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	<title>Project Management Solutions &#8211; CÔNG TY TNHH MỘT THÀNH VIÊN GIẢI PHÁP QUẢN LÝ DỰ ÁN VIỆT NAM</title>
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		<title>Managing Complex and High-Uncertainty Projects</title>
		<link>https://pmsolutions.vn/en/insights-post/managing-complex-and-high-uncertainty-projects/</link>
		
		<dc:creator><![CDATA[quantri]]></dc:creator>
		<pubDate>Fri, 17 Apr 2026 09:55:40 +0000</pubDate>
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					<description><![CDATA[In an increasingly volatile and uncertain business and infrastructure development environment, large-scale projects face challenges that methodologies designed for stable conditions cannot adequately address.]]></description>
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<p>&nbsp;</p>
<p class="hero-sub"><em><strong><span style="color: #000080; font-size: 16px;">Why traditional project management methods fall short — and what methodology genuinely fits the realities of modern complex projects.</span></strong></em></p>
<div class="hero-meta"><strong><span style="color: #000080; font-size: 16px;"><span class="author">Truong Van Thien &#8211; </span>Founder &amp; Director · PM Solutions Vietnam LLC</span></strong></div>
<p class="lead" style="text-align: justify;"><span style="color: #000080;">In an increasingly volatile and uncertain business and infrastructure development environment, large-scale projects face challenges that methodologies designed for stable conditions cannot adequately address. This article examines the nature of complex, high-uncertainty projects, identifies the shortcomings of traditional approaches, and presents a project management methodology fit for modern realities.</span></p>
<h2 class="section-head" data-num="01 — Context"><span style="color: #000080;">1. Projects in a BANI World</span></h2>
<p style="text-align: justify;"><span style="color: #000080;">The world has changed profoundly since the classical project management methods of the 1950s and 1960s were first systematised. The concept of <strong>VUCA</strong> (Volatile, Uncertain, Complex, Ambiguous) emerged in the 1990s to describe the post-Cold War environment — yet it no longer captures the full texture of today&#8217;s reality. Futurist Jamais Cascio proposed the <strong>BANI</strong> framework as a more accurate description of the world we now inhabit.</span></p>
<div class="bani-grid">
<div class="bani-card" style="text-align: justify;"><span style="color: #000080;"><span class="letter">B (</span><span class="word">Brittle): </span>Systems appear robust yet collapse suddenly when pressure exceeds a threshold</span></div>
<div class="bani-card" style="text-align: justify;"><span style="color: #000080;"><span class="letter">A (</span><span class="word">Anxious): </span>Every decision carries consequences. Anxiety spreads through organisations at every level</span></div>
<div class="bani-card" style="text-align: justify;"><span style="color: #000080;"><span class="letter">N (</span><span class="word">Non-linear): </span>Small causes produce large effects and vice versa. Effort is disproportionate to outcome</span></div>
<div class="bani-card" style="text-align: justify;"><span style="color: #000080;"><span class="letter">I (</span><span class="word">Incomprehensible): </span>Data is abundant yet meaning remains elusive. Traditional logic is insufficient</span></div>
</div>
<p style="text-align: justify;"><span style="color: #000080;">In a BANI context, projects no longer unfold on a stable foundation — they must continuously adapt to shifting conditions. Supply chain disruptions, mid-project contractor insolvency, regulatory changes, geopolitical shocks, disruptive technology: all of these transform many large projects into perpetually moving targets, far removed from the picture envisaged at approval.</span></p>
<h2 class="section-head" style="text-align: justify;" data-num="02 — Classification"><span style="color: #000080;">2. Defining Complex, High-Uncertainty Projects</span></h2>
<p style="text-align: justify;"><span style="color: #000080;">&#8220;An eXtreme project is a complex, high-speed, self-correcting venture during which people and their interactions take precedence over processes and tools as a means of producing desired results under turbulent and high-uncertainty conditions.&#8221;</span></p>
<p style="text-align: justify;"><span style="color: #000080;"><cite>— Doug DeCarlo, eXtreme Project Management, Jossey-Bass/Wiley, 2004 [1]</cite></span></p>
<p style="text-align: justify;"><span style="color: #000080;">Not every project is complex. The most important step before selecting a management methodology is <strong>correctly diagnosing the nature of the project</strong>. Drawing on multiple authoritative sources, complex, high-uncertainty projects can be identified through five distinguishing characteristics:<sup class="ref">[1][2][3][4][5]</sup></span></p>
<div class="feature-grid" style="text-align: justify;">
<div class="feature-item">
<ul style="list-style-type: circle;">
<li><span style="color: #000080;"><strong>Continuously shifting objectives</strong>: Requirements cannot be fully defined or fixed from the outset. Uncertainty is the normal condition, not the exception.</span></li>
