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Although adaptive approaches to managing complex projects have shown performance improvement, projects are still not controlling the scope of work and exceed schedule and budget. Therefore, these performance problems must be caused by other factors affecting the project’s behavior. This paper proposes a new system’s theory that explains project behavior and performance. A project is a temporary system of resources that possess the knowledge and skills to fulfill the output scope (i.e., product, service, or result). The natural variation in project behavior and performance is the uncertainty within the project resources to fulfill the complexity of the project output. The theory is based on the following principles. First, there is natural variance is in all systems. Second, the more natural variance in a system, the more chaotic a system will behave. Third, improving the system’s performance can only be achieved by reducing the natural variance in the system. The theory was developed from studying the behavior and performance of ten longitudinal IT projects that ranged in complexity over a period of seven years.

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