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Department of Electrical Engineering

MASTER’S THESIS

The Viable System Model in the analysis of the project
management

The topic of the Master’s Thesis has been approved on 04.06.2008. The supervisors
and examiners of the thesis are Professor D.Sc. (Tech.) Pertti Selvintoinen and
Professor D.Sc. (Tech.) Tuomo Kässi.

Hyvinkää May 21, 2008

Arseniy Krasikov
Siltakatu 15 B
05900 Hyvinkää
Finland
arseny.krasikov@lut.fi
Abstract
Lappeenranta University of Technology
electrical engineering department

Arseniy Krasikov

The Viable System Model in the analysis of the project management

Master’s thesis

2008

53 pages, 14 figures, 1 table and 1 appendix

Examiners: Professor Pertti Selvintoinen
Professor Tuomo Kässi

Keywords: cybernetics, systems theory, the VSM, Viable System Model, project man-
agement, complex systems analysis

The paper is made to understand modern (especially cybernetic) methods of complex
systems analysis and management, to explain scientific basis of the Viable System
Model, to compare theoretical model with developed project management system in
Company.

The manuscript purposes are achieved by studying of scientific papers from scien-
tific journals collection such as Elsevier (http://www.sciencedirect.com) or Emer-
ald (http://www.emeraldinsight.com). Scientific basis of the VSM is gotten from
Stafford Beer explanation and from personal investigation of neurophysiology and
cybernetics history. The comparison is made by "objective" (studying of official com-
pany documentation ) and "subjective" (personal interviewing) methods.

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Acknowledgements
The Master Thesis cannot be written without strong support of the Lappeenranta
University of Technology and excellent help in spite of warm work of Company em-
ployees. I want to express heartfelt thanks to everyone who helps me during writing:
to Julia Vauterin, Barbara Miraftabi, to Pertti Selvintoinen and to Tuomo Kässi from
LUT; to Antti Vanhatalo, to Mikko Uhari, to Marko Piela, to Esa Partanen, to Jukka-
Pekka Reijomaa, to Kari Supi, to Ilpo Välimaa, to Petri Lindroos, to Tino Wallgen,
to Asko Torki, to Janne Martin, to Sergeij Verolainen, and to Maarit Penti from Com-
pany; and, of course, to Victor Borisovich Vtorov, to Nikolaij Dmitrievich Polyahov
and Oleg Yurievich Sabinin from Saint-Petersburg Electrotechnical University; to ev-
eryone who has helped and is not acknowledged undeservingly.

Special thanks to my room-mate Roman Ivanov, who was to endure it for 4 months
and for all my friends from the universities.

Exclusive acknowledgements to sweet Olya, the most important person, for price-
less help and for "broken nerves" during our discussions, and to my parents for their
knowledge, excellent advices and constant help.

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List of Figures
1 Reflector curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2 Autonomic nervous system . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 Information fluxes in HNS . . . . . . . . . . . . . . . . . . . . . . . . . 16
4 General architecture of functional system . . . . . . . . . . . . . . . . . 18
5 Variety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6 VSM technical representation . . . . . . . . . . . . . . . . . . . . . . . 23
7 VSM neurological representation . . . . . . . . . . . . . . . . . . . . . . 24
8 Operation unit organization . . . . . . . . . . . . . . . . . . . . . . . . 25
9 Waterfall project management . . . . . . . . . . . . . . . . . . . . . . . 28
10 Main flow of typical project in Company . . . . . . . . . . . . . . . . . 29
11 Waterfall project management in Company . . . . . . . . . . . . . . . . 30
12 Typical project team in Company . . . . . . . . . . . . . . . . . . . . . 30
13 Relations into project management . . . . . . . . . . . . . . . . . . . . 40
14 The VSM of Company’ PMO . . . . . . . . . . . . . . . . . . . . . . . 42

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List of Tables
1 Comparison between first and second-order cybernetics . . . . . . . . . 11

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Contents
Abstract i

Acknowledgements ii

List of figures iii

List of tables iv

Nomenclature v

1 Introduction 1

2 A scientific foundation 4
2.1 Cybernetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Fundamentals of neurophysiology . . . . . . . . . . . . . . . . . . . . . 11
2.2.1 Fundamental of neurophysiology . . . . . . . . . . . . . . . . . . 11
2.2.2 Theory of functional systems . . . . . . . . . . . . . . . . . . . . 16
2.3 Stafford Beer’s Viable System Model . . . . . . . . . . . . . . . . . . . 20

3 Company’ project management organization and VSM 28
3.1 Company’ project management organization . . . . . . . . . . . . . . . 28
3.1.1 Objective project management in Company . . . . . . . . . . . 29
3.1.2 Subjective project management in Company . . . . . . . . . . . 34
3.1.3 Conclusion of investigation . . . . . . . . . . . . . . . . . . . . . 36
3.2 Comparison the VSM and Company’ PMO . . . . . . . . . . . . . . . . 38

4 Conclusion 43

References 44

Appendices 46

A Appendix1 46

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1 Introduction
Effective organizations operate
like effective human beings.

Stafford Beer

We live in new world, in new post-industrial informational society. Today we op-
erate mostly with information, mostly with complex information, and mostly with
very rapid changing information. “Information is power” but it is power only when we
can find useful information among of noise. To understand how we could make our
interaction with information more effective and to create systems that can be adaptive
(stable) like human, we are to understand the process of cognition and understanding.
One way to do it is self-cognition. Humans are the most adaptive form of life, form
of live matter. I am sure that building any kind of systems, using the principles on
which the human body is built, is the key for stable development, and the answer to
future challenges.

Construction of this type of systems is exceedingly wide and difficult task. But such
sciences as cybernetics, systems science, theory of information, game theory, neuro-
physiology, behavioural and cognitive psychology give us new ways to understand
who we are. The heritage of Norbert Wiener, A. A. Bogdanov, William Ross Ashby,
Ludvig von Bertalanffy, P. K. Anokhin, Claude E. Shannon, McCulloch, Heinz von
Foerster and Stafford Beer give us chance to find a solution.

As example of system operated only with information one can choose project manage-
ment. The project management essence is to achieve goals in changing external and
internal environment with resource limitation. That is reason why project manage-
ment orgnization should be flexible to change all the time to become as more adaptive
as possible. Thus it can be compared with live organism. And this is why it can be
the object of investigation. Project management is very important in modern world.
Moreover, it is one of the cornerstones of success in process of creation and upgrading
"tools" in "toolbox" of humanity, in progress. It is reason to make it as effective as
possible.

The Company company pays a lot of attention to its project management devel-
opment. So I have excellent possibility to inspect serious, advanced "organism",
exploring the Company project management orgnization in its development. Here it
an outcome of one project management orgnization evolution was investigated and
was compared it with the Viable System Model by Stafford Beer which is based on
second-order cybernetics and neurophysiology.

The cybernetics as a modern science was founded by mathematician Norbert Wiener
with publishing of his book "Cybernetics, or Control and Communication in the An-

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imal and Machine" in 1948. He defines cybernetics as "the science of control and
communication, in the animal and the machine". Cybernetics science operates with
such ideas as negative or positive feedback, transformations, blackbox, sustainability,
and etc. in all kind of systems. Thus Cybernetics can be seen as general theory for
communication and control. orgnization contains both and thus it should be based
on cybernetics.

Information as a base of communication requires its investigation. Thus the next
step of cybernetics development - second-order cybernetics - doesn’t look outsider. It
is cybernetics of cybernetics or investigation of cognition by subject of cognition.

What is new is the profound insight that it needs a brain to write a
theory of the brain. From this follows that a theory of the brain that
has any aspirations for completeness, has to account for the writing of
this theory. And even more fascinating, the writer of this theory has to
account for her- or himself. Translated onto the domain of cybernetics:
the cybernetician, by entering his own domain, has to account for his own
activity; cybernetics becomes cybernetics of cybernetics, or second-order
cybernetics.[1]

So now self-referentiality, self-organizing, and the subject-object problem are under
cybernetics view.

The essence of an organization is a cooperation based on communication, on informa-
tion exchange between subjects with personal goals and ways of thinking. Thus the
results of cybernetics and second-order cybernetics are necessary for the basis of cre-
ation of organization. It is great knowledge, but a real example should be discovered
for sure.

Thus, to understand the Viable System Model as a result of cybernetics it is nec-
essary to explain the organization and the work principles of human nervous system
(HNS) as optimal information processing structure. I say "optimal" because results
of evolution give us special and exclusive power to work with information. The con-
sciousness is a special property of human.

Of course, in the investigation knowledge of higher nervous activity or of physics of
signal transmission is not implemented because of its extreme complexity and speci-
ficity. The VSM (viable system model) bases on general functional division and its
orgnization, we work with a bird-eye view of human nervous system. Thus I explain
functional division and some aspect of self-regulation of HNS.