<li><span style="color: #000080;"><strong>Multiple interdependent stakeholders</strong>: Multiple organisations, interests and perspectives must be reconciled.</span></li>
<li><span style="color: #000080;"><strong>High systemic uncertainty and risk</strong>: Cause and effect are non-linear. A problem at one point can cascade in unpredictable ways across the whole system.</span></li>
<li><span style="color: #000080;"><strong>Change is the norm</strong>: Change is not an exception to be resisted but a natural condition requiring proactive adaptation.</span></li>
<li><span style="color: #000080;"><strong>Extreme multi-directional pressure</strong>: Political, financial, technical and time pressures act simultaneously, creating an exceptionally demanding decision-making environment.</span></li>
<li><span style="color: #000080;"><strong>No clear precedent</strong>: It is not possible to reference a comparable past project and simply replicate its plan. Every step is discovery in real time.</span></li>
</ul>
</div>
</div>
<p style="text-align: justify;"><span style="color: #000080;">The <em>PMBOK® Guide</em>, Eighth Edition (2025), explicitly acknowledges the necessity of <strong>tailoring</strong> — adjusting the methodology to the project context. No single approach fits every type of project. This represents a significant advance over earlier editions, where methodology tended to be applied as a rigid formula regardless of project type.<sup class="ref">[4]</sup></span></p>
<h2 class="section-head" style="text-align: justify;" data-num="03 — The Problem"><span style="color: #000080;">3. Why Traditional Methods Are No Longer Sufficient</span></h2>
<p style="text-align: justify;"><span style="color: #000080;">Traditional project management — with detailed Work Breakdown Structures, rigid Gantt schedules and control through the Time–Cost–Scope triangle — was designed for environments where objectives can be clearly defined from the start and conditions remain relatively stable. In that context, these methods work well.</span></p>
<p style="text-align: justify;"><span style="color: #000080;">Applied to complex, high-uncertainty projects, however, they generate dangerous <strong>&#8220;thinking traps&#8221;</strong>:</span></p>
<table class="compare-table">
<thead>
<tr>
<th><span style="color: #000080;">Dimension</span></th>
<th class="trad"><span style="color: #000080;">Traditional Approach</span></th>
<th class="modern"><span style="color: #000080;">Complex &amp; High-Uncertainty Projects</span></th>
</tr>
</thead>
<tbody>
<tr>
<td><span style="color: #000080;">Planning</span></td>
<td class="neg"><span style="color: #000080;">Detailed plan fixed from the start; strict adherence to baseline</span></td>
<td class="pos"><span style="color: #000080;">Just-enough planning; continuous updating against reality</span></td>
</tr>
<tr>
<td><span style="color: #000080;">Change</span></td>
<td class="neg"><span style="color: #000080;">Resist and tightly control all change</span></td>
<td class="pos"><span style="color: #000080;">Welcome and proactively adapt to change</span></td>
</tr>
<tr>
<td><span style="color: #000080;">Success</span></td>
<td class="neg"><span style="color: #000080;">On-time, on-budget, on-scope vs. original baseline</span></td>
<td class="pos"><span style="color: #000080;">Real value delivered to stakeholders</span></td>
</tr>
<tr>
<td><span style="color: #000080;">Leadership</span></td>
<td class="neg"><span style="color: #000080;">PM makes all decisions top-down</span></td>
<td class="pos"><span style="color: #000080;">Collective leadership; tiered decision authority</span></td>
</tr>
<tr>
<td><span style="color: #000080;">Information</span></td>
<td class="neg"><span style="color: #000080;">Periodic reporting filtered through multiple layers</span></td>
<td class="pos"><span style="color: #000080;">Real-time, unfiltered information flow</span></td>
</tr>
<tr>
<td><span style="color: #000080;">Contractors</span></td>
<td class="neg"><span style="color: #000080;">Contract management — unilateral compliance</span></td>
<td class="pos"><span style="color: #000080;">Relationship management — collective commitment</span></td>
</tr>
<tr>
<td><span style="color: #000080;">Learning</span></td>
<td class="neg"><span style="color: #000080;">Lessons Learned after the project closes</span></td>
<td class="pos"><span style="color: #000080;">Continuous learning loops embedded throughout</span></td>
</tr>
</tbody>
</table>
<p style="text-align: justify;"><span style="color: #000080;">The International Centre for Complex Project Management (ICCPM) finds that in large-scale, complex endeavours, <em>&#8220;leadership complexity is the decisive success factor — surpassing technical competence.&#8221;</em> Projects fail not for want of technical methodology but for lack of a collective leadership framework suited to a complex context.<sup class="ref">[3]</sup></span></p>
<h2 class="section-head" style="text-align: justify;" data-num="04 — The Solution"><span style="color: #000080;">4. eXtreme Project Management Methodology</span></h2>
