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7
Readiness to Proceed for
First-of-a-Kind Projects
INTRODUCTION
A significant part of the DOE budget is spent on first-of-a-kind and one-of-
a-kind environmental restoration, nuclear defense, and scientific research and
development projects. By definition, there is no guidance for these projects
based on previous history and project experience; as a result, first-of-a-kind
projects have shown themselves to be susceptible to large cost and schedule
overruns and performance shortfalls. This problem is aggravated by the tendency
to measure the degree of preparation (readiness to proceed) for these projects by
the same standards and metrics used for projects that are similar to others that
have already been executed.
First-of-a-kind projects have greater uncertainty simply because they are
first. Often the components of first-of-a-kind projects are new and require tech-
nical development, scale-up, or even research and development. Even if the
individual components are commercial off-the-shelf, their integration into a new,
high-performance system may be unprecedented. Senior management, faced
with the alternatives whether to wait until all technical uncertainties are resolved
or to move forward concurrently with project design and the development of new
technologies will often opt for the faster approach. A first-of-a-kind project
may have to proceed even with the associated risks, but these should be calcu-
lated risks. The view of the committee is not that first-of-a-kind projects should
not be undertaken, but rather that management should make an informed decision
based on an unbiased understanding of the risks involved and should take active
measures to reduce, mitigate, and manage these risks. Unlike conventional
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READINESS TO PROCEED FOR FIRST-OF-A-KIND PROJECTS
41
projects, which generally proceed sequentially in time, with no backtracking,
first-of-a-kind projects need to consider and plan explicitly for rework, recycling,
and iteration. This chapter addresses some of the issues peculiar to first-of-a-kind
projects, their specific planning requirements, and the issues that need to be
considered when determining whether a first-of-a-kind project is ready to proceed.
CHARACTERISTICS OF FIRST-OF-A-KIND PROJECTS
First-of-a-kind projects are, by definition, highly diverse, but regardless of
their purpose construction of a new weapons processing plant, decontamination
and remediation of a site with unique or unusual conditions, or construction of a
new scientific instrument or laboratory that could achieve scientific and techno-
logical leadership these endeavors share a number of features. One of the
significant issues in environmental restoration projects, among them decontami-
nation and remediation, is that conditions at many sites are unknown, owing to
inadequate or incomplete characterization of the wastes. Accordingly, many of
these projects are one-of-a-kind because there is no site with similar conditions.
Uniqueness
First-of-a-kind projects are unique. Because they cater to specific needs, no
direct historical comparisons are possible and no project managers with previous
experience are available.
High Degree of Uncertainty
First-of-a-kind projects may involve development (design, construction, and
operation) of new, complex, and untested structures, systems, and equipment, or
substantial scale-up of laboratory or pilot processes. These difficulties are com-
pounded by the desire to accomplish the project as soon as possible, so construc-
tion is started and many critical issues remain to be resolved once the project is
under way. For some high-technology projects, scientific knowledge is developed
and tested directly on the capital acquisition project and many of the critical
systems are designed during construction. This concurrency of technology devel-
opment and project engineering, design, and construction I
high degree of uncertainty.
High Cost
ncreases an already
First-of-a-kind project costs generally increase geometrically with the num-
ber of technical groups or specialties that must be successfully integrated. Tech-
nical and other uncertainties are more difficult to manage and are more visible on
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PROGRESS IN IMPROVING PROJECT MANAGEMENT AT THE DOE
multimillion to several billion dollar ventures because of the larger number of
scientific and technical specialists.
High Visibility and Public Attention
New, large projects generally attract attention from the general public and
from special interest groups, and first-of-a-kind projects are no exception. This is
especially true for DOE environmental restoration projects, which may involve
state and local governments, public and private environmental protection groups,
and other stakeholders. Information technology enables all stakeholders and
concerned parties to keep a close eye on the project and to react if some of their
interests are affected. The democratic process promotes a high degree of visibility
for government-sponsored projects, which results in a large number of external
stakeholders monitoring projects and promoting or resisting project changes.