Shortly, it consists of several systems by functional division which work with infor-
mation from intra- and extra- environment and with experience and future prognosis.
It is very difficult tasks for technical systems. That is why it is very interesting and

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important to explore how our somatic and autonomic nervous system are organized
and function together. It is a key for creation good information organizations.

Neurophysiology had been already connected with cybernetics by academic of Academy
of Sciences of the USSR P. K Anokhin. Pyotr Kuzmich explored nervous feedback ac-
tion in nervous activity and called it - ’return afference’ (’обратная афферентация’)
in 1935. It happened 12 year before Wiener’s ’Cybernetics’. It clearly show to us
straight connection between ideas of cybernetics and real functioning of living system
like we. It gives to us possibility to implement knowledge of physiology and morphol-
ogy of our nervous system in construction of information processing system.

Besides feedback, Pyotr Anokhin create 2 additional terms. They are ’afferent synthe-
sis (’афферентный синтез’) and ’acceptor of action results’ (’акцептор результатов
действия’). It says that cybernetics can be develop by knowledge of neurophysiology.

Therefore we have essential background to understand the foundation of the Viable
System Model. Background knowledge give us point of view from where we can see
scientific connection between cybernetics, neurophysiology and management orgniza-
tion itself. The cross-point of this connection is created by Stafford Beer and called the
Viable System Model. It is suggested to be the best model of management orgnization
among others known to me on today. It is very important to compare this model and
real evolution of management in information present world.

The investigation has been done by two methods: gathering of "objective" and "sub-
jective" information. "Objective" flag is set to the official materials of trainings,
guidelines, how-to, manuals, policies, and practices. But official materials had been
created in the past, and something can be changed or official materials are transform
by project managers into everyday work. Thus, it was decided to make an interview-
ing of project management participants (project team players). It "subjective" part
of the investigation.

With ideas of theory of functional systems, to define investigated system a goal was
chosen. The goal is "providing successful project execution or achieving goals of cus-
tomer with a profit". It is the goal of the project management. By this way, a reducing
of variety of the reality for the manuscript could be done.

In the sum, the main goals of the work are to explain scientific basis of the VSM,
to describe the complex system of project management by the model. This goals
achieving make possible to create recommendations which are could be used by the
company to improve their management system.

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2 A scientific foundation
2.1 Cybernetics
A mechanisation of processes was started in XVII century from first industrial rev-
olution. The mechanisation shows to world serious advantages of resource economy
and quality improving. It was a new movement that can be turn back. The new
epoch of mechanisation was started when one got possibility to create and distribute
mechanical and electrical energy in wide limits. Cheap energy opens the door to
wide using of mechanization. Because of it part of human hand work in all work was
moved from 90% to 10% (Мартыненко И.И. и др. Автоматика и автоматизация
производственных процессов. М., 1985;).

First mechanised process are was regulated by people. They check information given
by sensors or by process being. Next step, logically, was mechanisation of regulation.
Idea of self-regulation by feedback principle was used. Feedback is universal principle
of regulation. It can be found in any regulated system. Example of feedback classi-
cally presents by thermostat.

The wide machine using showed great advantages of automatic work in comparison
of human execution of same tasks even in complex situations. Increasing movement
of automation and of difficulty of tasks required appropriate methods of controlling.
Investigation and development of the methods is task of cybernetics.

It is known that the term "cybernetics" for definition of science of the management of
public systems used by French physicist Ampere and Polish scientist F.-B. Trentowski
in the Polish language book "Stosunek filozofii do cybernetyki, czyli sztuki rza˛dzenia
narodem"

One can assume that the roots of cybernetics, basically, are in the second half of
the 19th century, and they were quite independently by the end of the first half of
20th the century. The roots of these elements represent a purely engineering knowl-
edge, as well as some local synthesis - the result of the development of theoretical
knowledge in specific science and the scientific and technical disciplines. They are:

• automatic control system and automatic control theory;

• elements of simulation and the theory of local models for different areas of
technology;

• computing devices and mathematical instruments;

• digital computers;

• communications and some questions of the theory of communication;

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• biomedical research, such as biomechanics, general physiology, physiology higher
nervous activity;

• issues of the administrative and production management, the elements of the
general theory of systems;

• elements of psychology labor and engineering psychology;

• mathematical logic as a part of mathematics.

Let me start from automatic regulation and management. Development technology
needs, the requirements for maintaining the different values that characterize the func-
tioning of technical devices in specified limits, led to the invention and the subsequent
development of various regulators. The first technically applicable device of this kind,
which used unstated principle for the controlling of deviations (feedback), was a Watt
regulator - it is served for regulating the speed of the steam machine by influencing
the amount of moving in her pair. In the future there would be created other devices
of this kind.

The proliferation of regulators, the need of improving the accuracy of their work
and of eliminating the phenomenon of instability (self-oscillations) led to a theoretical
understanding of the principles of their work, to a mathematical description of their
methods of operation, and the creation of appropriate engineering calculations. The
first theoretical study of automatic regulation systems with feedback associated with
the names of J. C. Maxwell, I. A. Vyshnegradskij and A. Stodolа.[2]

Until the middles of 30ies of 20th century theory of regulation was developed in
the framework of separate technical disciplines, such as the regulation of machines,
regulation of electric motors, hydraulic regulators, electrical drive etc. The term "feed-
back", piercing all theory of automatic regulation, became only after the appearance
of electrical and electronic components and built on the basis of a variety of tracking
systems, previously called servosystem or servodevice.

Since the late 30ies intensive insinuation of tracking systems in all branches of technol-
ogy, including radio engineering, electronics and computing devices started. Articles
of the subject became available in magazines, collectives of appropriate specialists
were formed. Established by that time, the general theory of automatic regulation
was associated with A. V. Mihaylov, G. Nyquist, A. A. Andronov, B. N. Petrov, M.
A. Ayzerman, A. A. Fel’dbaum and many other scientists.

The theory of automatic regulation was one of the essential foundations of cyber-
netics, and after the last outbreak was in it as one of the essential parts.

modelling also had been developed in the context of specific scientific and engineering
disciplines in the first half of 19th century already, in some areas earlier. It is primarily

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about building a small working models of various technical systems and devices before
its creation in physical size. Such simulations are called scale-modelling. Examples
include model steam engines and locomotives were made by their designers (G. Watt,
R. Trevithick, J. Stephenson, etc.) in preparation for the practical realization of their
inventions. Currently, this kind of model (ships, aircraft, etc.) studied in test water-
pools, aerodynamic pipes and so on.

The origin of modelling in science related to appearance of the concept "similar-
ity" used primarily for the solution of some problems of construction mechanics, and
then infiltrated into other areas of technology. The development of this type of mod-
elling has led to the establishment of relevant theory, sometimes called the theory of
similarity.

Using the same system as a model for studying other is one of the main methods
of Cybernetics. It has been intensively developed since the wide distribution of elec-
tric circuits, when thanks to the Kirchhoff laws it has became able to state that
the behaviour of these circuits is described by the system of differential equations.
Changing circuits parameters meant, in effect, changing the parameters of relevant
equations (system of equations), and the restructuring of the circuit - changing the
form of equations. So electrical circuits (schemes) have been became a convenient tool
for study processes of variety systems.

Model researches originally were developed independently by the individual technical
disciplines. Electric simulation of acoustic systems, modelling of mechanical systems
etc. were studied. The moment that all of these types of simulations are based on
the differential equations for description of the different nature processes led to "uni-
versalization" of electric (electronic) models, and to using them as a tool for solving
differential equations, regardless of what real systems and processes are described by
these equations. So it was beginning of development of analogue computers and the
so-called mathematical modelling.

Around this time, i.e. by 30ies of 20th century, the efforts of a number of scien-
tists (L. I. Gutenmakher, G. L. Polisar, etc.), shown that the electrical network can
be used for modelling more complex systems, for the solution of partial differential
equations. There electrical grid models that were applied to meet the challenges of
construction mechanics, the theory of elasticity, hydrodynamics, etc.

By the beginning of the formation of cybernetics as scientific direction (late 40ies)
applies a revolutionary idea J. von Neumann of the "unity" of information used at all
stages of digital computers. In the von Neumann concept automatic digital computer
is a device for processing information of any nature, not necessarily the numerical.

By the end of 40ies, the development of computers and its theories were significantly

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influenced by components are ("roots") of cybernetics such as the theory relay-contact
network and slot-machines, mathematical logic. Programming issues also got increas-
ing importance. There is a need, however, to note that computer science can not be
equated with cybernetics: they are cross-cutting with it, as its technological base.

