Building Options in the Project Front-end: Integrating Strategy, Execution, and Option fees
BUILDING OPTIONS IN THE PROJECT FRONT-END: INTEGRATING
STRATEGY, EXECUTION, AND OPTION FEES
Principal Investigator (PI): Nuno Gil, PhD, Senior Lecturer (Associate Professor), Deputy
Director of the Centre for Research in the Management of Projects, Manchester Business
School, The University of Manchester
ABSTRACT
This proposal aims to develop, test, and validate a method that can guide project teams to
integrate front-end strategizing, execution, and option fees in asset acquisition projects, e.g.,
large-scale infrastructure, defence systems. Project delivery of these complex systems unfolds
under conditions of uncertainty. Major sources of uncertainty are the ways in which events
external to the project affect the strategy of the client. Front-end strategizing is fundamental
to avoid much wasteful iteration during project execution under uncertainty. This involves
eliciting information about possible futures from relevant stakeholders, risk analysis and
mitigation, scenario and contingency planning. It also involves developing a project
definition that can flex to economically accommodate evolution in the client requirements
over time. Taken together, these investments help project teams reconcile the demands for
efficiency, i.e., deliver on time, on budget, with agreed quality, with the demands for
effectiveness, i.e., ensure the outcome meets the needs of the client regardless of whether
these are stable or volatile. But practice still lacks a method to help project teams connect
upfront the knowledge about possible futures to the project definition, and accordingly, leave
options open in the design brief. This study proposes to bridge this gap. It will develop the
method deductively, combining research in project risk management and real options. The
study will benefit from the contribution in kind of Network Rail. Access to expert-knowledge
and real-world project data will enable to validate the usability of the method and the extent
to which its adoption adds value enough to pay off the investment. The application of realoptions pricing models will enable to verify the correctness of the outcome for specific cases.
The method will be relevant to practice as project clients are starting to incorporate option
fees in contracts with suppliers.