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 Games
Original budget $230-385 million
Realistic cost identified by use of the successive principle $1230 Million
Budget after project was reorganised $800 million
Final building cost $800 million
Ericsson first mobile phone
Successive principle used in the decision making process
The idea of a cell-phone was not a high priority item for Ericsson
The successive principle revealed otherwise.
The phone became Ericsson’s greatest commercial success ever!
Procedure
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 B
Clarify 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 C
Identify 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!
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.
A unique multi-purpose arena
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.
Funding the project
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.
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 objective of the analysis:
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 uncertainty
3. Support the team building process and creativity
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
The scope includes all projects costs exclusive of loan charges and other
finance servicing costs.
Major pre-conditions
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
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.
Planned milestones
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
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
Excluding
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 reading
www.lichtenberg.org
Proactive management of uncertainty
using the successive priciple, S. Lichtenberg (2000 )