In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”
Not everyone agrees completely with that old quote attributed to Theodore Roosevelt. Depending on the circumstances, doing nothing at times could be the best option. Still need more convincing? A study published this year by MIT Sloan titled Assessment of Back-up Plan, Delay, and Waiver Options at Project Gate Reviews would be a good place to start.
While project gate reviews might be better known for their applicability to product and project development, there are potential benefits to be gleaned by shippers and carriers who decide to apply some of the lessons learned.
MIT Sloan explains that most technical development projects go through a phase-gate process, with each gate serving as a decision point to either proceed to the next phase of the project or to cancel it. This process goes by several other names including phase review, stage gate, and toll gate. Regardless of the name used, the review represents an opportunity for managers to assess whether the product or system under development meets expectations and warrants additional investment. For a project already underway, the review provides an opportunity to decide whether to continue or cancel; a so-called “go/kill” moment.
MIT Sloan School of Management Professor Steven Eppinger and his colleagues have presented a new decision model to better represent the reality of project gate options. Using decision tree analysis, they show how organizations can estimate risk and the probability of success beyond “go” and “no go” options to make better gate decisions.
Eppinger explained: “The current literature doesn’t talk about these additional options. However, it is very common to switch to a backup plan, delay, or grant a waiver for a project when work is incomplete or there are still issues to be resolved at the time of the gate decision. Our model provides a tool for managers to analyze and assess risk with these options rather than relying on gut instinct.”
Going beyond the restrictions of a binary go/kill decision by adding the waiver, delay and backup plan options not only opens the possibility of keeping a doomed project alive, this can also result with a better project, as the opportunity to implement design improvements as part of a backup plan or during the delay period becomes available.
Management of Risk
One practitioner offers insights on how the gate review process functions in practice. “One of the principal challenges of project management is the effective management of risk. With the issues of risk in mind, one needs to appreciate the importance of balancing the often-competing factors of cost, quality and time. If any of these three factors is out of balance in some way, then the entire project may well be compromised,” said George Wall, managing director of Asgard Project Solutions.
“To the uninitiated, the MIT Sloan gate review process may be viewed as a hybrid between an inspection and test plan – a quality assurance engineer’s favorite tool – and the slightly more cerebral decision tree analysis, which may be more familiar in the C-suite with management consultants, rather than at the operational level.”
According to Wall, the key advantage of implementing the gate review process is improved decision-making transparency, with the objective of enhancing efficiency and profitability.
Bringing this a step closer to the transport sector, Wall clarifies that in practice in any gate review process, it is essential that the project in hand is split into a series of stages. The project may be the commissioning of a new bulk carrier, the opening of a new route or perhaps modifications to existing facilities.
“Stages that these projects are broken into may cover areas such as initial strategic review, detailed market analysis, order of cost calculations, followed by more detailed analysis and assessments until the final execution stage is reached,” Wall said.
Checking Internal Processes
Wall pointed out that teams applying phase gate reviews can also enhance internal approval processes.
“From our experience of working with clients on phase gate analysis, the principal difficulty participants have is the need to justify the status of a project to senior management at various stages. Historically, it may have been possible to achieve sign-off from a project based on a ‘business case,’ with limited tracking and follow up. However, with the project gate review process there is a need for constant assessment and evaluation of the viability and performance of a project. Although this may result in a rise in blood pressure for some, it is certainly in the best interests of the project.”
Initial reluctance to adopt a new decision-making tool can be countered by promoting its advantages. “By focusing on the best interests of the project, or the business, resistance to the gate reviews can be overcome and buy-in from the team members achieved,” Wall continued. “Initially, the team may view the project gate reviews as just more unnecessary administration imposed on them. However, when they are helped to understand that it is really about ensuring that the project is still fitting within what may be a highly dynamic environment, then the resistance starts to fall away and it is viewed as a tool with which to more effectively manage the multiple stages that a project will have to pass through.”
For a sector facing difficult market conditions, every available tool that can enhance competitiveness and efficiency, reduce costs and protect profitability would not only be welcome, but critical.
‘Stop and Think’
In Asgard’s experience, the principal benefit of the gate review approach is that it imposes a “stop and think” moment at various stages of a project life cycle. Wall added that this may result with evaluation of externalities such as the current market environment, in other words looking at whether the number of vessels in the market has changed since the project started or a review of internal issues such as capital expenditure plans and financing costs.