<p style="text-align: justify;"><span style="color: #000080;">The methodology presented below is synthesised from multiple authoritative sources, combining international academic insight with Vietnamese practical experience. There is no single &#8220;perfect method&#8221; for every situation — the goal is to provide a thinking framework and toolkit that can be tailored to the specific characteristics of each project.</span></p>
<h3 class="sub-head" style="text-align: justify;"><span style="color: #000080;">4.1 Foundational Mindset — From Newtonian to Adaptive Thinking</span></h3>
<p style="text-align: justify;"><span style="color: #000080;">DeCarlo (2004) describes this as a shift from the <strong>Newtonian mindset</strong> (the universe is fully predictable and controllable) to a <strong>Quantum mindset</strong> (reality constantly evolves; outcomes depend on context and interaction).<sup class="ref">[1]</sup> Eastern philosophy expresses the same idea with elegant precision through the spirit of the I Ching: <em>&#8220;Adapt to the moment while holding fast to what is right.&#8221;</em><sup class="ref">[5]</sup></span></p>
<p style="text-align: justify;"><span style="color: #000080;">This shift has three practical consequences: (i) change is a companion, not an enemy; (ii) the plan is a navigational tool, not a binding contract; (iii) value created for stakeholders matters more than fidelity to the original baseline.</span></p>
<h3 class="sub-head" style="text-align: justify;"><span style="color: #000080;">4.2 Governance Framework — Sponsor, PM and Win Conditions</span></h3>
<p style="text-align: justify;"><span style="color: #000080;">Both PRINCE2™ and DeCarlo emphasise one core governance principle: <strong>a clear separation between the Sponsor role (strategic direction) and the Project Manager role (day-to-day management).</strong><sup class="ref">[1][2]</sup> The Sponsor is not a passive approver — they own the Business Case and define the conditions under which the project is deemed a success.</span></p>
<div class="framework" style="text-align: justify;">
<h4><span style="color: #000080;">Win Conditions — Replacing the rigid T-C-S triangle</span></h4>
<ul>
<li><span style="color: #000080;"><span class="step-label">MUST-MEET: </span>Non-negotiable conditions — must be achieved regardless.</span></li>
<li><span style="color: #000080;"><span class="step-label">OPTIMIZE: </span>The objective to be optimised within available constraints. </span></li>
<li><span style="color: #000080;"><span class="step-label">ACCEPTABLE: </span>An acceptable range for remaining criteria. This permits principled trade-offs when circumstances require them.</span></li>
</ul>
</div>
<p style="text-align: justify;"><span style="color: #000080;">Once the Sponsor has established and communicated Win Conditions to all parties, every trade-off decision during execution has a consistent foundation — and the PM no longer needs to escalate to the top of the organisation every time schedule, cost and quality come into conflict.</span></p>
<h3 class="sub-head" style="text-align: justify;"><span style="color: #000080;">4.3 Flexible Delivery Model — VSIRD</span></h3>
<p style="text-align: justify;"><span style="color: #000080;">DeCarlo&#8217;s Flexible Project Model operates through the <strong>VSIRD</strong> cycle: Visionate → Speculate → Innovate → Reevaluate → Disseminate.<sup class="ref">[1]</sup> Rather than a linear plan running from start to finish, the project is organised into short Time-boxes, each with clear deliverables and concluded by a substantive review.</span></p>
<div class="callout callout-teal" style="text-align: justify;">
<h4><span style="color: #000080;">The VSIRD Cycle in Practice</span></h4>
<p><span style="color: #000080;"><strong>Visionate:</strong> Establish a collective vision of the objectives and value to be created. All parties look in the same direction.</span></p>
<p><span style="color: #000080;"><strong>Speculate:</strong> Develop a &#8220;just enough&#8221; plan for the next phase. Just-in-time planning — no detailed scheduling far into an uncertain future.</span></p>
<p><span style="color: #000080;"><strong>Innovate:</strong> Execute. Surface risks early through rapid testing — &#8220;Fast Failures&#8221; so learning happens before costs escalate.</span></p>
<p><span style="color: #000080;"><strong>Reevaluate:</strong> Substantive review — &#8220;Is this still worth doing?&#8221; Not merely a progress report, but an evidence-based Go / Adjust / No-go decision.</span></p>
<p><span style="color: #000080;"><strong>Disseminate:</strong> Harvest and share lessons learned. The next cycle begins from the foundation of what has been learned.</span></p>
</div>
<h3 class="sub-head" style="text-align: justify;"><span style="color: #000080;">4.4 Collective Leadership</span></h3>
<p style="text-align: justify;"><span style="color: #000080;">ICCPM emphasises that in complex projects, no single individual — however talented — can command every decision. <strong>Collective Leadership</strong> does not mean decision by committee; it means building a clear authority framework: who decides what, at which level, within what timeframe.<sup class="ref">[3]</sup></span></p>
