BUS605: Strategic Project Management

The Realities of Externalities

One term closely related to context is externality. It refers to a "consequence of an economic activity that is experienced by unrelated third parties". An externality can involve "a loss or gain in the welfare of one party resulting from an activity of another party, without there being any compensation for the losing party". For example, a sudden rise in oil prices could be a devastating externality in a project that depends on a steady and economical fuel supply. Some externalities are positive – for example, Ireland's decision to make public college education essentially free for all citizens made an already highly educated workforce even more attractive to pharmaceutical and software companies, which increased their investment in the country.

You and your project team have no control over externalities. But your job, as a project manager, is to be on the lookout for them at every turn, and to respond quickly and decisively when they do.

According to Merriam-Webster, the term context refers to "the situation in which something happens: the group of conditions that exist where and when something happens". All projects occur within multiple contexts – within an organizational context (both yours and the customer's), a market context, a technical context, and a social context. All of these can change over the life of a project, and in the permanent whitewater of the modern business world, they probably will. Good project managers pay attention to changing context. They realize that, as contexts change, the project will probably need to be adjusted. Completing the project in accordance with the original objectives could end up being a terrible outcome, if it turns out that the original objectives no longer fit the context of the organization.

The potential for changing contexts means that no two projects are the same. Even if you think you've completed an identical project recently, you'll almost certainly find that differences in context will force you to alter your approach in some way or another. For example, the fact that you successfully built a hospital in Detroit can't completely prepare you for the experience of building a hospital in San Francisco, where the area's volatile seismic activity means you need to consider a host of issues related to earthquake-resistance. In product development, you might find that the customer did not fully understand their needs at the outset. As you begin to learn what the customer wants, you might see the project in a much broader, more complicated context. Likewise, the introduction of new technology can increase the complexity of a project in ways you couldn't foresee during initiation. To deal with these changes, you need to be able to rely on a flexible project team that can adapt as the project unfolds.

An article by James Kanter in the New York Times describes the construction of two European nuclear power plants that were supposed to be "clones" of each other, with both built according to rigid standards specifying every aspect of the projects down to "the carpeting and wallpaper". The similarity of the projects was supposed to lead to clear sailing for both, but a host of unforeseen technical problems resulted in major delays and cost overruns. This is a perfect example of how contexts – one reactor was in Finland, the other in France – can dramatically affect the outcomes of supposedly identical projects. Problems at the Finnish site included a foundation that was too porous and therefore likely to corrode, inexperienced subcontractors drilling holes in the wrong places, and communication problems arising from a workforce composed of people speaking eight different languages. At the supposedly identical French site, a different array of problems included cracks in the concrete base, incorrectly positioned steel reinforcements, and unqualified welders. According to UniStar Nuclear Energy, the company behind the Finnish and French projects, a fleet of similar reactors are in the works around the world. Who knows what risks will arise on those projects. After all, France and Finland are at least stable, geologically speaking. But as Kanter points out, "Earthquake risks in places like China and the United States or even the threat of storm surges means building these reactors will be even trickier elsewhere".

Context is especially important in product development, where the backdrop for a new product can change overnight. In a paper arguing for a more flexible approach to product development, M. Meißner and L. Blessing discuss the many ways context influences the product development process:

Designers are influenced by the society in which they live, and their decisions depend on political, social, and financial pressures. The technological environment and the accelerating rate of change is a characteristic of modern times. Changing conditions produce new needs and thereby encourage new developments, innovation is rewarded, and new artifacts are created. Some products require design activity on a far larger scale than others.

Huge one-off products such as power plants or oil platforms require an immense and skillfully organized design operation. Less complex products such as hand tools or toys can be designed by a single person…. The designer could be working in a small company, carrying a variety of responsibilities including the marketing, design, and manufacturing of the product. Or he could be working in a larger company where many people work on a single design project with specified areas of activity and a hierarchy of responsibilities.

In changing contexts, flexibility is key. In his studies of successful project managers, Alexander Laufer found that the best project managers

deviate from the common "one best way" approach and adjust their practices to the specific context of their project. Avoiding the "one best way" approach does not imply, however, that there are no "wrong ways," that "anything goes," or that you must always "start from scratch". There is always the need to strike a balance between relying on the accumulated knowledge of the organization, on the one hand, and enhancing the flexibility and creativity within each individual project on the other.

Laufer argues that modern project managers need to employ a modern, more flexible approach than their predecessors:

The classical model of project management, in which standards are developed for virtually all situations, expects the project manager to serve primarily as a controller: to ensure that team members adhere to the established standard. This role entails only a minimal requirement for judgment and no requirement for adaptation. In reality, the project manager must constantly engage in making sense of the ambiguous and changing situation, and he must adjust the common practices to the unique situation. This process requires a great deal of interpretation and judgment based on rich experience.

In Lesson 5, we'll talk about the value of building diverse teams that bring together people with complementary skills – ideally, people of varying ages and levels of experience. But how can new project managers, who lack that all-important "rich experience," increase their overall understanding of their projects' multiple contexts? Start by researching past projects with similar characteristics, consulting with mentors, and, generally, checking as many formal and informal sources regarding lessons learned from previous projects as you can find. It also helps to stay well-informed – about your organization, your customers, your industry, and the world in general. For instance, if you were working on a construction project in the healthcare field in the past decade, you would have experienced a pronounced change in context, away from a doctor-centered system to a patient-centered system that seeks to empower patients to define value on their terms. If you were new to managing projects in that field, you would be wise to learn all you could about that shift. In the living order, such seismic changes are the norm, not the exception, in nearly all industries.