USING SYSTEM DYNAMICS

TO UNDERSTAND PROJECT PERFORMANCE

A. De Marco 1, C. Rafele 1

Politecnico di Torino, Department of Production Systems and Business Economics, Italy

Abstract
System dynamics are useful tools to capture the behaviour of complex projects in an overall
perspective. If designed at the planning and basic design steps, a project model can help
management teams to simulate cost and time performance and to take corrective actions.
The system dynamic approach considers the project as a feedback pr ocess that contains a
variety of interrelated variables. It states that project overruns are the results of its internal
structure.
A model about construction project management is presented. It allows forecasting cost and
time overruns on the basis of a limited numbers of inputs describing the initial conditions. The
model is eventually tested on a case-study: the turn-key construction of a main constructed
facility.
Findings and results are discussed. In particular, the model shows some important
counterintuitive policy implications and managerial directions about monthly revision,
schedule pressure, productivity and other main aspects inferring the project performance.
Keywords: project dynamics, cost, time, performance
Introduction
In most industries projects encounter chronic delays and cost overruns, despite the rigorous
application of project management expertise and techniques. Some surveys suggest that
overruns of 40-200% are common (Morris and Hough 1987).
Changing external conditions, such as customer changes, procurement delays and resource
availability, affect or even obliterate the initial budgets and schedules, thus requiring costly
rework and additional resource procurement.
To stay on time and within the budget, project managers most often respond with schedule
pressure, overtime, hiring and quality reduction.
Such decisions make the project performance decrease even more: they cause lower
productivity and, as a consequence, more rework, longer delays and increasing costs in a
recurring, virtua lly exponential, causal reaction, which finally leads to divisive litigations
between customers and contractors over responsibility for missing goals (Sterman 1992).
It becomes visible that the internal operative structure and the managerial approach to project
control themselves are the key factor to understand the way the project will respond to
external changes.
While the Project Management traditional approach faces misbehaviors thanks to useful and
analytic techniques (such as PERT scheduling, risk assessment and contract management), the

new approaches, based on system dynamics, assume a holistic view of the project
organization focusing on the behavior of projects and its relation with managerial strategies
and corrective actions face to project control outcomes (Rodrigues and Bowers 1996).
Among different existing applications for project management i.e.: network-based tool with
integrated dynamic feedback relationships -, system dynamics permits to define and test a
formal computer-based model that considers the main variables and management actions in a
systemic perspective, thus enhancing decision-making at a strategic level.
In this sense, system dynamics modeling is useful at the starting stages (feasibility and
planning phases or as soon as the initial budget and the scheduled date become available) to
simulate the project trends and to early estimate cost and duration final ranges. More over, it
is of practical value to project managers during the project execution to control overruns and
adopt appropriate managerial approaches toward human resources and customers.
In this paper, first the main characteristics of project dynamics are presented and a
construction project management model is developed as a general tool; second, the model is
retrospectively validated on the basis of real project data; then, limitations are discussed
together with practical conclusions.
Traditional and systemic approaches to Project Performance: main references
The traditional approaches of project management produce reasonable estimates of overall
duration and costs, based on the premise that each element of the project is - more or less known.
This is possible both at the planning step and during project control. On the one hand, WBS
decomposition, CBS and network-based planning permit to schedule original work, define
budget and set the finish date for the total project; on the other hand, earned -value analysis
assures on-the-go estimates to completion, based on cost and time progress measurement.
Mainly, the estimates to completion at a given time can be calculated according to real
progress of work scheduled, work performed and actual cost:
1. estimated completion date = (budget-BCWP) / (budget-BCWS) / SPI * (scheduled
completion date-Time now) + Time now ;
2. estimated cost at completion = ACWP + (BAC budget at completion - BCWP) * CPI ;
SPI and CPI are defined, respectively, as the time schedule performance index and the cost
performance index (Project Management Institute 2004).
During the project execution, the estimate-to-completion process suggests, and sometimes
compels, project managers to take corrective actions enabling cost and time on-going
adjustments, namely to bring budget and schedule monthly review in line to the latest
forecasts. Consequently, a monthly revision process causes fluctuation and oscillation in
resource usage, work rates, productivity, quality performance and schedule pressure.
Briefly, project management is dynamic, updating variables as information becomes
available, and adapting the plan rather than keeping rigidly to the original. Accordingly,