Indeed, "hypostasis" of computers are multiple. These machines are a powerful tool
for the most complicated mathematical calculations, solving of different scientific and
engineering problems. It does not always have direct links with cybernetics, but, of
course, refers to applied mathematics. Because of the high-performance computing it
is a powerful tool of information (not necessarily mathematical) modelling of a vari-
ety of objects, systems, processes and phenomena. As a universal tool for modelling
computers naturally used to meet the challenges of cybernetics itself. In this sense,
computers are an essential cybernetics tools. Further, the computers are the main
part of complex information systems, studied in cybernetics. Finally, the architec-
ture, capabilities, the theory and principles of improving of computers are targeted
by cybernetics.

Technical means of communication - like watches, methods and means of measure-
ment - represent the most ancient preimage of cybernetic systems in ideological terms.
Indeed, if any technical systems can be characterized by coefficient of efficiency, i.e.
attitude useful energy or substances to energy or substances invested to produce the
desired effect, the task of communication systems and measuring systems is to obtain
data, communications, signals, i.e. that has generally named as ’information’ and
has become one of the basic notions of cybernetics. Signal, informational nature of
measuring instruments and communication devices makes them a direct predecessor
of cybernetic systems. Because they are based on the concept of the signal, concept of
the mark. Postal or wire message is valuable not because of his real or energy content,
but because of the sense of information. You can go even further and find roots of
Cybernetics as language and writing - the first system in which signs, informational
nature is the "excuse" their existence.

Let’s go back to communication systems. Development of them led to such important
concepts for cybernetics as encoding of messages, communication channel, the source
and receiver information, interference, noise, etc. Interestingly, the first example of
science - namely, the statistical - approach to coding associated with S. Morse, who in
designing (1838) of telegraph code (called his name), took into account the frequency
of the various letters in the English texts.

The progress of communication systems, the invention of a radio, electronic circuits
and specific information tools such as radar, led to the development of the theory
of communications, released in the scientific and technological self-discipline, which
would go down in cybernetics. A large influence on the subsequent development had
works of academician V. A. Kotelnikov, who have established the link between the

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continuous signals and discrete codes and the possibility of a continuous signal at any
discrete form and state, and works of C. Shennon and W. Weaver with their theory
of information and famous model of communication.[3]

The Shannon–Weaver model of communication has been called the "mother
of all models."[4] It embodies the concepts of information source, mes-
sage, transmitter, signal, channel, noise, receiver, information destination,
probability of error, coding, decoding, information rate, channel capacity,
etc.[5]

Biology and Medicine, which rate of development is continuously increasing, also had
a noticeable effect on the emergence of cybernetic ideas. First of all, this applies to
the basic physiology and physiology of higher nervous activity.

As far back as 19th century one attempted to engage the scientific knowledge of
the area of mechanics to study the movement of living organisms. Studies of blood
flow led to the opening of several laws of hydrodynamics (A. Navier, J. G. Stokes).
Physiological studies (N. A. Belov, M. M. Zawadowskij, N. A. Bernstein, and then P.
K. Anokhin) led to a significant role of feedback principle in the operation of living
organisms.

Model representations in the study of physiological processes were involved by I. M.
Sechenov,by I. P. Pavlov in widely known work about the role of signal information
in higher nervous activity in animals and humans. In the Cannon W. В.’s works was
formulated in 1929 principle of homoeostasis and were considered the foundation for
stable functioning of physiological systems that after the invention by W. R. Ashby
of homeostat[6] formed the basis of one of the cybernetics directions - homeostatic.
By the same date, complex inter-related regulatory systems that support - despite
the changing external influences - within certain limits several vital parameters of the
body, such as body temperature, blood pressure and blood chemistry, the frequency
of pulse, respiration etc. were found in an organism.

Studies of Higher Nervous Activity and morphology of the nervous system and brain,
the study of the nerve cells functioning revealed the role of electric processes in the
functioning of the nervous system, discrete - at some level - the nature of the neurons
functioning; was disclosed inaccurate structure of some brain zones, analysators in
particular. It turned out that the first approximation of neurons operate on the prin-
ciple of "all or nothing", i.e., in a certain extent, similar to a relay switching elements.

By 30ies of 20th century were cybernetic meaningful research by N. A. Bernstein
and P. K. Anokhin. By him, in particular, was declared existence in living organisms
of "acceptors of action results" (synonymous with the known proactive mechanism
- "predictor"), and was created idea of a functional system and was shown that the

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implementation of the concept sheds light on the nature teleological functioning of
physiological systems of organism and its purposeful conduct. Theory of functional
system has been used in the research to define systems in management of Company.
Additional materials about this theory in neurophysiology were put in the paper.

The complexity of biological entities and processes, a large number and variety of
links between elements and their subsystems, difficulties of studying such systems by
traditional methods resulted in the same period to the birth of the "general theory of
systems" (L. von Bertalanffy), which was initially developed in parallel with cyber-
netics and then almost merged with it.[7]

Root of cybernetics, relatively little noticeable in the first stages of its historic training
and advancement, were attempts to explore the problems of scientific management in
social and economic systems. It should be noted, the above-mentioned work of F.-B.
Trentovski that long before Wiener used the term "cybernetics", and published in
10-20ies of 20th century work of A. A. Bogdanov "Tektologiya", who tried to make,
in the modern language, system-cybernetic analysis of some issues in the social struc-
tures and management.[8]

The works of A. A. Bogdanov and L. von Bertalanffy represent the first attempt to
build a "general" theory of large and complex systems, such as biological and socio-
economic system, the examination of those systems from structurally-information
standpoint with a significant diversion from their real objects composition.

By the time of "clearance" of cybernetics a number of studies were executed in
which the mathematical methods had been used to analyse economic systems and
to solve a number of economic problems. One of the first works of this kind was the
work of L. V. Kantorovich "The Mathematical Method of Production Planning and
Organization"[9] in 1939. It should also be noted walked in a similar vein studies of
V.S. Nemchinov, V. V. Novozhilov, V. A. Zalgaller and V. V. Leontiev - scientists, for
whom, in particular, belongs an initiative of using of model approaches in the econ-
omy and construction of a number of economic models that have played a significant
role in the development of mathematical economics, also called economic cybernetics.

Note that the initial formation of cybernetics, social and economic structures, be-
cause of their complexity and difficulty of formalization are not had been considered
as objects of cybernetics and information analysis jet. But these works are, often
blurred, already had had some general principles and provisions that have been intro-
duced into the conceptual apparatus of cybernetics later (feedback, information, the
integrity of the system, etc.).

Some mathematical directions, as part of its developing science, have become a nec-
essary and important tool for cybernetics studies. Among these directions should be

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point, above all, to the theory of ordinary differential equations, and especially on
issues of sustainability of A. M. Lyapunov, as well as on the problem of optimization
of complex dynamical systems described by differential equations and their systems.

Cybernetics was characteristic to use of such exotic, in their time, parts of math-
ematics such as the mathematical logic and the theory of algorithms. Appeared in a
"pure" mathematics, those sections traditionally contacted only with general issues of
mathematics grounding; long time it was believed that they would not have applied
value. Only appearance of the relay-contact network theory, the use of base-2 system,
which is closely linked with the same algebra binary logic (Boolean algebra), the re-
quirements in the design and optimization of logical and computational elements and
nodes of computer made mathematical logic, and, to some extent, and all of discrete
mathematics, one of the effective tools of cybernetic research. The same can be said
about the theory of algorithms and recursive functions created within the framework
of mathematical logic in connection with the problems of computability and provabil-
ity, but used theoretical basis and development tool of the programming.

It was noted that the development of cybernetics, in its turn, has had a stimulat-
ing effect on research in the field of mathematical logic, the theory of algorithms and
the entire discrete mathematics. It should be mentioned that ideas and the results of
A. M. Turing, E. Post, A. A. Markov and other mathematicians and logicians, whose
work formed the mathematical foundations of cybernetics.

Speaking about cybernetics, it is necessary to pay special attention to the impor-
tance of communication or otherwise - transmitting of information in the operation
of any natural organisms or technical devices. It is problem that try be solved by
different sciences. And it is one of the problem for second-order cybernetics.

Second-order cybernetics is founded by Heinz von Foerster in early 1970ies and de-
fined him as "Cybernetics of cybernetics"[10]. S. A. Umpleby has created table to
show significant differences between first and second-order cybernetics[11]. It helps
us to speedily understand key ideas:

Discovering of details of second-order cybernetics is out this paper, but it is im-
portant to note that the viable system model correlates with ideas of autonomy and
cognition.

Before speaking about the viable system model to better understanding some basis
knowledge of nervous human system and theory of function systems will be explained.