<p style="text-align: justify;"><span style="color: #000080;">This requires <strong>three leadership levels</strong> working in alignment: the Sponsor level (strategic direction and Win Conditions ownership); the Project Director level (integration coordination and tactical decisions); and the Execution level (day-to-day operational decisions within delegated authority).</span></p>
<h3 class="sub-head" style="text-align: justify;"><span style="color: #000080;">4.5 Real-Time Communication and a Culture of Trust</span></h3>
<p style="text-align: justify;"><span style="color: #000080;">One of the most common pathologies of complex projects is the <em>&#8220;watermelon effect&#8221;</em> — green on the outside, red on the inside. Information is filtered through multiple layers before reaching leadership, and by the time a problem is recognised it has already become a crisis.<sup class="ref">[5]</sup></span></p>
<p style="text-align: justify;"><span style="color: #000080;">The solution is not more reports — it is building a <strong>culture of trust</strong> that allows bad news to surface early without penalty. DeCarlo calls this &#8220;Honest Communication&#8221; — one of the core shared values that must be cultivated in a complex project.<sup class="ref">[1]</sup> Practical tools include daily stand-up meetings (15–30 minutes), structured periodic Reevaluate Sessions, and — critically — the genuine, active presence of the Sponsor at key decision points.</span></p>
<h3 class="sub-head" style="text-align: justify;"><span style="color: #000080;">4.6 Focus on Value and Benefit Realisation</span></h3>
<p style="text-align: justify;"><span style="color: #000080;">The <em>PMBOK® Guide</em>, Eighth Edition (2025), places <strong>Focus on Value</strong> as the second of its six core principles.<sup class="ref">[4]</sup> Project success is not measured by adherence to the plan but by the real value created for the organisation and its stakeholders.</span></p>
<p style="text-align: justify;"><span style="color: #000080;">This requires an important shift in the questions asked: instead of <em>&#8220;Are we on plan?&#8221;</em>, the question must become <em>&#8220;Is this project still worth continuing? And if so, in what direction?&#8221;</em> — which is precisely the fourth of DeCarlo&#8217;s four Business Questions.<sup class="ref">[1]</sup></span></p>
<h4 style="text-align: justify;"><span style="color: #000080;">Summary — The 6 Pillars of xPM Methodology</span></h4>
<p style="text-align: justify;"><span style="color: #000080;">Drawing on the five source frameworks, the methodology for managing complex, high-uncertainty projects rests on six mutually reinforcing pillars:</span></p>
<ul style="text-align: justify;">
<li><span style="color: #000080;">01. Adaptive thinking — Quantum Mindset over Newtonian Mindset</span></li>
<li><span style="color: #000080;">02. Clear governance framework — Win Conditions over rigid T-C-S targets</span></li>
<li><span style="color: #000080;">03. Flexible delivery model — VSIRD with Time-boxes and Reevaluate sessions</span></li>
<li><span style="color: #000080;">04. Collective leadership — Clear three-tier decision authority</span></li>
<li><span style="color: #000080;">05. Substantive communication — Culture of trust and real-time information flow</span></li>
<li><span style="color: #000080;">06. Value orientation — Focus on Value and Benefit Realisation throughout</span></li>
</ul>
<h2 class="section-head" style="text-align: justify;" data-num="05 — Evidence"><span style="color: #000080;">5. From Theory to Practice</span></h2>
<p style="text-align: justify;"><span style="color: #000080;">eXtreme Project Management methodology is not abstract theory. International experience — most notably the Vogtle Units 3 &amp; 4 nuclear power project in the United States (USD 35 billion) — demonstrates that when governance structure and systematic learning loops are properly established, the results are measurable. Hot functional testing at Unit 4 was completed in significantly less time than at Unit 3, thanks to structured lessons-learned applied from one unit to the next — and both units achieved 95–100% of design capacity from the earliest months of commercial operation.</span></p>
<p style="text-align: justify;"><span style="color: #000080;">In Vietnam, large energy projects — particularly those in recovery following contractor failure, or transitioning to multi-package delivery models — are exactly the environment where this methodology is most needed. Not because the teams lack capability, but because the environment has changed to the point where new tools are required.</span></p>
<p style="text-align: justify;"><span style="color: #000080;">The practical lesson from field experience: <em>&#8220;To recover a troubled project, we need a different way of thinking — one that comes with responsibility and action. We must shift from &#8216;move fast, win fast&#8217; to &#8216;move steadily, advance surely&#8217;: tracking against an overall recovery plan, completing each element phase by phase, and distilling experience at each stage to update and adjust the plan for the next.&#8221;</em><sup class="ref">[5]</sup></span></p>
<div class="references" style="text-align: justify;">
