An innovative uncertainty management framework to support contracting for product-service availability

Purpose – In the light of challenges experienced in cost estimation at the bidding stage of complex engineering services in the defence industry (e.g. contracting for availability), the purpose of this paper is to present a framework to manage the influence of uncertainty on cost estimates. Design/methodology/approach – The research applied the Soft Systems Methodology and benefitted from interaction with four major organisations in the defence industry through document sharing, semi-structured interviews, workshops, and case studies. Findings – The framework is composed of seven stages to plan, identify, prioritise, classify, and manage cost uncertainties. Through the validation of three case studies some of the key benefits of the framework were realised in project planning, uncertainty visualisation, and capability management. Research limitations/implications – The research has been applied in the defence sector in the UK and focuses on the bidding stage. Further research needs to be applied to confir...

[1]  Guy Fitzgerald,et al.  Contracts and Partnerships in the Outsourcing of IT , 1994, ICIS.

[2]  B. Boehm.  Software risk management: principles and practices , 1991, IEEE Software.

[3]  Nicola Morelli,et al.  Designing Product/Service Systems: A Methodological Exploration1 , 2002, Design Issues.

[4]  Jan C. Aurich,et al.  Configuration of product‐service systems , 2009 .

[5]  N. Agrawal,et al.  Winning in the aftermarket , 2006 .

[6]  V. M. Rao Tummala,et al.  Practices, barriers and benefits of using risk management approaches in selected Hong Kong industries , 1997 .

[7]  Danny Samson,et al.  Effective case research in operations management: a process perspective , 2002 .

[8]  T. Saaty.  Fundamentals of Decision Making and Priority Theory With the Analytic Hierarchy Process , 2000 .

[9]  Roger Miller,et al.  Strategizing for anticipated risks and turbulence in large-scale engineering projects , 2001 .

[10]  S. Cunningham,et al.  Techniques and methods for uncertainty management , 2008, PICMET '08 - 2008 Portland International Conference on Management of Engineering & Technology.

[11]  Serguei Netessine,et al.  Performance Contracting in After-Sales Service Supply Chains , 2007, Manag. Sci..

[12]  John Ahmet Erkoyuncu,et al.  Understanding service uncertainties in industrial product–service system cost estimation , 2011 .

[13]  John Ahmet Erkoyuncu,et al.  Service Uncertainty and Cost for Product Service Systems , 2011 .

[14]  Ronald Gleich,et al.  Benefits and uncertainties of performance‐based contracting in manufacturing industries , 2010 .

[15]  Steve Howard,et al.  Methods & tools: the rich picture: a tool for reasoning about work context , 1998, INTR.

[16]  S. Ward,et al.  Estimation and evaluation of uncertainty: a minimalist first pass approach , 2000 .

[17]  A. Akintoye,et al.  Risk analysis and management in construction , 1997 .

[18]  Terje Aven,et al.  On treatment of uncertainty in system planning , 2009, Reliab. Eng. Syst. Saf..

[19]  Bent Flyvbjerg,et al.  From Nobel Prize to Project Management: Getting Risks Right , 2006, ArXiv.

[20]  F. Knight.  The economic nature of the firm: From Risk, Uncertainty, and Profit , 2009 .

[21]  C. Lovelock.  Classifying Services to Gain Strategic Marketing Insights , 1983 .

[22]  T S Baines,et al.  State-of-the-art in product-service systems , 2007 .

[23]  Daniel Kindström,et al.  Development of industrial service offerings: a process framework , 2009 .

[24]  Rachel Cuthbert,et al.  The Impact of Contract Type on Service Provider Information Requirements , 2012, Int. J. Serv. Sci. Manag. Eng. Technol..

[25]  L. Hooper,et al.  Paying for performance: Uncertainty, asymmetric information and the payment model , 2007 .

[26]  Jim Freeman,et al.  The Influence of Experience and Information Search Styles on Project Risk Identification Performance , 2007, IEEE Transactions on Engineering Management.

[27]  Vandana Ramachandran,et al.  Managers' Judgments of Performance in IT Services Outsourcing , 2010, J. Manag. Inf. Syst..

[28]  H. Meier,et al.  Industrial Product-Service Systems—IPS2 , 2010 .