projects are complex systems and are based on multiple causal feedback loops. The
characteristic dimension of project complexity requires supporting system dynamics modeling
to accompany and enhance traditional techniques (Williams 2002).
In particular, construction projects consist of multiple interdependent elements that are not
closely related in time and space; as a result, construction managerial linear decisions often
cause multiple unattended and even unintended side effects, which cannot be completely
understood using mental models and traditional analytic-based approaches only, such as risk
management causal techniques and other deterministic decision support systems.
The failure to consider these project dynamics may not only confirm time and cost overruns,
but also ignore opportunities and positive effects. Though, there are several successful stories
of project dynamic modeling to support construction management in different industries,
especially for plant, infrastructure and constructed facilities.
System dynamics method allows representing the feedback interrelationships between a
number of variables as an influence diagram (Coyle 1996).
Figure 1, for example, illustrates the schedule s lippage recurring cycle (Richardson and Pugh
1981). The arrows represent influences between the different factors; the plus or minus sign
indicates whether a positive change in the preceding variable has a positive or negative effect
on the next. Thus a higher estimated schedule slippage results in a longer adjustment to
schedule, which in turn causes a delayed schedule date. Eventually, a longer revised schedule
causes a shorter estimated schedule slippage.

revised scheduled
completion date

estimated schedule
slippage

adjustment to
+
schedule
Figure 1 A general illustration of the schedule review loop
Having described the complete causal feedback map for a project, the relations between the
variables are elicited, either from data describing past projects or in discussion to mental
models. A computer-based simulation may then be built (Ventana Systems 2005), whose
graphic outputs allow observing the project conduct over time.
In both academic and professional literature, system dynamic models examine the project
behaviour from different points of view, according to the problem that the model tries to
solve.

Some models place emphasis on the effect of deadline and milestone control, while others
focus on design and construction overlapping or fast-track production (Osgood 2003). There
are models considering change management (Park and Pea-Mora 2003), project control,
rework (Love and others 2002) and human resources management toward overwork, morale
and fatigue.
But mainly, some references have inspired this work: the R&D project model (Richardson
and Pugh 1981), its derived construction project management model (Chang, Ogunlana and
Saeed 1991), the model that investigates the effect of initial scope on final performance
(Chritamara, Ogunlana and Bach 2001) and the project dynamic management model by
Lyneis (1999).
The construction project management model
Model aims
Traditional project management techniques are developed and applied to manage attended
dynamics.
In addition, to help project managers understand and manage unintended and unattended
dynamics on project performance, a causal loop model, based on the concepts of system
dynamics, has been developed. Its main purpose is to provide a simple and practical tool,
which allow project managers forecast cost and time performance on the basis of a very little
number of information entries, namely the original conditions for scope, schedule and budget,
the time required to procure new resources (both human and material procurement process
average lead-time) and the size of scope changes the project may be stressed at a certain time
over customer request.
Running the model, at convenience, either during the initial definition or during the project
execution, can help project management teams better understand their own decisions and to
simulate, under different conditions, the options they may encounter.
Model description
Figure 2 illustrates, in the causal loop fashion, the complete structure of the model. For further
detail, including the output equation to obtain time and cost overruns, the model equations
describing the causal relations between variables are reported in Appendix 1.

BAC budget
at completion

original
budget
BCWP

spi
BCWS
ORIGINAL
SCHEDULE

changes
INITIAL
DELAY
scope changes

revised
compl date

WS

scheduled time
remaining
ORIGINAL
SCOPE

estimated
completion date

scheduled
completion date

time when
changes occur

scheduled
work rate

required
work rate
scope

pressure

months
between
revisions

cpi

+
estimated
delay

required
resources
rate

quality

Work
remaining

estimated costs
at completion

ACWP
required
resources

productivity
time to hire

resource
usage rate

AC

Resources

WP
work rate

Figure 2 - Causal map of the complete project management model for construction.
Primarily, the process execution is represented as a stock of Work remaining flowing into a
stock of Work performed (WP) through the work rate, defined as a function of scheduled
work rate, work quality and resource usage rate, which is in turn affected by
productivity effects. The work remaining is determined by scope, which equals 100% in
original conditions, plus or minus any scope change may occur at a given time during
construction. When WP attains the total scope level, the project is finished.
In detail, the actual work rate should be the same as the scheduled one, but managerial
pressure produces two opposite effects.
First, it soon generates less quality, which lowers the work rate. In the model, rework is
included in quality definition: in other words, if quality goes down, rework increases.
Second, pressure demands more productivity to have the work done in less time; so it requires
more resources, which needs a time lag (time to hire) to be available. As a result, the work
rate increases with a delay.
Meanwhile, other effect s are active , as described in the following. Briefly, the parallel
simultaneous effects of all causal loops can be understood only by a simulation, because
mental model could be an imperfect or partial understanding of project dynamics.
The model contains nineteen feedback loops affecting the variable estimated completion
date. The main feedback loops are illustrated in Figure 3, which define the estimate to
completion management process.
Loop 1 describes the schedule review process: a longer estimated completion date allows
project managers to set for a longer revised schedule, which in turn smoothes the work
schedule progress curve, the schedule value and the schedule performance index (SPI). At the

