System Dynamics in Distressed Investments: Power and Limitations from the Perspective of a Project Manager

Distressed investments form a special investment class. Investors source the investment cases from the credit portfolios of banks and private equity firms. They usually form task forces for the assessment, emergency management, investment decision, and turnaround phases of these investments. This article focuses on distressed companies, particularly on the interactions among existing and new actors during the lifecycle of an investment decision. It explores the dynamics during the initialization of the project to bring the company back to growth and profitability. The first part describes how existing actors, in the initial situation, struggle to make the organization survive. In the second part, potential new investors introduce a project manager (PM) to assess the situation, to regain control, and to build the basis for the renewal process. The PM’s instruments and management skill are explored in order to show how they allow the dynamics of the system to influence the situation and achieve the objectives. During its struggle to survive, the organization, i.e., the system, gains significant dynamics. The power shifts and changes in the positive loops can either push the system into an out-of-control state or, alternatively, propel it onto new levels of innovation, customer service, and profitability. This paper explores how the PM can increase his odds of bringing the organization back to growth and profitability by using a system-dynamics approach, drawing on both the author’s SD training and his repeated experience as a Project Manager.