Summing up, Wall assessed the MIT Sloan study with a look at current practice: “If we are to be brutally honest, the work that MIT has done is more about highlighting how decision trees could be used in project gate reviews; after all decision trees themselves are nothing new and were presented, as we know them today, by [Ross] Quinlan in the 1970s. Notwithstanding, this process does result in a more rigorous tool providing enhanced decision making. In that sense it is a good thing and should be lauded.”
Decision-making processes are, of course, ubiquitous and decision trees are used knowingly, or otherwise, by everyone everyday. The question is whether stakeholders in the project and heavy-lift sector are consciously utilizing the full benefits of such analysis, and if there are additional advantages to be gained from expanding the process to capture additional variables resulting with a more useful and accurate selection of options.
Beginning at the conglomerate end of the breakbulk and project cargo company scale, one logistics professional described how an expanded gate review process could help to knock down silos between divisions within the company.
Describing his logistics department’s involvement with gate reviews as “indirect,” he describes a one-way information flow in which information is provided for the review, however, there is no participation in the evaluation of options generated. This leaves the logistics team out of the loop, having to anticipate potential outcomes. In practice, the solution has been to prepare two plans of action, expecting that one will be adequate to meet the needs of the eventual decision. Time wasted in preparing plans that are not needed could be avoided by including the logistics team in the evaluation of the options.
Benefits for Breakbulk
Turning to situations involving smaller scale stakeholders, decisions are perhaps more straightforward, yet expanding on the factors under review can still improve the quality of the decision-making process.
For the cargo owner transporting complete units that are ready for shipment and stockpiled in warehouses, the receipt of an order will trigger the “go” decision to book the transport with a minimal number of factors impacting the decision.
However, more complex situations involving units under production will require more planning for the shipper. Factors include unit completion date, freight rates, availability of lorries, ships and planes. Booking the transport early may have a benefit of securing low transport costs, however, if the unit is not ready for shipment at the agreed time there could be contractual penalties involved. Booking too late may create other disadvantages such as running the risk that there are no available transport options at the desired time of shipment.
“There are definitely advantages for a gate review process in heavy-lift cargoes,” Wall said, “particularly if the booking or the heavy-lift is contingent on the availability or completion of an asset, such as a drilling rig or a blowout preventer for a well. So either carrying out multiple gate reviews or a single one prior to the booking of the vessel is likely to save significant sums in demurrage costs; this is something that I have personal experience of. Let’s just say my client was very happy that they took my data during the review process rather than the forecast dates from the yard. It meant that the vessel arrived later, as construction was behind schedule, but it meant that all associated planning could be tailored accordingly, not just the bulk transport but also shipping all of the smaller items, which were sent by surface rather than the usual air freight, again more savings.”
Wall also felt that enhanced gate reviews could expand shippers’ choices regarding the mode of transport. “This means that the shipper can entertain the use of ocean transport for items that may usually be air freighted, due to their higher level of confidence in the forecast dates and timelines. The enhanced transparency in the decision-making process and increased confidence is likely to be of benefit to the ship owner as well, as he will be able to plan his asset usage more effectively.”
For carriers there are several potential advantages. For example, improved decision evaluation processes can put them in a better position when considering whether or not to accept proposals from shippers seeking to cancel or postpone the cargo transport. This would take into account factors such as opportunity costs, the impact on subsequent business, the positioning of assets, port congestion and other considerations.
Carriers arranging multimodal transport could benefit from enhanced gate review as consignments move from one mode to the next. For example, in a rail, sea, road operation, if the sea transport is delayed, the extended gate review could be applied to the decision regarding how long to keep the final road transport equipment in place before redeployment, using the aforementioned factors.
“Ultimately, what is least understood in these decisions is the probability of success,” Eppinger noted. “This method gives managers a straightforward way to analyze and assess their confidence that a project will move forward in multiple scenarios and make important decisions for their organizations.”
In a challenging marketplace all stakeholders will surely welcome the exposure of undetected opportunities for success. The MIT Sloan model might even help Theodore Roosevelt fans understand that doing nothing can sometimes be the most profitable decision.
Thomas Timlen is a Singapore-based freelance researcher, writer and spokesperson with 28 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.
Credit: Source images via Shutterstock; Illustration by Catherine Dorrough
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