal Energy Regulatory Commission and the Alaska Public Utilities Commission that $1.6 billion in imprudent management costs were associated with the design, engineering, and construction of the $8 billion Trans-Alaska Pipeline System. The TAPS project experience clearly points out the need to adequately address all of the various aspects and subsystems of project management.

Through the use of the project management system model, the students understand what constitutes prudent and reasonable management of a pro-

ject. In addition, the student should be exposed to the six interrelated areas or subsystems that need to be properly utilized in order to minimize the risk of cost overruns and schedule delays. When discussing this case, the follow- ing points should be addressed:

some of the characteristics of prudent and reasonable project management the relationship between prudent and reasonable management practices and risk management

the components of the project management system and their importance the impact of ignoring some of the project management aspects or PMS components.

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1. What constitutes reasonable and prudent management? What are some specific traits of a prudent and reasonably managed project?

a. Prudent and reasonable management emphasizes the need to effective- ly and efficiently allocate resources so as to ensure the successful at- tainment of the project's objectives and goals. Specifically, this concept

General

correctly means applying the most appropriate project management techniques and methods available to ensure that a project is completed on time, within budget, and in conformance with the desired perfor- mance requirements. The students may also provide a definition that conveys the various legal responsibilities of the project owner and con- tractor. The prudent and reasonable management of projects encom- passes the following key areas:

the project owner or sponsor taking the initiative to establish an or- ganization that will provide and support effective strategic planning and management

devising a project management system to serve as a model for orga- nizational strategy while also instilling a special type of management philosophy

the practicing of proven, modern project management techniques in the execution of the key management functions: planning, organiz- ing, motivating, leading, and controlling.

2. As a project manager what methods can be used to risks?

a. Guide, Section 1.1.2, Tools and Techniques for Risk Identifi- cation, identifies the following methods:

Checklist: Checklists are typically organized by source of risk. Sources include the project context, other process outputs, the product of the project technology issues, and internal sources such as team member skills (or the lack of them). Some applications areas have widely used classification schemes for sources of risk.

Flowcharting: Flowcharting can help the project team better under- stand the causes and effects of risks.

Interviewing: Risk-oriented interviews with various stakeholders may help identify risk not identified during normal planning activities.

Records of pre-project interviews may also be available.

3. How does prudent and reasonable management relate to risk management?

a. Both types of management have the same goals of effectively and effi- ciently using resources to successfully complete the project on time and within budget. In order for a project to be handled in a truly prudent and reasonable fashion, all associated risks and uncertainties must be con- sidered. Some of these risks may have to be further managed or ac- counted for in the project plans, depending on their impact and likeli- hood. Both are dependent on the successful use and application of appropriate project management techniques. In order to reduce a pro-

ject's risk, each one of the project management subsystems needs to be fully addressed and properly utilized.

4. What is the project management system? Briefly describe each of the six subsystems.

a. A project management system (PMS) is a set of six interrelated subsys- tems that each perform a particular function which contributes to the total project management system.

Organizational Subsystem: The organizational subsystem provides the foundation for the management of projects characterized by an or- ganizational design with appropriate authority, responsibility, and ac- countability relationships.

Project Management

Planning Subsystem: The planning subsystem deals with the selec- tion of project objectives and goals as well as the strategies for the use of resources to accomplish project ends. These strategies include plans of action, policies, procedures, resource allocation schemes, and the pro- ductive use of organizational resources.

Control Subsystem: The project control subsystem establishes per- formance standards for the project schedule, budget, and technical per- formance objectives and then compares the actual progress to these standards. Another primary function of the system is to alert the project team to any potential problems so that corrective action can be taken.

Management Information Subsystem: The management information subsystem contains the intelligence or processed data that is needed to effectively plan and control the project. This information enables the key managers to track the consumption of resources and the actual project results obtained.

Subsystem: The cultural ambiance of a project is simply a collection of ideas and beliefs that are shared by managers and the pro- ject team members and serve to form the basis for the existing organi- zational culture. The culture that is developed becomes a unique char- acteristic of the organization and in turn has an influence on many other aspects of the organization.

Human Subsystem: The human subsystem emphasizes the impor- tant role played by various individuals. In short, the outcome of a pro- ject is ultimately dependent on the combined performance of its team members along with individuals and managers who provide functional support.

5. Considering each one of these subsystems, describe any problems result- ing from the management of the Trans-Alaska Pipeline System (TAPS). In your discussion, be sure to point out any overlooked project risks.

a. Organizational Subsystem:

I. The TAPS Ownership Committee did not specifically define its strategic role nor was anyone else given that responsibility. As a re- sult, several key strategic issues were left to chance. In particular, TAPS did not resolve key strategic issues that included: (1) devel- oping a master project plan; (2) early integrated life-cycle project planning; (3) developing an organizational design strategy for Alyeska, the owners, and the construction management contrac- tor; (4) design and implementation of a comprehensive project management information system; (5) developing an effective con- trol system for the project; and (6) the confusion of responsibilities between Alyeska and Bechtel which resulted in an overlap and du- plication of functions.

The Owners Construction Committee developed a master project plan that could guide its organizational design for the TAPS project. Without the strategy, it could not define work packages and the roles of the various parties involved in the project. Unless authority and responsibility relationships were developed between the organizations, there is a serious danger of costly and inefficient duplication of effort as well as the risk that some of the work pack- ages would not have anyone assigned appropriate responsibility.

Alyeska constituted an intervening layer of management and pro- fessionals in the hierarchy of the TAPS organization. This layering increased the distance between top level members of the committee and the front-line supervisors directly involved with accomplishing the work packages.

Planning Subsystem: The owners and Alyeska did not ensure the preparation of adequate, comprehensive plans at the owner's level. Even though was a widely used project manage- ment tool, the owners failed to use it as a network planning and scheduling tool. Without proper project planning, there is little ba- sis for making comparisons, and it becomes very difficult to iden- tify problems. Even if the problems are detected, the lack of plan- ning makes it virtually impossible to develop feasible alternate courses of action, such as resource realignment.

Control Subsystem: Construction was started before adequate, thorough planning had been accomplished, resulting in inadequate project control systems. Without an adequate planning and con- trol subsystem, there was no real way to determine the progress of the project or assess project risk.

Management Information Subsystem: Inadequate information on the TAPS project contributed to the lack of meaningful and use- ful controls. In short, project managers cannot manage what they cannot measure, or evaluate.

Cultural Subsystem: The fundamental problem here was the aura of distrust and questionable credibility being attributed to key people in Alyeska and the major contractors.

Human Subsystem: The case also notes that poor la- bor management was a major contributor to excesses.

TAPS construction began without adequate housing, catering con- trol, or communications facilities in place.

Since the case primarily dealt with the prudent and reasonable management practices that were lacking on the Pipeline System project, the instructor might want to present a case that demonstrates the correct appli- cation of the project management system. Another option available is for the instructor to present some of the various project management techniques that could be used to properly establish and maintain each one of the PMS sub- systems.

The use of the article, The Legal Standards for Prudent Project Manage- ment, by Randall L. Speck, Proceedings, 1987, pp. to promote further discussion by the students should be considered.