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Author First-order cyber- Second-order cy-
netics bernetics
Von Foerster the cybenetics of ob- the cybenetics of ob-
served systems serving systems
Pask the purpose of a model the purpose of a mod-
eller
Varela controlled systems autonomic systems
Umpleby interaction among the interaction between
variables in a system observer and observed
Umpleby theories of social sys- theories of the inter-
tems action between ideas
and society
Table 1: Comparison between first and second-order cybernetics

2.2 Fundamentals of neurophysiology
2.2.1 Fundamental of neurophysiology
The main function of nervous system is connection and regulation of different physi-
ological processes in accordance with changing of internal and external environment
conditions. Adapting to the environment does not preclude a certain independence
of the body. With higher level of adaptation it becomes less unequivocal response to
the body’s changing conditions of life, so much freedom it has. For example, an inde-
pendent permanence of the temperature of the body in relation with a temperature
of external environment means autonomy from the environment.

The main structure-functional unit of the nervous system is the nerve cell - neu-
ron, which is distinguished body cells and sprouts: dendrites and axons. Neuron is a
system that has many inputs and one output. Such a pattern is characteristic of the
nervous system as a whole. The number of fibres carrying impulses to the centres,
exceeded the number of fibres carrying impulses to outwards.

By functions neurons can be divided in three groups: efferent neurons carried in-
formation from centre to outward, afferent neurons carried impulses from outwards to
a centre, and interneurons which functions are preliminary intermediate processing of
impulses and organization of collateral connections.

The figure below shows functions of this types of neurons in reflexes. The figure is
under creative commons license. Here and below (CC) symbol and url to the source
of the figure into the caption are used.

In the thesis the higher nervous activity is not touched. Mostly, an attention to
autonomic nervous system is paied. Anyway, consideration of a nervous system phys-
iological division and organization of information fluxes are necessary to understand

11
Figure 1: Reflector curve
(CC)
http://en.wikipedia.org/wiki/Image:ReflexArc1.jpg

essence of viable system model.

In the list below physiological division of the human nervous system is.

• Somatic nervous system

– Afferent system
– Efferent system

• Autonomic nervous system

– Sympathetic
∗ Afferent system
∗ Efferent system
– Parasympathetic
∗ Afferent system
∗ Efferent system

The autonomic nervous system is a set of points and ways to provide the regulation of
internal environment of the body. The autonomic nervous system regulates metabolic
processes and the activities of internal organs by participating in the integration of
internal environment in a whole organism

There is close connection between autonomic and somatic nervous systems: all motor
reactions are given autonomic support (changing pulse, blood pressure, gas, etc.), and
motor actions impact on the regulation of autonomic functions.

12
The general principle of autonomic regulation is a reflex. Afferent part of a reflex
starts from various internal receptors placed in all internal organs. From this recep-
tors afferent signals go to segment centres by special ways. From the centres regulation
of organs is made by efferent ways.

On the basis of morphological, neurochemical, and functional characteristics of the
autonomic nervous system is divided to sympathetic and parasympathetic. It is be-
lieved that the function of parasympathetic system is first and foremost stabilize the
internal environment. A sympathetic system is designed to adapt the internal en-
vironment to the changing environment and responding to the unexpected impact.
This division multiple fiction because of any organ is under constant influence of the
sympathetic and parasympathetic systems.

Before explanation of general principles of human nervous system (HNS) functioning,

Figure 2: Autonomic nervous system
(CC)
http://en.wikipedia.org/wiki/Image:Gray839.png

I should to say that both of systems are represented in the Viable system model. Idea
that every function-unit in enterprise has to have 2 independent information channels
(moreover, two heads). One is for action. other is for relaxation. It is one of the main
Beer’s ideas for industrial management for me. For the future, sympathetic system

13
often functions in all organs of the body in one time.

Vertical management organization, or constant circulation impulses between higher-
and lower divisions, is very important. The role of higher nerve centres is to enhance
the flexibility of regulation. Despite the hierarchical structure of the nervous system,
the functioning of its various departments are inextricably. To perform simple actions
it is necessary to organize interaction of many complex nervous systems of automatic
control and management. Nervous reflex principle should not be seen as a simple
stimulus-response scheme. In most cases, any reaction is the result of complex infor-
mation processing, coordinated participation of various levels of integration.

Overall consistency in the processing of incoming to the nervous system information
and implementation elected solutions in the form of concrete actions can be roughly
split into the following phases. The most peripheral receptor-effector level submitted
receptor apparatus and muscles, provides, on the one hand, the transformation of en-
ergy of irritant to a specific energy of nervous pulse, but on the other hand, processing
of the efferent signal energy in muscle contraction. Reception apparatus is the main
source of afference to the next integrative level - segment.

Under the segmental level means not only the segment of the spinal cord, but also
"segmental" stem complexes consisting of a sensitive and motor bulbonuclear (ядра
черепного нерва). Segment funds of its own assets of receptor signal admission and
processing, and apparatus generated efferent pulse to a muscle. In the process of
evolution "segment" is gradually losing its importance as a efferent response centre,
becoming in the latter stages of phylogenesis only a point of information conversion.
The bulk of this recoded information "segment" sends in higher and more complex
apparatus of integration - subcortical structures. At the same time, activity of efferent
(motor) segmental centres is provided to be at a certain level.

Subcortical structure have a much more subtle information processing apparatus by
the side of "segment" because of several independent afferent channels being, and
through the work of subcortical efferent system. This system is not directly related to
muscle, but manage it by segment efferent centres mediation. It is involved in making
the complex automated motor acts that require consistency of many muscle groups.

With subspecial system for receiving and processing information, own efferent chan-
nels, subcortical integrative level is the next step encoding of afferent signals which
provides selection of critical information and preparing it to receive it in cerebral cor-
tex.

Thus, the information, which comes by afferent channels to cerebral cortex, is ten-
tatively processed and re-encoded at least three stages: receptor-effector, segmental,
and subcortical. Each integral level processes of the information and produces a re-

14
sponse by itself, but the critical information is sent to the upstream centres, which
in turn perform the same task. Consequently, in the cortex comes only those signals,
which require concerted action conscious person.

Multiple conversion of afferent impulses towards to the cortex provides step-by-step
"drop-out" of signals that do not have critical meaning for the body as a whole and be
treated with "precortex" levels of integration. This allows the cortex make fundamen-
tal decision to the whole organism, "not staying focused on the little things". An error
in any "precortex" level of integration should lead to revenue perverted information
to cortex, and the last one with no direct link with an external source of informa-
tion will generate erroneous decision. This is not happening because of multichannel
revenues of afferent impulses to the cortex, which provides an objective assessment
of each afferent channel information, early detection of the error and its compensation.

Impulses sent to the cortex, originally delivered to the so-called projection cortical
zone, where it is reflected. There information from all zones receptor zones are "pro-
jected" , but in processed and compressed form. Analysis and synthesis of this infor-
mation are carried out in cortical centres that provide "recognition" - a comparison
of the received and stored in the memory signals, its update and specification.

Based on the convergence of the work of all gnostic centres, an objective picture
of the human environment and the state of the body is generated. An analysis of
the situation and the real possibilities of propulsion systems for the moment forms
"solution" - a plan of an action.

In the hierarchy of the nerve centres special place is for cerebral cortex. Thanks
to the information incoming from the various functional systems, the most difficult
analytical-synthetic information processing activity is possible there. It provides edu-
cation links to consolidate individual experience, and the freezing of relations, which
lose value. Using cerebral cortex provides training that leads development of self-living
systems, decision-making based not only on analysis of given situation, but of the pre-
vious experience in additional. The functional activity of the central nervous system
is regulated by the continuous flow afferent pulses through functioning of non-specific
structures of the brain, especially reticular formation. In reticular formation collateral
go away from all specialized afferent conductors. As a result reticular formation is
a kind of energy collector, which can actively influence on the various centres until
cerebral cortex. It creates the possibility of reactions even at very weak irritant. From
reticular formation inhibiting influence outgoes also, as upstream or downstream. It
provides individual reactions and concentration of attention.[12]

On the figure below one can see scheme of information fluxes in HNS.

Combination of sympathetic-parasympathetic organization and information fluxes or-

15
Higher nervous activity

Afferent Efferent Projection cortical zone

Optic thalamus Striatum pallidus Subcortex level

Little brain
Additional
afferentation

Reticular formation

Afferent Efferent Segment level

Receptor Muscle Receptor-effector level

Figure 3: Information fluxes in HNS

ganization is made in the viable system model by Stafford Beer. Before VSM expla-
nation better to explain theory of functional systems. Besides its role in information
fluxes organization scheme it can give us additional approach to real organizations
discovering.

2.2.2 Theory of functional systems
Term ’system’ is widely used in modern world. Everyday one can hear: jagirdar
system, Continental System, solar system, Banner system, plurality system, metric
system, sewage system, control system, cardiovascular system, weapons system, eco-
nomic system, operating system, endocrine system. But there is no clear definition of
the system. It can be something what consists of several connected parts, it can be
connected parts with emergence property.