<h3><span style="color: #000080;">References</span></h3>
</div>
<ol>
<li style="text-align: justify;"><span style="color: #000080;">DeCarlo, D. <em>eXtreme Project Management: Using Leadership, Principles, and Tools to Deliver Value in the Face of Volatility.</em> Jossey-Bass/Wiley. 2004.</span></li>
<li style="text-align: justify;"><span style="color: #000080;">The Office of Government Commerce (UK-OGC). <em>Managing Successful Projects with PRINCE2™.</em> 2009.</span></li>
<li style="text-align: justify;"><span style="color: #000080;">International Center for Complex Project Management (ICCPM). <em>The Game Changer in Large Scale Complex Projects. Leadership in Complex Projects.</em> 2018.</span></li>
<li style="text-align: justify;"><span style="color: #000080;">Project Management Institute (PMI). <em>PMBOK® Guide — Eighth Edition.</em> 2025.</span></li>
<li style="text-align: justify;"><span style="color: #000080;">Truong Van Thien. <em>Project Management: True Understanding, Genuine Action.</em> Construction Publishing House, Vietnam. 2025.</span></li>
</ol>
<p>&nbsp;</p>
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			</item>
		<item>
		<title>The Solutions for Recovery of Troubled Projects</title>
		<link>https://pmsolutions.vn/en/insights-post/the-solutions-for-recovery-of-troubled-projects/</link>
		
		<dc:creator><![CDATA[vina_admin]]></dc:creator>
		<pubDate>Mon, 15 Dec 2025 03:43:19 +0000</pubDate>
				<guid isPermaLink="false">https://54536.phuha.vinawebsite.vn/insights-post/van-de-cap-thiet-cuu-van-du-an-truc-trac/</guid>

					<description><![CDATA[Saving a troubled project is about "saving" the investment that the organization or business has made in that project, with the goal that after the rescue is complete, the project will still deliver value and benefits to the organization, business, and key stakeholders. Successful project rescue also aims to restore the organization's position and reputation, and to bring happiness to those who genuinely worked on the project!]]></description>
										<content:encoded><![CDATA[<div style="text-align: justify;">A project is considered to be in trouble when it exhibits any of the signs below.</div>
<div style="text-align: justify;">&#8211; Project Progress: Disbursements are lower than planned; Sub-projects or related projects are halted; The actual project progress cumulative curve (S-curve) is skewed downwards and tends to increasingly diverge from the planned curve.</div>
<div style="text-align: justify;">&#8211; Communication and Stakeholder Relations: Project challenges and outstanding issues are not raised at project review meetings; There is no consensus among stakeholders on how to assess problems and solutions at the meeting; Relationships and cooperation between stakeholders are rapidly deteriorating.</div>
<div style="text-align: justify;">&#8211; Project Costs: Project completion costs are projected to exceed the approved total investment.</div>
<div style="text-align: justify;">&#8211; Project Schedule: Project completion milestones are not clearly defined (accompanied by a feasible project schedule); Deadlines for key project milestones are delayed compared to the planned schedule.</div>
<div style="text-align: justify;">&#8211; Project Scope: Project requirements are frequently proposed to change; There is no consensus among parties on certain work scopes.</div>
<div style="text-align: justify;">&#8211; Project Quality: The number of quality non-compliance issues is increasing, and there is a lack of control and corrective measures.</div>
<div style="text-align: justify;">&#8211; Project Resources: Inability to allocate human resources suitable for the project requirements; A stressful and distrustful project work environment; Project members do not properly understand the situation and nature of the project issues.</div>
<div>
<div style="text-align: justify;"></div>
<div style="text-align: justify;">Project salvage involves applying reasonable solutions and methods to re-establish the project&#8217;s scope, schedule, and costs while still achieving the benefits and value the project brings to the organization, business, and key stakeholders. Once the decision to salvage a troubled project has been made, the project owner needs to decide early and act urgently and comprehensively. The longer the delay, the greater the costs incurred, and the more complex and difficult the solutions become.</div>
<div style="text-align: justify;">As Albert Einstein once said, &#8220;We cannot solve problems with the same way we created them.&#8221; Similarly, to address troubled projects, we need a different mindset—a mindset coupled with responsibility and action—instead of the old way of thinking and doing things that has allowed project problems to accumulate and worsen.</div>
<div>
<div style="text-align: justify;">To change mindsets and approaches, we need a &#8220;change of leadership,&#8221; a search for the right project leader. This person should possess the ethical qualities to build trust with stakeholders; be able to inspire and rekindle the enthusiasm and spirit of a dwindling project team; maintain a firm stance in ensuring the achievement of the project&#8217;s and the organization&#8217;s/business&#8217;s common goals and interests; and have the courage to lead their project management team through numerous challenges and obstacles to achieve the ultimate objectives.</div>