High Impact
The success or failure of major first-of-a-kind projects can have a substantial
influence on the economic, social, environmental, and developmental atmosphere
in the vicinity of the project. Successful completion of the project could bring
numerous local benefits, such as job creation and improvement of the local infra-
structure. The attractiveness of the area as a place for investment could be
enhanced. Consequently, such projects often have political components that
affect decisions and make these projects hard to stop or modify once they have
begun, regardless of the technological difficulties that may arise. Project failure,
cancellation, or delay, for example, would have severe detrimental effects-
unexpected layoffs, unusable land and facilities, and millions of dollars lost.
CHALLENGES THAT ARISE IN FIRST-OF-A-KIND PROJECTS
First-of-a-kind projects have some inherent features that make them much
more prone to failure than ordinary public or private projects.
Technical Risk
The inevitable technical challenges that emerge throughout the project devel-
opment and construction process create high levels of uncertainty. As mentioned
above, first-of-a-kind projects are by nature concerned with the development and
implementation of new technologies. These projects may require the use of
nontraditional materials and new, complex, and demanding (high-performance)
systems. At the beginning of the project, the only information about these inno-
vative systems and materials is derived from scientific experiments and labora-
tory or pilot tests, so that construction of a first-of-a-kind facility often involves
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READINESS TO PROCEED FOR FIRST-OF-A-KIND PROJECTS
43
scaling up laboratory or bench models. The ability of the process to meet the
scaled-up design parameters is highly uncertain and depends on the validity of
numerous scientific and technical assumptions and projections. This uncertainty
creates high financial and environmental risk.
Managerial Challenges
Uniqueness and uncertainty caused by technical issues must be addressed by
an adequate decision-making process (performed by DOE as the project owner)
and management (performed by DOE and its contractors). A number of issues
make managerial processes much more challenging than the decision-making
and management processes for ordinary projects where managers have prior
expenence.
Uncertainty in Planning
The uncertainty caused by technical issues hinders the ability of the project
team to perform accurate and realistic project planning. Thus, planning for
project execution requires careful attention to risk management. First-of-a-kind
projects are typically accompanied by risks of potentially large cost and schedule
overruns and performance shortfalls.
Risk Management
First-of-a-kind projects involve technologies and approaches that lie on the
boundary between pure science and practical implementation, which is why they
involve a higher degree of uncertainty. To address this issue, an explicit risk man-
agement program should be undertaken, from the earliest phases of preconceptual
planning and continuing throughout the entire project development process.
Cost and Schedule Contingency
The inherent uncertainty in project definition for first-of-a-kind projects re-
sults in more changes and a corresponding need for larger contingency for both
costs and schedules, making the construction control process more difficult.
Therefore, special attention must be paid to the development of a rigorous contin-
gency tracking system. During the preconceptual and conceptual planning stages,
owing in part to the strong desire to proceed with a project, there is a tendency to
underestimate the potential risks. This often leads to inadequate contingency
allocation. If the contingency is set at a level appropriate for a conventional
project with well-defined scope, as has happened in the past, the contingency
allowance will not adequately address the schedule and cost variability, resulting
in a continual need to revise the project baseline.
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Personnel Resources
PROGRESS IN IMPROVING PROJECT MANAGEMENT AT THE DOE
Problems may arise because first-of-a-kind projects often need unique scien-
tific and engineering resources. The development of new technologies requires
highly qualified, experienced professionals to be involved in both design and
construction. The scale and the schedule of these projects call for employing
highly competent staff experienced in dealing with the uncertainty inherent in
first-of-a-kind projects.
Another issue that typically creates problems during the execution of first-
of-a-kind projects is the creation of a work environment that promotes teamwork.
The involvement of large numbers of laboratories, contractors, and specialists
with diverse backgrounds and areas of competence could create tensions if the
respective tasks, responsibilities, and accountabilities are not clearly and explicitly
defined. Vaguely defined roles and responsibilities can make it difficult to assess
responsibility for failures. The nature of the work on first-of-a-kind projects
makes it difficult to keep the staff focused on the project objectives when there
are unexpected technical and scientific challenges. First-of-a-kind projects often
take a long time to complete, resulting in turnover of critical, experienced project
personnel.