Moreover, there is special theory for exploring systems. It is called General sys-
tem theory (GST) and is created by Ludvig von Bertalnffy in 1950. He presented it
in the "British journal of the Philosophy of Science". Bertalanffy writes:

16
...there exist models, principles, and laws that apply to generalized systems
or their subclasses, irrespective of their particular kind, the nature of their
component elements, and the relationships or "forces" between them. It
seems legitimate to ask for a theory, not of systems of a more or less special
kind, but of universal principles applying to systems in general.[7]
Unfortunately, its implementation in research activity faces difficulties. By my own,
implementation problem can be solved by P. K. Anokhin system definition:
Системой можно назвать только такой комплекс избирательно вовлеченных
компонентов, у которых взаимодействие и взаимоотношения принимают
характер взаимоСОдействия компонентов на получение фокусированного
полезного результата.

The system can be described only as such a set of components involved
selectively, whose interaction and relationships in nature are intercontri-
bution of components for a beneficial result.[13]
That way, the investigation of system organization can be focused on goals and struc-
ture supporting achieving it. Before investigation is necessary to explain the theory of
functional systems. It has very important moments concerning self-organization and
hierarchy of goals. They help us to understand project management organization as
a system.

The functional systems by P. K. Anokhin are self-organized and self-regulated dy-
namic centric-acentric organizations united nervous and humoral regulations. All
components of the systems interconribute in supporting various useful results satis-
fying a needs and increased adaptivity for the systems and for a body in a whole.
An assessment of results in every functional system is made continuously by return
afference.

Afferent synthesis stage is a start point. It is founded on dominant motivation.
Motivation is originated on the most important need of a body in that moment. Ex-
citation created by dominant motivation mobilizes genetic and personal experience
to satisfy the need. Information about external environment is posted by situational
afference. It allows to estimate possibilities and where applicable to correct previous
need satisfy experience in concrete situation. The interaction of excitations created
by dominant motivation, memory and situational afference, produces readiness con-
dition (prestart integration) to achieve necessary adaptive result. Startup afference
changes system from ready state to action. In the afferent synthesis stage dominant
motivation defines what should be done, a memory — how it should be done, situ-
ational and startup afference — when it should be done to achieve the necessary result.

The afferent synthesis stage is finished by decision-making. In that stage the only
one way to satisfy dominant need among other is chosen. By it functional system is

17
D
A Return afference
C
SiA Memory B
Action result Result features
acceptor
StA
Afferent Decision
Action result
synthesis making Action
programm
Action
SiA
Motivation

Efference

Figure 4: General architecture of functional system
А - afferent synthesis stage; B - decision-making; C - formation of action
result acceptor and efferent action program; D - return afference;
SiA - situational afference; StA - startup afference;

under constraint.

Just after decision-making, an acceptor of the action result and program of action
are made. In the acceptor of action result all outstanding features of future action
result are programmed. This programming is made on basis of dominant motivation
that import from the memory information about result features and its roads. There-
fore, the acceptor of action results represents mechanism of foresighting, forecasting,
functional system action results simulation, the place where results parameters are
modelled and compared with an afferent model. Results features information are
compared with the model by return afference.

The action program (efferent synthesis) is a coordinated interaction of somatic, veg-
etative and humoral components in order to hit useful adaptive result. The action
program forms required adaptive act by way of special complex of excitation in central
nervous system before its realization by concrete actions. The program defines using
of required efferent structures.

By dint of return afference separate stages and final results are estimated. Infor-
mation from receptors comes to structures of the action result acceptor by afferent
nervous and humoral channels. A coincidence of real result parameters and its model
(made by the result action acceptor) features means satisfaction of initial need of an
organism. It is the finish of the functional system activity. But its components can be
used in other functional systems. In case of a discordance oriental-exploring reaction
is appeared. It leads rebuilding of afferent synthesis, new decision-making, updating

18
of the model characteristics in the action result acceptor and the action program.
hence, the functional system activity realizes in new direction.

The principle of multiparametrical interaction defines generic activity of various func-
tional systems which direction is to achieve multiunit result. For example, homoeosta-
sis parameters (osmotic pressure, acid-base balance, etc...) are provided by individual
functional systems. This systems are integrated in united generic functional system
of homoeostasis . It defines integration of internal environment and its changing in
consequence of a metabolism and a body’s external activity as also. In addition, a
deviation of one indicator leads reallocation of other parameters of the generic func-
tional system.

The principle of hierarchy suggests the functional systems range in accordance with
biological or social importance. In such a manner, in biological sense the dominant
functional system is a system that provides continuity, then pabulum functional sys-
tem, then reproduction, etc.. A organism activity in every time moment is governed
by a dominant functional system in plan view of survival or adaptation. Dominant
function system is changed after need satisfaction.[13]

The theory of functional system by P. K. Anokhin gives us understanding of adapta-
tion processes. It looks to be recursive, thus it can be useful way of investigation real
processes in business organizations.

19
2.3 Stafford Beer’s Viable System Model
The people in an organization
need information to perform
their jobs effectively, but too
much information can be a
distraction. What is needed is
both variety attenuation and
variety amplification.

S. Umpleby

In his books "Brain of the Firm"[14] and "The heart of Enterprise"[15], Beer
noted that the time lag of traditional management schemes ability to respond to
changes dooming us to deal with the consequences. Adaptive to rate changes but no
to changes itself methods are needed, we need self-changed structure, working on self-
changed rules, i.e. self-organization. Let us say we would able to look at the problem
from this angle and find possible solutions but could we implement them within the
framework of existing structures and traditional management methods?

The most powerful computer used in the old concepts of governance does not save
the situation. The problem is not how to use the computer, it is to find new ways
of managing our computer century, in the face of rapidly changing opportunities of
computer technology.

Instead, data-processing systems systems that produce information by deft data analy-
sis are needed. Only then there is information as distinction that creates the difference
of perception, thinking and reaction, and so provide accurate decisions.

Instead of managing people, machines, materials and money Beer goes to the man-
agement of complexity. This is a major cyber-invariant in the management of large
system of any nature. Mere of complexity is the variety of states, and basis of VSM is
a law requisite variety by W. R. Ashby, which requires a set of management reaction
was no less variety than a set of possible states of environment, problem situations in
an environment where an activity is.

Umpleby presents this as
The amount of appropriate selection that can be performed is limited
by the amount of information available. For appropriate regulation the
variety in the regulator must be equal to or greater than the variety in the
system being regulated. Or, the greater the variety within a system, the
greater its ability to reduce variety in its environment through regulation.
Only variety (in the regulator) can destroy variety (in the system being
regulated). The law was formulated by Ross Ashby.[16]

20
But it is impossible to accommodate all states of even very small company and its
environment. Attempts to develop a detailed algorithm to automate the management
faced with such volume calculations, which surpasses even the hypothetical possibility
of computerization. How, the company survive? How do we manage this complexity?
With the help of self-organization. Many processes are organizing themselves. The
structure of the well organized company makes directed narrowing attenuation of en-
vironment variety and amplification of management capabilities and reactions in one
time. Every moment it is trying to find compromise between autonomy of units and
dictatorship of "senior" management, between cooperation and autocracy.

Obviously, the variety of environments is higher than variety of technological op-
erations, which in turn exceeds the variety of management. No manager does know
everything that happens in his office, and even more in the market. In reality, we are
taking measures that should neutralize any conceivable problem and simultaneously
arming against us unimaginable problems. A narrowing of variety management facility
(attenuation) and the increase in variety controller (amplifying). For example, law-

Figure 5: Variety

enforcement increase its variety by professionalism, modern communications, motor
transport. Specific information systems reduce the variety of the suspects. Powerful
attenuators are weapon license, car registration, access restrictions, curfews, but this
is infringing human rights, his freedom. Search compromise between amplification
and attenuation of variety is a management itself.

All of this is quite naturally, but is used unwittingly. It is desirable in such sys-
temic analysis of problems to list all the used and available attenuators and amplifiers.

So we manage complexity, questions about the role and structure of its flexibility,
the geometry of relationships, channel capacity and converters of synchronizing their
work appear. This special issues of management cybernetics.

21
Select the main thing: instead of running over and analysis of all possible in the
competitive environment situations, we simply employ an experienced administrator,
clearly dosed give him the freedom to demonstrate the variety of his brain and re-
sponsibility dictated by security of firm and those cover the variety of environments.
In this way we create autonomic subsystem. That autonomy - powerful amplifier and
attenuator at the same time. The extreme degree of autonomy - is when every day
we hear "All okay" or "There are problems". Through this subsystem, we briefly
attenuate a variety to one bit.