<div style="text-align: justify;">Another crucial aspect in salvaging a troubled project is accurately assessing the project&#8217;s current situation and identifying the root causes of the problems. We need to slice the &#8220;watermelon&#8221; to see through the situation, comprehensively assess the value and benefits of the project, and establish new goals regarding quality, scope, cost, schedule, etc.</div>
<div style="text-align: justify;">The solutions proposed to achieve these new goals need to be systematic and synchronized from the highest leadership level of the organization or enterprise down to the project management board, and then to the project management organization, with clearly defined roles and accountability.</div>
<div>
<div style="text-align: justify;">The key to the success of project salvage is that the highest-level leadership of the organization or business must be fully and transparently communicated, and they also need to proactively engage and make timely decisions on project issues within their authority, avoiding making numerous promises that are then not fulfilled.</div>
<div style="text-align: justify;">During the project salvage process, the project management organization needs to apply appropriate methods and approaches, shifting from the &#8220;quick win&#8221; approach of conventional project management to a &#8220;steady, steady progress&#8221; approach, adhering to the overall salvage plan, completing each task set out in each salvage phase, and summarizing results and experiences from each phase to update and adjust the implementation plan for the next phase. Throughout each implementation phase, the project management organization needs to communicate transparently and promptly with stakeholders and implement strict management and control measures to prevent deviations from the norm and avoid the project falling back into crisis.</div>
<div style="text-align: justify;">Saving a troubled project is about &#8220;saving&#8221; the investment that the organization or business has made in that project, with the goal that after the rescue is complete, the project will still deliver value and benefits to the organization, business, and key stakeholders. Successful project rescue also aims to restore the organization&#8217;s position and reputation, and to bring happiness to those who genuinely worked on the project!</div>
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<div style="text-align: right;"><em>Excerpt from the book &#8220;Project Management: Understanding It Right and Doing It Right&#8221;</em></div>
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		<title>Managing Contract Interfaces During the Investment Implementation of Thermal Power Plant Projects</title>
		<link>https://pmsolutions.vn/en/insights-post/managing-contract-interfaces-during-the-investment-implementation-of-thermal-power-projects/</link>
		
		<dc:creator><![CDATA[vina_admin]]></dc:creator>
		<pubDate>Mon, 15 Dec 2025 02:46:23 +0000</pubDate>
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					<description><![CDATA[This article primarily focuses on analyzing several key interfaces in the investment implementation phase of a thermal power plant project, aiming to emphasize the necessity of managing risks and contract interfaces to ensure the financial soundness of the project company.]]></description>
										<content:encoded><![CDATA[<div>In addition to the project company (investor), other stakeholders involved in the investment and construction of thermal power plant projects include: the power system management unit, construction contractors, lenders, power buyers, fuel suppliers, and plant operation and maintenance units. The role of each stakeholder is determined through agreements and contracts with the project company based on the allocation of obligations and risks to each party. The contracts concluded include: grid connection agreements, power plant construction contracts, loan agreements, power purchase agreements, fuel purchase agreements, and operation and maintenance contracts. The success of the project depends primarily on the successful implementation of contracts by the stakeholders and the project company&#8217;s close management of these contract interfaces.</div>
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<div>This paper introduces the main characteristics of these contracts, identifies interface issues and associated risks, and highlights the need for effective management of contract interfaces based on a reasonable allocation of risks and the application of compensation mechanisms.</div>
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<div>The grid connection agreement is a legally binding document between the grid management unit and the project company (the power plant investor), stipulating the rights and obligations of the parties involved regarding the connection point and connection equipment during the connection process, energizing the connection point, acceptance testing, commissioning, and operation.</div>