[29]  Ronald Gleich,et al.  Clarifying the concept of performance‐based contracting in manufacturing industries , 2010 .

[30]  Fritjof Capra,et al.  Criteria of systems thinking , 1985 .

[31]  Irene C. L. Ng,et al.  Outcome-based contracting: changing the boundaries of B2B customer relationships: an executive briefing , 2009 .

[32]  S. Frosdick.  The techniques of risk analysis are insufficient in themselves , 1997 .

[33]  S. C. Lenny Koh,et al.  Managing uncertainty in ERP-controlled manufacturing environments in SMEs , 2006 .

[34]  James V. Jones.  Integrated Logistics Support Handbook , 1995 .

[35]  R. Roy,et al.  A competitive framework for industrial product-service systems , 2009 .

[36]  Dimitri Kececioglu,et al.  Reliability engineering handbook , 1991 .

[37]  I-Tung Yang,et al.  Impact of budget uncertainty on project time-cost tradeoff , 2005, IEEE Transactions on Engineering Management.

[38]  Irene C. L. Ng,et al.  Outcome‐based service contracts in the defence industry – mitigating the challenges , 2010 .

[39]  R. Wise,et al.  Go Downstream: The New Profit Imperative in Manufacturing , 1999 .

[40]  John Ahmet Erkoyuncu,et al.  Cost uncertainty management and modelling for industrial product-service systems , 2011 .

[41]  Frank H. Gregory,et al.  Cause, Effect, Efficiency and Soft Systems Models , 1993 .

[42]  Valérie Mathieu.  Product services: from a service supporting the product to a service supporting the client , 2001 .

[43]  A. Tversky,et al.  Judgment under Uncertainty: Heuristics and Biases , 1974, Science.

[44]  Jay Lee,et al.  Maintenance: Changing role in life cycle management , 2004 .

[45]  John Ahmet Erkoyuncu,et al.  Data uncertainty assessment and information flow analysis for product-service systems in a library case study , 2010 .

[46]  Alessio Ishizaka,et al.  Analytic Hierarchy Process and Expert Choice: Benefits and limitations , 2009, OR Insight.

[47]  Dimitri Kececioglu,et al.  Maintainability, Availability and Operational Readiness Engineering Handbook , 1995 .

[48]  John Ahmet Erkoyuncu,et al.  Impact of Uncertainty on Industrial Product-Service System Delivery , 2012 .

[49]  Chris Chapman,et al.  Transforming project risk management into project uncertainty management , 2003 .

[50]  Peter Checkland,et al.  Systems Thinking, Systems Practice , 1981 .

[51]  S. Funtowicz,et al.  Combining Quantitative and Qualitative Measures of Uncertainty in Model‐Based Environmental Assessment: The NUSAP System , 2005, Risk analysis : an official publication of the Society for Risk Analysis.

[52]  Glen Mullineux,et al.  A framework for the requirements of capturing, storing and reusing information and knowledge in engineering design , 2002, Int. J. Inf. Manag..

[53]  Kevin McCormack,et al.  Supply Chain Risk in Turbulent Environments – A Conceptual Model for Managing Supply Chain Network Risk , 2009 .

[54]  Duncan McFarlane,et al.  Modelling information requirements in complex engineering services , 2012, Comput. Ind..

[55]  Guangjie Ren,et al.  Service‐driven manufacturing: Provision, evolution and financial impact of services in industrial firms , 2012 .

[56]  B. G Ludwig,et al.  Predicting the future: Have you considered using the Delphi methodology , 1997 .

[57]  Michael T. Pich,et al.  Managing project uncertainty: from variation to chaos , 2002, IEEE Engineering Management Review.

[58]  Christopher A. Voss,et al.  Case research in operations management , 2002 .

[59]  Chris Chapman,et al.  Project risk analysis and management - PRAM the generic process , 1997 .

[60]  Denzil G. Fiebig,et al.  Modelling the price, performance and contract characteristics of IT outsourcing , 2000, J. Inf. Technol..

[61]  M. Smithson.  Ignorance and Uncertainty , 1989, Cognitive Science.

[62]  Jack R. Meredith,et al.  Building operations management theory through case and field research , 1998 .

[63]  R. Roy,et al.  Cost modelling techniques for availability type service support contracts: a literature review and empirical study , 2010 .