However, in problem situations we should organise quick and powerful intervention,
possibly exceeding the competence of the subsystem. Will structure allow the tran-
sition from autonomy to the central control? Will have channels enough capacity
for information in the periods of crisis? Who defines the degree of autonomy? The
human nervous system shows to us way to manage it. On this analogy Beer bases its
model. HNS organization we explore above.

In his model Beer introduces the concept of "resource" contract, which legalizes and
agree on the degree of autonomy staff. The treaty declares activities that they can
take, and provides these resources activities. It is clear that the contract should be
adjusted in changing of the degree of autonomy. In this light, it can be said that in-
vestments are attenuators of variety, and the responsibility - limiter risk in the variety
of our decisions.

Now, VSM is drawn in the technical (in sense of working with variety) figure 6
and in neuro (in sense of relation with HNS) figure 7. Its consists of 5 functional sub-
systems (first of them contains recursion) and environment separated INSIDE-NOW
and OUTSIDE-THEN. Firstly about recursion. Such self-similarity is considered as
a key to viability. There is first theorem: every viable system contains a viable system
itself is an element itself. VSM fractal structure reflects the relationship between the
parts in their integration into a whole, provides consistency of goals and the degree
of community growth.

Other subsystems two, three, four and five, do not contain ’fraktality’. They are
not viable in themselves, they are intended to preserve the organization to support
homoeostasis in changes of the situation in the internal and external circumstances.
In 6 on the left side an environment is shown, also there are the interests of units and
their intersection. This intersection could be implicit, as an image of the company for
all operational units.

Explanation of the subsystems is better to start from the System 1. Subsystem 1
consist of operational units network. Operational units are who really do their work,
or who operates with environment and their managers. Operational unit activities are

22
OUTSIDE INSIDE
Metasystem

5
THEN
4

3
3* 2

NOW

1

Variety amplification Variety attenuation

Figure 6: VSM technical representation
23
Figure 7: VSM neurological representation (modified source from [14])

24
not a service for other operational units. Subsystem 1 normally connect and absorb
most variety from external environment. In the 5 represent typical operational unit
tasks and how it is represented 8 by Sandy Britain and Oleg Liber from University
of Wales in their "A Framework for Pedagogical Evaluation of Virtual Learning En-
vironments" http://www.leeds.ac.uk/educol/documents/00001237.htm.

Figure 8: Key operational communication channels

As an example of VSM here and below, the project management organization as an
etalon for future comparison is used. By this way, operation units in project manage-
ment organization makes abbsorbation of variety of different variant before realisation
and make project executed. Firstly they are designers or constructors or leading en-
gineers. Who make choices about ways of realization of customer requirements. In
difficult projects they are separate in different units, e.g. mechanical and electrical.
In additional one can also classify manufacture, buying, erection as an operational
units.

It is essential to show to communication between operational unit managers. It help
to react on events fastly if they have enough information and resources to do it. Op-
eration unit managers communication allow to understand situation before official
explanation.

This operational units especially in case of shared resources such as money, people,
time, sequence of processing conflict each other. This oscillation should be dumped
and operation units should be coordinated. In the best case coordination is done
by operational units theirselfs. Because of reducing of variety in outside coordina-

25
tion case. Such coordination is represented in the VSM as system 2 (triangles in
the 6). With connection with HNS system 2 can be seen as sympathetic system.
For illustration of the system time schedule, general schedule, standards, cash flow
regulation and etc. can be used. In project management this type are commonly used.

Reticular formation in the VSM presented by system 3 which is belong to metasystem.
Metasystem does not mean senior in hierarchical sense. This system communicate
with system 1 and gather information from system 2. It has functions of integra-
tion and synergation. It is management at all, management of situation INSIDE and
NOW. It solve serious problems, set goals and communicate with other level of recur-
sion. From higher level of recursion system 3-2-1 looks as only operational unit. In
standard project management system 3 is operational control of activities-in-progress.

In accordance with Ashby’s law of requisite variety Beer create The First Axiom
of Management:

The sum of horizontal variety disposed by n operational elements equals
the sum of vertical variety disposed on the six vertical component of cor-
porate cohesion.

First 5 we already know: communication into environment among customers, commu-
nication between operation unit, communication managers of operational units, dump
of oscillation by system 2, and an intervation of metasystem into operational units.[15]

The last one component is system 3*. It is audition or independent gathering infor-
mation of operations by metasystem. This channel is only for audit not for providing
of new instructions or interventions of metasystem into operation units. Management
should create useful and only necessary indices for fast audit and good variety dispo-
sition. Of course, 3* has analogy into HNS - parasympathetic system. For project
management financial, scope, and quality audit is made usually.

To understand all environment and make suggestion about future, to orient into OUT-
SIDE and THEN nature use system 4 by Beer terminology. This system understand
where organization is, where it better to be in future and how to achieve it. This
system has channels, approaches and power make decision of direction into future. As
example one can use RD department. But it only technical prognosis, enterprise, of
course, will be more viable if it would prognoses financial and market situation. For
better results all this prognoses should make by one team of managers. It is strange
analyse market without technical support. Traditionally example from project man-
agement: system 4’s functions are product planning, future activities, purchasing and
contract, financial planning, scope change control.

It is very important to make plans with understanding of situation in internal en-
vironment. It provide be close communication between system 3 and 4. Both of them

26
works with high variety and it is necessary to create good attenuators and amplifiers
of it. It can be made by meetings

The final system in the VSM is the System 5. Jim Underwood from University of
technology Sydney explanation of its role was used. One can find materials of VSM
on http://www-staff.it.uts.edu.au/~jim/bpt/vsm.html#s5

The system is the "boss" system, the policy making system. This is where
the final responsibility lies, but in a well designed system few decisions are
made here. The decisions which do need to be made here concern how
the operational system (system 1) should change its behaviour to deal
with the changing environment. This is based on intelligence information
about the environment (filtered through system 4) and control informa-
tion about the operational system (filtered through system 3). These two
sources of information need to be in balance, so as well as dealing with
the information, system 5 needs to ensure that the systems which provide
it are properly designed.

But the decisions which get as far as system 5 will be those that haven’t
been prespecified by policy guidelines or subsystem goals, decisions which
can’t be rationally decided. System 5 must make a decision, even if it’s to
just wait and see. So these decisions are made according to cultural prece-
dent, the personality(ies) of system 5, the "mood of the time" or something
similar. This is how the "ethos" or character of the organization comes
into play. Beer calls system 5 a "variety sponge". All the things which
can’t be decided otherwise are decided here. There had better not be too
many of them.

System 5 can be compared with cortex in human nervous system. In the project
management system 5’s functions are define project organization, objectives, policy
and procedures, scope change approval.[17]

The original principles, theorem and axioms for the Viable System Model are into
appendix 1.

27
3 Company’ project management organization and
VSM
3.1 Company’ project management organization
The investigation concerns in project management organization. What is project
management and how it can be organized will be discussed here.

Project management is management of achieving goals and objectivities with qualifi-
cations of resources. Resources are money, people, materials, energy, space, provisions,
communication, motivation, etc.

Besides effective using of resources, project faces with changing of environment and,
consequently, of goals. It turn, situation is very complex and it has high variety. There
are a lot of techniques and approaches help in fighting with this variety. For example,
the simplest is do not change project plan at all. It is used in "waterfall develop-
ment". This approach consists of several standards steps: requirements specification,
design, construction, integration, validation, installation and maintenance. On figure
below steps are can be seen. It has very strong disadvantage. It is very sensitive to

Figure 9: Waterfall project management

requirement definition. Thus if there is some small uncertainty in beginning it would
be big difference between realization and planning. To reduce it, different approaches
are using. They are "waterfall development with feedback", critical chain, extreme
project management, event chain methodology, process based management. These
methods in the paper are not explained, but one can see that project management
organization has a lot of techniques. It means that project is difficult and uncertain
action. Hence, it requires powerful system of controlling and strong organization.

28
It is suggested that the Viable system model is what project management need for
itself controlling because the project management works in, practically, not clear de-
fined environment. It is a typical task for the viable system.

Before analysis better to say that project can be divided into two step: planning
and realization of the plan. It can be compared with theory of functional systems.
Plan has relation with acceptor of action result and realization relates to a efference.
Now it can be suggested that should be sensors in subsystems to control how plan
is realized. This ideas give us strong relation between neurophysiology and project
management. It is necessary to say that afferent synthesis (sells) and decision making
(project kick-off) are not explored in the paper.

3.1.1 Objective project management in Company
Here explaining of the "real situation" starts. Firstly about methods of exploring.
In the manuscript two ways to explore project management in Company are used.
They are using of official documents like manuals, guides and teaching materials, and
personal interviewing of project participants. I concentrated on the level of project
not on level project portfolio or level of project parts realization. So system-in-focus
is a big project.