<div>According to the International Federation of Consulting Engineers (FIDIC), there are three types of power plant construction contracts: construction contracts, plant and design-build contracts, and EPC contracts. Of these, EPC contracts are favored by project companies and lenders and are commonly used in the construction of thermal power plants due to three main characteristics: a single entity responsible for the project (the EPC contractor); a lump-sum contract price; and a fixed completion date. Therefore, in this article, the EPC contract form is used when referring to a plant construction contract.</div>
<div>Loan agreements are contracts between the project company and lenders to finance the project&#8217;s capital needs. Project companies typically seek loans through project financing. Lenders will assess the project&#8217;s cash flow and income as sources of repayment and consider the project company&#8217;s assets, rights, and interests as collateral. However, in developing countries, project financing is often supported by government guarantees or guarantees from the project company&#8217;s parent company. To obtain the necessary project financing, the project company must negotiate loan agreements with lenders, usually multilateral and bilateral lending institutions, export credit agencies, and commercial banks both domestically and internationally. The following are typically considered by lenders and required to assess the creditworthiness of a loan agreement: a defined project completion time; fixed project costs; low or no technological risks; guaranteed capacity and heat loss; compensation for damages if the EPC contractor delays completion and fails to meet guaranteed operating parameters; a performance guarantee from the EPC contractor; and limitations on the circumstances under which the EPC contractor can appeal for extensions of completion time and additional costs. Loan arrangements are made during the project investment implementation phase and typically last about 2.5 years for thermal power plant projects.</div>
<div>A power purchase agreement (PPA) is a contract concluded between a project company and a state-owned power company (in Vietnam, this is Vietnam Electricity Group/the sole wholesale buyer) regarding the purchase and sale of electricity between the two parties, aiming to ensure the payment cash flow for the project company. A PPA has several key characteristics as follows:</div>
<div>– The purchase and sale of electricity is based on the buying and selling of available capacity and electricity generated and fed into the grid. The electricity price is calculated based on a fixed fee (capacity fee) to cover the fixed costs of the project company (including the recovery of the project company&#8217;s equity) and a variable fee (energy fee) to cover the variable costs of the project company, mainly fuel costs;</div>
<div>– Commitments of the Parties:</div>
<div>+ The project company&#8217;s commitments include: (1) making reasonable efforts to secure loan financing for the project, (2) making reasonable efforts to negotiate fuel purchase and plant construction (EPC) contracts, (3) making reasonable efforts to obtain permits from government agencies, (4) operating the plant according to the buyer&#8217;s dispatch orders and appropriate practices of the electricity industry;</div>
<div>+ The buyer&#8217;s commitments include: (1) equipping transmission and connection facilities before or on the date of commercial operation; (2) assisting the project company with procedures for obtaining permits from government agencies; (3) assisting the project company during the project company&#8217;s negotiation and implementation of project financing contracts; (4) cooperating with the project company regarding its rights and obligations under the power purchase agreement.</div>
<div>– Regarding electricity payment: Typically, power purchase agreements include a clause requiring the buyer to open an unconditional and irrevocable standby letter of credit (at a bank approved by the project company) to guarantee short-term compensation for the project company in case the buyer fails to fulfill contractual obligations, such as overdue electricity payments. Accordingly, this clause of the power purchase agreement stipulates that the letter of credit must always be opened for an amount equal to the estimated electricity bill calculated for a predetermined period;</div>
<div>– There is a clause specifying the testing and commissioning methods to demonstrate the contracted power levels, reliability, and heat loss rate, verified by an independent consulting firm;</div>
<div>– There is a clause addressing the impact on electricity prices in case of changes in applicable laws and a price adjustment mechanism.</div>
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<div>A fuel purchase contract is an agreement concluded between the project company and the fuel supplier to ensure a reliable fuel supply for the project. For base-load thermal power plants, the project company usually signs long-term fuel purchase contracts. Some key characteristics of a fuel purchase contract include:</div>