Funding
The first-of-a-kind projects undertaken by DOE often require huge invest-
ments and entail great risks that private companies are not able to accept. Govern-
ment undertakes such projects because they benefit the nation. Some projects are
jointly funded by other nations to reduce each party's risk, but the principal
source of funds is typically the U.S. Treasury. Congress controls these resources,
and the availability of funds is subject to budget limitations, annual budget appro-
priations, competing interests, and other factors. Availability of funding needs to
be assessed at each project decision point.
CRITICAL DECISIONS
First-of-a-kind projects call for critical go/no-go decisions at various stages
of project development and execution. The timeliness of these decisions is criti-
cal for the project outcome. For acquisition executives to make these critical
decisions, they need adequate information. Therefore, during the preproject
planning phase of first-of-a-kind projects, special procedures are needed to assure
the development of information that will facilitate a responsive decision-making
process.
First-of-a-kind projects have been and can be successfully managed with
respect to performance, budget, and schedule. Successful project performance
depends on adequate planning and management. In first-of-a-kind projects with
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45
technological challenges, it is often assumed that the highest priority must go to
scientific and engineering issues. This is not so. The critical issues for these
projects are project planning and project management, which are essential to
provide the basis for successful resolution of the technological issues.
The following issues should be addressed in the review of risk assessments,
project procurement and execution plans, and other management areas for first-
of-a-kind projects. It is unlikely that all of these issues would be faced on any
single project, but all of the methods cited here have been used on some DOE
projects. The readiness to proceed from one stage of the project to the next
depends on the level of definition and uncertainty; a level of definition that is
acceptable for approval to proceed at CD-0 will probably not be acceptable at
CD- 1 or CD-2.
Project Benefits to the Public
First-of-a-kind projects may require large public investments. In return,
DOE should continually demonstrate how the project will benefit the public. If
the benefits to the nation are only marginally greater than the costs, the project
may be at risk at any time due to budget constraints, lack of political support, or
even public opposition.
Benefits as well as costs should be quantified and estimated, and cost-benefit
analyses should be made at every phase of the project and reviewed by DOE
management. These costs and benefits should be readily comprehensible to the
stakeholders that is, the general public, which is paying for the project.
Scope
In first-of-a-kind projects it may be very difficult to define the scope pre-
cisely at the beginning of the project. The project may require decisions at
critical decision points with less than desirable definition of the systems to be
used. For example, the site plan, footprint, and general arrangements of the
facility may not be well defined at CD-0 or CD-1. Only a conceptual plan and
general building arrangements may be available until project systems are better
defined and sized. The practice of setting contingencies for costs and schedules
is appropriate, but the practice of changing project scope to maintain the baseline
cost and schedule is definitely not a best practice.
Costs and Schedules
In first-of-a-kind projects there are no historical cost records that can be
referenced from earlier projects. DOE has to depend heavily upon judgment,
analogies with previous projects, and independent (external and internal) cost
reviews. As costs of first-of-a-kind projects are more uncertain owing to the
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PROGRESS IN IMPROVING PROJECT MANAGEMENT AT THE DOE
lower level of technical definition, it is essential to obtain cost estimates by
several different and independent methods and sources. Bottom-up cost estimates
should of course be made as soon as design information becomes available and
should be updated as more information is developed. Adequate attention should
be paid to the uncertainties in scope definition and the likelihood that design
development will identify additional costs. Top-down cost estimates should be
made using whatever parametric or statistical methods may be applicable and
used as reality checks on the bottom-up estimates. It is essential that the top-down
and bottom-up estimates be completely independent and prepared by different
groups with no vested interest in the project. The difference between the top-
down and the bottom-up estimates is one indicator of the degree of uncertainty in
the project costs. If independent top-down and bottom-up estimates differ sig-
nificantly, management should immediately investigate the reasons for these
differences.
In first-of-a-kind projects it is difficult to schedule activities with precision
because some activities may not be clearly defined until the project is well under
way. Because a detailed schedule has not been set, schedule risk and contingency
analysis require more attention, especially during the early stages of a first-of-a-
kind project. The uncertainty inherent in first-of-a-kind projects typically requires
flexibility in planning and scheduling. Options should be identified and kept
open as long as necessary. Parallel technological developments and multiple
suppliers, for example, can address technological risk. More hold points may be
required to determine whether or not to go ahead with new or proven technology.