The begining is the manuals and guides that are given to me by Company man-
agement. The documents divided into to main parts: mindsets for overview of PM,
and standard practices of operating. By this way, "objective" information about PMO
in the Company is gathered. In the paper, I widely use it, but not everywhere put
the copies of the documentation.

It is seemed to be classical waterfall project that has a lot of problems in finish-

Figure 10: Main flow of typical project in Company

ing of the project. That is more interest for thesis because load of problems lies on

29
Figure 11: Waterfall project management in Company

project management. Now I am suggesting that interviewing give me good informa-
tion.

It is not very important information but it give us understanding how project "really"
goes. More useful for the master’s thesis to see what are roles and their responsibili-
ties. It helps to explore project management organization.

A project team consists of a project manager, leading engineers, buyer, manufac-
turing supervisor, forwarder logistics and erection responsible. Also a production
coordinator participate in the project, but official information has not updated.
Project manager is a main person in project team. He/she has a lot of responsibilities

Figure 12: Typical project team in Company

and main of them is success of the project. The lists below are gotten from official
guidelines:
Project manager is the Executive Director ("Managing Director") of the project:

• Responsible for the financial result of the project (= keeping or improving the
project’s margin)

• Responsible for the on-time delivery of the project

30
• Responsible for delivering the project according to the Contract

• Responsible for managing all customer issues
He/she also has the tasks:
• Makes critical project decisions

• Makes overall project schedule. “Pulls the internal parties together”.

• Constantly follows and steers the progress, decides on changes .

• Launches the Project Team

• Secures that persons nominated to his project know what they should do

• Secures the necessary resources for the project. Does constant resource planning

• Secures that the Project Team members know their detailed financial goals

• Makes project budget and constantly forecasts the financial result

• Initiates invoicing and controls the money collection

• Initiates and controls that the necessary financials instruments are received and
issued

• Knows the customer Contract interprets it to the rest of the organization

• Manages and settles extra orders during the project

• Initiates and controls, that the necessary financials instruments are received
and issued (e.g. payment and performance bonds, Letters of Credit etc.), as
also possible special insurances are arranged.

• Secures to get necessary resources for the project (Engineering, Manufacturing
Supervision, Erection, Commissioning etc.). Does constantly progress follow-up
and resource planning

• Secures that persons nominated to his project know what they should do (both
content timing)

• Makes critical project decisions. Consults specialists to obtain necessary back-
ground information for decision making.

• Represents KCI’s official position towards the customer

• Responsible for managing, invoicing and settling extra orders during the project

• Responsible for ensuring that the claims (including punch list issues) are taken
care of. Makes necessary decisions to get these done

31
• Responsible for managing warranty issues.
It is seemed to be too complex, too much variety for one person. It will be analysed
in comparison part of the master’s thesis.

There are information about other team players:
Leading engineering is

• Responsible for the technical content and technical documentation of the project
so, that we fulfil our obligations in the Contract’s technical issues. "We deliver
technically what is promised".

• Responsible for managing the work of project’s designers

• Responsible for defining and supplying technical information with the proper
content and right timing to persons / functions needing that information

• Understands thoroughly both the Contract’s technical requirements and the
customer’s technical expectations

• Plans and secures the amount of needed competent engineering resources

• Makes the engineering schedule and steers its progress

• Defines the work contents for designers and monitors, steers and controls the
progress

• Arrange that the necessary Purchasing Specifications are done in due time and
with correct content

• Makes technical decisions concerning the project. Consults specialists as needed.

• Monitors and forecasts engineering hours constantly

• Monitors and forecasts equipment weight constantly

• Acts as the technical specialist for Purchasers, Manufacturing Supervisors and
Vendors

• Manages the distribution of the project’s technical documentation

• Manages that as-built –documents are systematically done and distributed also
to the customer

• Makes Customer Training Material and Maintenance Operation Manuals

• Acts often as Customer Trainer him / herself

• Solves technical claim and warranty problems

32
Purchaser

• Cost terms (incl. delivery times) information during quotation phase and during
project execution

• Negotiate and place orders to the internal and external suppliers and vendors

• Plan together with the Project Team the proper timing for receiving tech. spec-
ifications and placing the orders

• Proactively monitor and control all vendors. Focus on "bottle neck" vendors.
Technical assistance from Leading Engineer.

• Manage all claim- issues related to Procurement ("the one who buys, manage
settle his claims")

• Must know the budgeted cost (in project Budget) for each specific item to be
procured

Manufacturing supervisor

• Manage, control quality and supervise the crane manufacturer (both in case of
an internal or an external manufacturer)

• Responsible for steering and instructing the crane manufacturer so, that the
manufacturer keeps the schedule, does proper quality and uses the methods
securing the right quality. Arranges the necessary relevant documents and in-
structs the maker.

• Reports to either Procurement or project Manager as agreed specifically in each
specific case.

Logistics

• Define transportation and logistics concepts and costs(both in quotation phase
and in project execution). Define timetable for transportation arrangements.
(In Finland: Do this together with Global Purchasing Manufacturing)

• Plan and organize the transportation/ logistics to intermittent storages and to
crane maker

• Plan and organize the transportation/ logistics of the ready made crane or crane
parts to the erection site

• Arrange and/or buy the transportation and needed forwarding services

Erection responsibility

33
• Responsible for arranging and planning all erection site activities: erection team,
subcontractors, crane inspectors/ testers, tools, mobile cranes, housing, commis-
sioning, etc.

• Responsible for defining and doing additional purchases required for erection,
loading tests and commissioning inspections

• Define and make the punch list and warranty work. Arrange and manage the
work to be done. Punch list and warranty works must be accepted by Project
Manager.

In addition, the list of activities for the production coordinator is made:

• Responsible for coordination of vendors and sub-contractors.

• Responsible for in-time delivering of necessary components to sub-contractors.

All this information about activities shows that project team as a whole and team
players have a big autonomy for the actions. It supports the investigation because
autonomy of the units is a very important part of the VSM.

3.1.2 Subjective project management in Company
Objective means project management organization wich is based on documentation
and guide lines. This objective documents represent general information about PMO.
It gives knowledge of the project management organization as it should be. But real
situation is more complex. That is why it is necessary to gather information about
"real" situations as more as possible.

Method of interviewing in reason of the time limit and, hence, impossibility to par-
ticipate in real project was chosen. Real projects in Company take about 1-2 years
from start to end. Thus I could get my own experience of project management.

The interviewing has been made by 20 personal questions and 9 general questions
which was chosen by me. Personal questions concern 2 areas - internal and external
environment. Each area divided to 4 parts: structure, functions, pathology and com-
munication. Venereal question are about 5 subsystems of the viable system model:
operational activity, coordination, optimization and controlling, planning and policy.

Personal questions:

1. What is your role in project team?

2. Who is your manager?

3. Who are managed by your?

34
4. With whom of project team do you communicate more recently?

5. What are your general activities?

6. Who defines goal for you?

7. How do you check that goals are achieved?

8. When do your start participation in the project?

9. What reports do you make for manager?

10. What information do you give manager besides reports?

11. What reports are made for you?

12. What information do you get besides reports?

13. What are typical problems in the project team

14. Are any conflicts in the project team?

15. If yes how is it solved?

16. What is an "external environment" for you if "internal environment" is the
project team

17. What information and how do you get from an "external environment"

18. How do you react on it?

19. What do you do when you cannot react by yourself?

20. How do you communicate with an "external environment"?
General questions:
1. Who are operational unit in the team?

2. How is team coordinated?

3. How is project execution optimized?

4. How does the team understand about stresses in the project execution?

5. Who set goals for all project?

6. What are usual goals?

7. How does the team understand that requirements for the project are changed?

8. How does the team make plan for the project?

35
9. How does the team change approaches and policy of the project execution?

The questions were asked in the interview. Persons from different project teams
participated in the interview. Persons were chosen‘ from all subsystems of the hy-
pothetical viable system model of project management. Knowledge of the theory of
functional systems was used. Thus, the main goal/function is to achieve project goals
by its management.

3.1.3 Conclusion of investigation
Basing on the analysis of the investigation results, the project management in Com-
pany into several parts can be divided. The criteria of division are functions, clustering
into a communication network, place and kind of activities. They are

• Project manager,

• Design or engineering,

• Building,

• Forwarding or logistics,

• Erection and commission.

The project manager is the main person in the project. He/she makes all impor-
tant decisions, communicate with customer, choose methods of project management,
he/she sets subgoals. He/she is responsible for final result.