first time step , which is usually a one or two-month timeframe, a new finish date will be
estimated and, as a consequence, it will be shorter that the previous one. At the next step, the
new completion date will have a longer estimation again, and so on.
+

BCWS
-

BCWP +

spi +

estimated
completion date

WS
-

loop 1
+
revised
compl date

loop 3

estimated
delay

rev schedule +
compl date

productivity
-

pressure

required
resources
rate

required
resources

loop 2

quality

+
resource
usage rate

Work
remaining

WP

work
rate

Figure 3 Representation of the m ain reinforcing and balancing loops affecting project
performance in the complete project dynamics model
In other words, the loop 1 shows the dynamic behaviour of schedule management: if time is
firstly considered as a tight constraint, more than the project may require, or - in opposite
conditions - as an unimportant factor, managers will be engendering a schedule oscillation,
which will generate in turn instability to the project, such as fluctuations in resource usage,
procurement and performance. Moreover, it could take several mont hs to stabilise the project
in the right equilibrium status.
The better way to avoid such unstable behaviour is the one of finding the balancing scheduled
completion time and progress curve, but this task may be quite difficult for some reasons:
first, the project resides in uncertainty and may be affected by changes and external events
that deterministic planning is unable to totally understand; second, schedule planning and
control produce side effects, which in most cases are unexpected and, by somewhat,
unintended.
The Loop 2 in Figure 3 shows one of the side feedback effects for the scheduling process: it
reduces the balancing attitude of Loop 1 to stabilise schedule oscillations and, on the contrary,
reinforces and emphasizes errors in oversized or undersized time estimations. More precisely,
according to the reinforcing Loop 2, a longer estimated completion date makes a greater
estimated delay and an increasing managerial pressure, which in turn makes the work quality
and the work rate decrease. The final effect is an even worst SPI and a longer estimated
duration.

Meanwhile, schedule pressure produces another feed-back (Loop 3), which helps the first
loop to control schedule overruns. In fact, schedule pressure, with a short delay, produces a
lower productivity, mostly due to overwork and stress on human resources, thus requiring
more resources to keep the WP in line to the schedule. The new additional resources grant, in
turn, a better SPI and a reduced estimated date to completion.
The following graphs (Figure 4) demonstrate the effect of schedule pressure over quality and
review of scheduled completion date and vice-versa.

20

PRESSURE

40

60

20

40

60

QUALITY

0
20
40
REV. SCHEDULED DATE

60

Figure 4 Mutual behaviours of Estimated completion date, Quality and Schedule

pressure
One of the main assumptions of this model is the scheduled work S-curve considered as a
general logistic equation attaining the 100% progress (namely, the 100% of initial or changed
scope of work) when time equals the scheduled duration:
WS = scope/(0.9953+100*EXP(-(10/scheduled completion date)*Time)
Figure 5.a shows the described logistic S-curve in the case of scheduled work for a project
scheduled completion time of 24 months and a 100% scope of work.
The Figure 5.b presents the compared S-curves of Work Scheduled and Work Performed for a
casestudy of a 45 week-long project, an initial delay of 2.25 weeks and a schedule review
carried after 29 weeks, in no contract change conditions. Please note that at the revis ion dates,
the WP is far late from respecting the initial forecasts. As a result, the model realigns the
schedule to the actual situation (week 29 and week 58).
The graphs are directly exported from the model outputs.

