Tunnel vision: going deeper
In part 1 of this 3 part blog, I introduced the challenge of realising benefits on large, very long-term programmes. In such cases, disruptive factors beyond the scope of the programme may often mean that, despite delivering outputs, changes in the environment prevent intended benefits from materialising. I also challenged how well organisations and P3M professionals are equipped to identify and manage such risks.
Read the 1st part of this blog - Tunnel vision
Let us for a moment put aside traditional risks identified within an immediate project or programme environment, such as those impacting time, cost and quality. For this discussion, I’d like to focus on a specific subset of risks that fall into two groups:
- External risk events beyond the influence of the programme, such as technological, political or economic change, which can act to prevent outcomes being translated into benefits.
- Weaknesses in assumptions made on how outcomes will result in the desired benefits. In other words, risks that underpinning assumptions and models prove to be invalid.
The Airbus A380 provides a good case study for both. When the design was conceived, in the late '80s to early '90s, Boeing's 747 dominated long-haul routes, and Airbus wanted an aircraft that could compete. The business case for developing their own 'Super Jumbo’, at a programme cost estimated up to €28 billion, hinged on two key assumptions, linked to the 747's own success. Firstly, that global demand on long-haul routes, between a small number of major 'hub' airports, would continue to increase. With ample demand to fill seats, the principle of 'bigger is better' would apply, favouring ever larger jets, particularly in congested airports where the number of flights may be limited. Secondly, it was assumed that the best way to maximise fuel efficiency (measured in cost per seat per mile), and thus the most profitable economic model, was to operate aircraft that carried more passengers. Hub airports could provide the longer runways and wider taxiways they required, and increased profitability would justify the high price tag (an A380 today costs $432 million).
However, ten years after first delivery, today only 317 have been ordered against projections of 1,400 over 20 years. Airbus currently produces only eight per year. Why has demand not materialised? If we re-examine the two assumptions, we now see that new, smaller (and cheaper) jets such as the 787 Dreamliner and A350 can in fact compete with the A380 on cost per seat, per mile. Technological advances mean more fuel-efficient engines, and lighter airframes using composite materials; the assumption that bigger aircraft would continue to be more efficient was proven incorrect. At the same time, airlines have struggled to fill so many seats on major hub routes (e.g. 525 seats on an A380, versus a Dreamliner with up to 296), because demand has shifted. Passengers can now choose to fly non-stop, without stop-overs at hubs, between smaller regional airports from which the Super Jumbo cannot operate. That market shift was enabled by those same improvements in fuel consumption, and hence range, in smaller jets.
Despite the programme delivering a capability, external risk events impacted to negate the economic benefits expected, by disrupting the market landscape. As Chris Tarry, an aviation industry analyst commented "In the time between having something on the drawing board and getting a new type into service, things change.” Now use of the A380 may be limited to more niche markets, where passenger demand is still concentrated around hub routes and the economics still make sense. Sales have been heavily reliant on some such airline operators in the Middle East, but more broadly the future viability of the A380 looks uncertain.
How can we advise our clients to manage such external risks on a practical level, when the implications for a company are potentially so vast, and the causal factors so complex? In the depths of the Work Breakdown Structure looking at more immediate risks to time, cost and quality, how do we check the customer has their head up and eyes open to these strategic risks? Where should we look for guidance?
In part three, I argue that advice from the mainstream P3M methodologies for such challenges is limited, but will also identify several concepts we can employ effectively, together with organisational behaviours that may make the difference between success and failure.