<div>– Clearly stating the technical characteristics of the fuel, such as: commercial quality of the fuel, limits of mineral content (e.g., sulfur), minimum calorific value of the fuel, standards and testing procedures for verifying fuel characteristics;</div>
<div>– Including clauses on fuel measurement, procedures for determining the quantity of fuel supplied, fuel delivery methods and delivery points;</div>
<div>– Including penalty clauses stipulating the right of the fuel supplier to stop supplying fuel in case of overdue payments; the right of the project company to refuse to accept fuel if it does not meet the fuel characteristics as per the contract; and penalties for damages when one party violates fuel delivery obligations.</div>
<div>An operation and maintenance contract is a contract for the provision of operation and maintenance services for a power plant between the project company and an operating entity. The full scope of work of the contract typically includes: operation, maintenance, management, and repair of the plant, and operating power generation on behalf of the project company according to the power buyer&#8217;s schedule. The main characteristics of an operation and maintenance contract include:</div>
<div>– Clearly defining the objectives of the contract: ensuring the plant is operated and maintained regularly and in accordance with the technical requirements and warranty requirements of the manufacturer, especially ensuring minimal operating and maintenance costs; ensuring optimal net profit of the plant according to the power purchase agreement; optimizing the useful life of the plant and equipment; optimizing the plant&#8217;s operating time and revenue generation; maximizing the availability, efficiency, capacity, and reliability of the plant&#8217;s startup for electricity production; – Operating the generating unit/plant at optimal performance levels and generating electricity in accordance with the requirements of the power purchase agreement; maintaining the plant in good working condition and preventing premature aging of equipment; repairing/rectifying damage and malfunctions of plant equipment according to approved appropriate measures;</div>
<div>– Clearly stipulating that the operating unit, on behalf of the project company, performs the project company&#8217;s obligations related to the operation and maintenance of the plant as stipulated in the power purchase and fuel purchase agreements. For example: providing annual availability factor calculations; confirming electricity meter readings with the electricity buyer, providing this information to the project company for electricity and capacity billing; determining the expected net capacity; determining the availability and maximum daily generating capacity of the generating unit/plant for the next operating day; complying with operating instructions during normal operation and in emergency situations;</div>
<div>– There are clauses guaranteeing the operator&#8217;s achievement of power output levels, heat loss rates, availability factors, and environmental emission levels; there are provisions for incentive bonuses for the operator if the plant/unit operating performance (power, efficiency, availability factor) exceeds the specified performance levels; and there is a mechanism requiring the operator to compensate for damages if the actual operating performance is lower.</div>
<div>Given the above contract characteristics, to effectively manage the contracts and ensure project success, the project company needs to focus on the following issues:</div>
<div>+ Selecting contractors with the capacity and experience to execute the contracts (EPC, fuel procurement, operation and maintenance) to best control and manage their risks according to the nature of each contract;</div>
<div>+ Incorporate clauses and contracts containing provisions for compensation for damages, aiming to offset losses suffered by the aggrieved party due to the other party&#8217;s breach of contract;</div>
<div>+ Manage the harmonization of interfaces between contracts.</div>
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<div>Harmonizing contract interfaces is achieved by reasonably allocating risks among contracts and applying compensation mechanisms that are compatible across contracts.</div>
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<div>This article primarily focuses on analyzing several key interfaces in the investment implementation phase of a thermal power plant project, aiming to emphasize the necessity of managing risks and contract interfaces to ensure the financial soundness of the project company.</div>
<div>Accordingly, risks and contract interfaces need to be regularly identified, assessed, and managed by the project company to eliminate gaps in responsibility between contract parties. Risks that cannot be allocated to related parties should be borne and managed by the project company through appropriate insurance coverage or by setting aside a corresponding risk contingency fund. Furthermore, the project company needs to prioritize the synchronized negotiation and signing of contracts within appropriate timeframes to facilitate effective management of contract interfaces.</div>
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