150

100

100

50

50

0
0

10

20

30

40

50

60

70

0
0

10

20

30

40

50

60

70

80

90
100 110
Time (Month)

Figure 5.a Input curve of scheduled work

WS : test
WP : test

Figure 5.b WS and WP compared

The complete model presented in Figure 2 is mainly based on the three presented loops,
together with some other aspects, such as the possibility of setting the schedule review time
period or the economic factors related to budget cost and actual cost performance.
Also, the model describes how the project is controlled by a group of external variables,
which restrict the system. While running the model, it is possible to vary those external inputs
in order to get information on the project behaviour over different changing situations.
The model contains some user-inputs, which are defined as constant variables. The main ones
allow to set the project conditions relating to scope, time and costs:
1. Original scope: defined as 100% of the contract scope of work;
2. Changes and Time when changes occur: they permit to try the effects of changes
on the project behaviour. Most often, customers request changes during the project
execution; by changing this variable the project manager can test the effects on time
and cost of these changes at any step of the project life cycle;
3. Original schedule, which may be equal to the contract finish date;
4. Initial delay. Very often, agreed-upon starting dates are delayed for several reasons
(site availability, regulatory requirements, etc.); meanwhile, design and planning
activities are in progress and need changes. The Initial delay input allows simulations
in such conditions;
5. The Months between revisions variable permit to see how cost and time will be
changing if the schedule review is done on a different timeframe basis (i.e.: monthly
review, 6-month review, never, etc.);
6. Time to hire is the minimum required period to procure resources to the project, both
people and materials and equipment.
As mentioned, the main simulation outputs are the time and cost overrun calculations,
allowing project managers better estimate the project during the design phase, as well as
helping them during the project life-cycle.

System behaviour and policy implication

Several experiments in model running have been performed to observe policies implications
on the system behaviour. The results are summarized as below.
Monthly schedule adjustment is convenient only in changing conditions: if there is no change,
a monthly revision may increase project delay (for small values attaining 2-7% of the total
project duration). Schedule pressure helps to reduce the project completion date for little
variation from its standard value (1); if schedule pressure increases or decreases by big
values, it worsen the system behavior and increases the project duration.
Projects are able to respond to scope changes only if they do not occur after the work has
progressed by 30%. If changes are considered in the first phases, cost overruns will be finally
contained with the extra cost of scope change. After the 30% of work performed, extra cost
will exponentially raise. For example, according to several simulations, a 10% of extra works
when the WP is about 70% progress, could generate a 60% of cost overrun.
Also, procurement times are major factors affecting the project cost overruns. The model
simulation shows that short lead-times to hire new people and procure material may sensibly
reduce the project duration, but produce major extra costs. In opposite conditions, long leadtimes will contain costs while having longer completion dates.
The model should be a good testing field to adjust the procurement times step by step
according to the different performance of the project.
Model boundaries and limitations
The presented project model does not consider the feedback loops affecting the relations
between cost overruns and scope definition. It means that when cost raise, project managers
try to reduce scope and take corrective actions. These approaches will be considered in future
research, as factors balancing the maximum range outputs that the present model provides.
Also, to apply to real cases, it would be better to input the real curve of work scheduled
instead of a mathematical one. This real S-curve of work scheduled is the result of the
network-based planning. The simulation software has a functionality that permits to do it.
Model testing to a main infrastructure
As mentioned above, the model may be an effective analytical tool for early estimating and
for on-going corrective actions about cost and time performances. In addition, it could be a
valuable tool to assess the magnitude and sources of cost and schedule overruns in the context
of litigation (Sterman 1992).
The case-study presented in this paragraph was useful for a dispute over extra costs that the
contractor supported for requested changes during the construction of a major gas-steam
combined power station in Italy. Due to confidentiality, the names of both the facility and the
parties cannot be reported.
The model has been used to study retrospectively the performance of cost and time. In
particular, main changes (estimated at 12.5% of the initial budget) were introduced after 13

and half months. Starting from that moment, the contractor needed one month to procure the
additional resources required to have the work performed.
Starting from 24 months of baseline schedule, eventually the real project was accomplished in
35 months. The initial budget increased by 34% of the initial forecast.
120
100
80
60
40
20
0

Figure 7 Comparison between simulation the WP S-curve (black) and the real project one.
The results of the model are extremely similar: 29.03% of cost overruns and 38.75 months of
total duration. The WP simulation curve and the real one are shown in Figure 7.
Conclusions
The construction project modeling approach is of practical value to customers and contractors
because it assure both management teams the tools to better define the initial contract and
scope, and because it makes them aware about the risks they will pay for during the project
execution, thus creating a tight mutual involvement.
First, it is a contract management tool because it helps better defining the initial contract and
scope, and because it makes them aware about the risks they will pay for during the project
execution, thus creating a tight mutual involvement.
Second, it is a change management tool: it sets a common discussion and communication
platform to enable decision making together with comprehension and participation from the
contract counterparts.
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