A Framework for Managing Large Capital Projects

The primary issues involved in the management of large capital projects are presented in Figure 1. The framework highlights the role played by the institutional arrangement in each of four important phases of the projects: early front-end, strategic structuring, design and execution, and ramp-up. Throughout the project life cycle, the institutional framework can be a source of stability by anchoring projects, or a source of risk if the structure is ambiguous or if significant changes take place. During the very early project front-end activities of project identification, the institutional framework outlines the project opportunity and identifies the legitimate potential players and their roles. Changes in the institutional framework often create project opportunities as governments modify the framework to stimulate the initiation of projects and as promoters lobby for changes in order to create project opportunities. During the strategic structuring of the project, the sponsors investigate the institutional context to identify risks and lobby for legislative and regulatory changes to anchor the project.

Figure 1: A Framework for Analyzing the Development and Delivery of Large Capital Projects

During project design and execution, a stable institutional environment helps buttress the project against attacks by providing clear rules of engagement for project participants and for outside pressure groups, and by providing legitimacy. If the project gets into serious difficulty, the institutional framework can support the restructuring necessary to save the project. This is often quite critical at the ramp-up phase of projects when it becomes evident that market response is slow and the revenue stream is insufficient to support the project's financial obligations.

The project concept, the composition of the owner/sponsor coalition, and changes in the institutional framework are defined during a long and very interactive process. Though these activities, the project is modified several times before it takes its final form. We refer to this process as project shaping. To refer to this as a selection process misrepresents the reality of front-end development. There is, however, a selection process through which players decide to opt in and opt out of the project coalition.

Risk management plays an important role in the early phases of the project. Considerable attention is given to identifying sources of risk. This information has a profound impact on the way the project will be structured and on the strategic system that will be put in place to manage the project through the design and execution phase. Through shaping, the project is set up so as to minimize exposure to risk, both from the project environment and from opportunistic behavior on the part of project participants. A strategic system with a rich portfolio of responses is put in place. The richness of this portfolio we refer to as strategic depth.

Our investigation has shown that large capital projects are very often exposed to unforeseen or emergent risks. The projects in this study were exposed to an average of four unforeseen risks that threatened project viability. We refer to the ability to respond to or recover form these emergent risks as the project's resilience. Emergent risks pose a strategic dilemma, that of planning for the unforeseen. During strategic shaping, the project concept is elaborated, the project coalition is structured, and the strategic system is put in place. Project strategizing does not seem to explicitly address the question of the project's capacity to support emergent risks. However, in retrospect, it can be seen that some projects are more resilient than other. In many cases, the strategic system has the requisite variety to handle emergent risks. In other cases, the project sponsors are able to draw on extra resources to support the project in times of crisis. In extreme cases, the project will require restructuring in order to ensure its survival. Attempts to restructure projects have revealed another strategic paradox. In structuring the project to make it robust enough to withstand foreseen risks, the strategic actors sometimes introduce rigidities that hinder or prevent adequate responses to unforeseen risks.