Special attention should be given to the schedule impacts of external events
and decisions by decision makers not under DOE or contractor control, such as
regulators.
Constructability
Constructability analysis is intended to identify the problems that may be
faced during the course of construction. This analysis assesses the probability of
the project running over budget and schedule and suggests design changes that
would reduce costs and time by making the project easier to construct. Con-
structability analyses, performed early and often, assess the ability to carry out
the project in the planned manner, within budget and schedule. Constructability
analysis should be started in the very first phase of planning, whenever a design
or a plan to build something is conceptualized.
Prototype Studies
In planning any new technology project, it is beneficial to build a pilot or
bench model rather than immediately building the full-scale facility, so that the
process design may be checked, proven, and refined earlier, at a much lower cost.
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A decision to proceed with the project at CD-1, CD-2, or CD-3 should depend on
the degree of confidence that the full-scale facility will perform as intended based
on the performance of the laboratory-scale models.
Alternatives Studied
First-of-a-kind projects often involve new technologies that have not been
proven, and it may not be clear at the outset that all the technologies will perform
as required. Hence efforts are needed to identify alternatives and to maintain
them until at least one has been proved successful. In many cases, early involve-
ment of and input from equipment vendors is essential to making good decisions.
The project planning and scheduling process should specify in the project sched-
ule the dates by which these technological decisions have to be made to avoid
extending the project completion date.
MANAGEMENT PLANNING AND CONTROL
As discussed above, management planning and control are the areas that
need the most improvement for DOE first-of-a-kind projects. The greater tech-
nical and organizational complexity, combined with the lack of experience that is
characteristic of first-of-a-kind projects, poses additional challenges for project
management. The following items address such management challenges.
Organizational Breakdown Structure
All human resources and specific competencies required for the project
should be recognized in the organizational breakdown structure. Consistent with
the work breakdown structure, the organizational breakdown structure identifies
the key project participants and assigns responsibilities. Of particular concern is
the early and clear identification of the owners and the users of the facility. This
has not always been clear from the outset.
Commitment Tracking System
A commitment tracking system monitors the fulfillment of responsibilities.
Procedures for assigning and tracking the commitments and responsibilities of all
the participating parties throughout the entire project are developed and resources
for the implementation are allocated.
Integrated Documentation System
Integrated information systems designed to collect, store, and process project-
related information need to be developed and implemented. These systems should
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be integrated to serve the needs of DOE project management, DOE users, con-
tractors, subcontractors, and regulators. DOE Order O 413.3 requires the use of
an earned value management system (EVMS). Effective use of EVMS requires
the integration of project costs with the project schedule, through a resource-
loaded project network capable of generating and tracking the budgeted cost of
work scheduled, the budgeted cost of work performed, and the actual cost of
work performed, for all contractors and subcontractors. To meet the require-
ments of O 413.3, an integrated cost and schedule system should be established as
soon as possible.
Risk Management
To address the greater uncertainty characteristic of first-of-a-kind projects,
an explicit risk management program should be undertaken, starting from the
earliest phases of preconceptual planning, and performed as a continuous process
throughout the life of the project.
In risk identification and assessment, all potential risk factors should be
recognized and evaluated. The methods for performing this evaluation depend
on the degree of uncertainty and complexity. They could range from the analysis
of failure modes and effects to probabilistic risk assessment. Each risk identified
as significant should have a risk mitigation and management plan, and the dem-
onstration of a satisfactory risk management plan should be a condition for
proceeding at every critical decision point.
FINDINGS AND RECOMMENDATIONS
Finding: First-of-a-kind projects have been and can be successfully managed
and executed by DOE, but they require particular care. The higher degree of
uncertainty that attends these projects requires managers who are experienced in
dealing with uncertainty and ambiguity. Not all project managers have this
ability. The best project managers and management systems more than pay for
themselves on first-of-a-kind projects by delivering projects on schedule with
little budget overrun.
Recommendation: DOE managers and acquisition executives should pay par-
ticular attention to the unique characteristics of first-of-a-kind projects by consid-
ering the issues discussed above for example, costs and benefits, scope, cost
and schedule budgets, constructability, alternatives, management planning, and
project controls at all critical decision points.
Representative terms from entire chapter:
breakdown structure