Design or engineering is provided by mechanical and electrical leading engineers. It
is mental part of the project. On this stage, a technical plan and drawings are made.
Actually a project plan is made also. It is made by the core team: leading engineers
and project manager. Most of decisions are not changed in future.

The next step is physical realization of the drawings. It made by vendors are sub-
contracts. Company wide uses outsourcing. Thus the building cluster of project team
consists of production coordinator, buyer and manufacturing supervisor. Their func-
tion is to made the crane in according with drawings and time table.

Forwarding and logistics move crane to the customer place. It is motion cluster
in the project management team.

Last cluster or operational unit is erection and commission responsible. It customer-
side operation units they make final part of the project.

36
The clustering supported by functional division, by subjective points of view and
by communication preference in the team. Special question about it is in the inter-
view. It seen that project management can be easily represented by the VSM. It will
be done in next part of the manuscript.

37
3.2 Comparison the VSM and Company’ PMO
The comparison of the models and the project management system will be made by
functional system comparison. The PMO is suggested to be in the class of the VSM,
hence it can be compared directly. Through the investigation I have not found and
ideas that do not appear in the VSM. So direct approach with the VSM as a reference
can be used in my manuscript.

Before the comparison some ideas of self-organization representation should be ex-
plained. Self-organization is an essential part of the VSM. But graphical represen-
tation of the connections into the team is too complex. Thus, communication into
Company project management can be more simply shown by connectivity matrix E
3.2. The connectivity matrix is a term from graph theory. The matrix contains infor-
mation of ways which existence between nodes. The graph theory seems to be useful
in the VSM studing.

Main row and column for connectivity matrix are set by the vector of nodes V . Nodes
are divided to 3 groups: metasystem, operational unit and environment.
 
M etasystem_of _project_management

 M etasystem_of _engineering 


 El._and_mech._engineering 


 Environment_f or_engineering 


 M etasystem_of _building 


 M anuf acturing_and_buying 


 Envionment_f or_building 

V =  M etasystem_of _f orwarding 


 F orwarding_and_logistics 


 Environment_f or_f orwarding 


 M etasystem_of _erection 


 Erection_and_commision 


 Environment_f or_erection 

 P roject_management 
Outside_and_then_enivronment_f or_P M

38
 
0 1 1 0 1 1 0 1 1 0 1 1 0 1 1
1 0 1 0 1 0 0 1 0 0 1 0 0 0 0
 
0 1 0 1 0 0 0 0 1 0 0 1 0 0 0
 
0 0 1 0 0 0 1 0 0 1 0 0 1 0 0
 
1 1 0 0 0 1 0 1 0 0 1 0 0 0 0
 
0 0 1 0 1 0 1 0 1 0 0 1 0 0 0
 
0 0 0 1 0 1 0 0 0 1 0 0 1 0 0
 
1
E= 1 0 0 1 0 0 0 1 0 1 0 0 0 0
0 0 1 0 0 1 0 1 0 1 0 1 0 0 0
 
0 0 0 1 0 0 1 0 1 0 0 0 1 0 0
 
1 1 0 0 1 0 0 1 0 0 0 1 0 0 0
 
0 0 1 0 0 1 0 0 1 0 1 0 1 0 0
 
0 0 0 1 0 0 1 0 0 1 0 1 0 0 0
 
1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Graphical representation of this graph is in the figure 13. The figure sows relation
between 3 types of objects (environment, operational unit and metasystems). It shows
complex nature of the operational units into system 1 of the VSM.
After this digression, I make direct comparison:

The system 1 in PMO is presented by the operational units: engineering, building,
forwarding and erection. It is clearly seen from documentation. Besides, it relates
with "waterflow" project management. I suggest that nothing new can be added here.

The system 2, i.e. function of coordination, is realized by time tables and by the
project plan. The meetings of the project team also are very important. Interviewers
pay a lot of attention to it. It is one of the most using tools to resolve problems.

The system 3* is supported by activity of the project team players. For my opin-
ion, there are no good monitoring of the situations: no indices are made. Only active
position of the operational units or the project manager, and some information in the
Movex (financial and project software tool, http://www.lawson.com/) show real sit-
uation. I suggest it is a soft spot in Company’ PMO. Fortunately, crane building does
not have very fast changing external environment. Thus, there are no big problems
with passive monitoring system and thus system is not yet developed.

Integration or synergy of the internal environment are made by the system 3. In
the project management of Company it is the responsibility of the project manager.
All interviewers in the project team said about it.

The project manager’s activities also contain the system 4 functions or communi-

39
Figure 13: Relations into project management

40
cation with customer, participating in sales and making forecasting of the project.
The system 4 based on experience of the project management team. But, also there
are instructions for forecasting during project execution. Moreover there is principle
"Live in tomorrow already today". Subjective information do not make me sure about
its esxecution. So it depends on concrete project manager.

The system 5 is a policy making system. Policy is written into guidelines, but not
every project team player knows it. Thus, the project manager should to provide this
policy to everyone in the team. General policy of the company is shown at special
common meetings also. Thus the Company pays attention to this important but dif-
ficult part of company life.

In the sum, I can say that project management seems to be quite viable system.
It has autonomy, all parts are presented even they are not well developed. Growing
of the company shows good results of using this approaches in management.

Negative moments are in not developed systems such as monitoring, adaptation, pol-
icy. In addition, concentration that systems in one person - the project manager can
make too unstable because of too high variety in this parts. Thus here should be
professional with big experience to provide this functions well.

To represent final results of the investigation the scheme of the VSM of project man-
agement in the figure 14 is made. Dotted and light gray lines show problem parts
of the system from the VSM point of view. Now it could be said: the system 1,
the system 2 are made well; the system 3* is not well done; the systems 3, 4 and 5
concentrate in one person what leads to the high dependence on him.

41
Figure 14: The VSM of Company’ PMO
42
4 Conclusion
"Two waves" of cybernetics and neurophysiology are commonly used in modern man-
agement. Besides the VSM, it is used in St. Gallen management system, in Total
Quality Management, in the Balanced Scorecard. The manuscript contains basic ideas
and history of its development.

The VSM also is based on it. Hence, it was used in the manuscript as a reference
of management approach. Inasmuch as Company has developed project management
system it is possible to describe and compare it with the reference. It was done by
"objective" and "subjective" methods of exploring.

Succesful describing allows to make some recommendation for Company’ PMO. The
investigation shows that management has good developed basic system 1 and 2. But
a bulkhead of project management to provide high adaptivity stay is not developed
in so good manner. It is Achilles’ heel of the projects and can become serious in case
of fast changing environment. But now, the environment in heavy machine building
is not fastly fluctuated. There again it is the reason to not pay a lot of attention to
the system 3*,4 and 5.

To prepare for future, to improve viliability of the Company project management
the system 3* indices to active and other independent ways of monitoring situation in
internal operation units should be done. The systems 3, 4 and 5 should be improved
too, but I think it is not more important because of its present fractional development.

The goals and further exploring of scientific base of management can be set for future
work. Ideas of self-organization, battle with around-world complexity, adaptation,
reflection systems are need to be learned for more successful actions in stable devel-
opment movement.

43
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45
A Appendix1
APHORISMS:

The first regulatory aphorism

It is not necessary to enter the black box to understand the nature of the
function it performs.

The second regulatory aphorism

It is not necessary to enter the black box to calculate the variety that it
potentially may generate.

PRINCIPLES:

The first principle of organization

Managerial, operational and environmental varieties, diffusing through an
institutional system, tend to equate; they should be dsigned to do so with
minimum damage to people and to cost.

The second principle of organization

The four directional channels carrying information between the manage-
ment unit, the operation, and the environment must each have a higher
capacity to transmit a given amount of information relevant to variety
selection in a given time than the originating subsystem has to generate
it in that time.

The third principle of organization

Wherever the information carried on a channel capable of distinguishing
a given variety crosses a boundary, it undergoes transduction; the variety
of the transducer must be at least equivalent to the variety of the channel.

The fourth principle of organization

The operation of the first three principles must be cyclically maintained
through time without hiatus or lags.

THEOREM:

Recursive system theorem

In a recursive organizational structure, any viable system contains, and is
contained in, a viable system.

46
AXIOMS:

The first axiom of management

The sum of horizontal variety disposed by n operational elements equals
the sum of vertical variety disposed on the six vertical components of cor-
porate cohesion.

The second axiom of management

The variety disposed by System Three resulting from the operation of the
First Axiom equals the variety disposed by System Four.

The third axiom of management

The variety disposed by System Five equals the residual variety generated
by the operation of the Second Axiom.

LAW:

The law of cohesion for multiple recursions of the viable system The Sys-
tem One variety accessible to System Three of Recursion x equals the
variety disposed by the sum of the metasystems of Recursion y for every
recursive pair.

The principles and axioms are from "The heart of enterprise" [15]

47