Improved execution of megaprojects could save trillions

11 January 2016 Consultancy.uk

Megaprojects are notoriously hard to manage, and up to 90% end up being over time and budget, research by Roland Berger finds. As the number of megaprojects is set to increase, up to €30 - €75 trillion will be invested in such projects over the coming 15 years, finding ways to limit costs will become a strategic necessity. According to the consultancy, a way to prevent these overruns is by implementing a strategic unit, the ‘executive intelligence office’, that is able to cope with the most common causes of overruns.

Megaprojects, those projects that cost more than $1 billion, tend to be technically complex, multi-year and multi-stakeholder projects. Many of these kinds of projects are infrastructure-based, including airports, pipelines, refineries, roads and rail infrastructure to high-speed trains, aircrafts and IT systems. Examples of recent megaprojects include the Trans-Adriatic gas pipeline, the expansion of the Suez and Panama Canals, the implementation of a new rail safety system in Europe, and Beijing's, Istanbul's and Rio de Janeiro's new international airports.

Due to their size and complexity, megaprojects tend to overrun their original budgets. In a recent report, titled ‘Keep your megaproject on track’, Roland Berger analyses more than 1,000 megaprojects in terms of financial and schedule planning and their resultant trajectories. The consulting firm finds that 90% of the projects have gone over budget and timelines. The average cost overrun for the projects is 55% of the original budget – and for many, the actual costs exceed the original business case by a factor of two, three or more.

Project overruns

The number of megaprojects on the books is expected to increase in the coming years as long overdue infrastructure upgrades and redevelopments, as well as emerging economic infrastructure projects, are implemented. According to an analysis by Arcadis an additional $84 trillion in new infrastructure wealth will be created between now and 2025, with megaprojects expected to come in at around €30-75 trillion over the coming 15 years. 

The cost and timeline overruns are costing project backers considerable, often unplanned, business expenses. In a bid to reduce the loss of time and money, Roland Berger investigated a number of ways in which project management can be improved across the whole project.

Project overruns
The analysis isolates four major factors that influence project costs. These include the inherent complexity of projects, where the long timetables and great number of interfaces make them difficult to manage. The second is the new ground deployed in the projects, technologies are sometimes developed for the project and are therefore as yet untested on a large scale, forcing constant recalibration as unforeseen issues arise. The dynamics that come from a wide range of shareholders taking part in the project, with the goal posts moving as conditions are changed, and conflicts of interests arise are also seen as a factor. The final problem faced by many large scale projects is the simple complexity of the mega scale and the unpredictability of every eventuality.

Implementing an executive intelligence office

 

Moulding mega reality
To manage megaprojects a wide range of tool sets and models have been developed in recent years, including stage gates, front-end loading, the Program Evaluation Review Technique (PERT), Work Breakdown Structure (WBS), the Project Management Body of Knowledge Guide, Projects IN Controlled Environments (PRINCE 1 and 2). According to the firm, these systems help reduce the length and depth of overruns, yet are not in themselves sufficient to deal with the managerial complexity of such large projects. The project managers with oversight tend to become auditors rather than controllers of the project’s destiny.

The key ingredient missing, according to the Roland Berger, is a means of making rapid contextualised decisions in the face of a constantly changing environment. In an ideal world for management, all relevant information is constantly available and decisions regarding that information can be seamlessly made in line with project goals. Since we tend to find ourselves in environments that lack description, managers find themselves needing to make decisions from more limited data, with short timeframes. Given the nature of the environment, the consultancy suggests setting up an executive intelligence office to ensure Rapid and Appropriate Decisions with Accurate Response (RADAR).

The executive Intelligence office

The purpose of this unit is to provide more than just managerial oversight and audit of the wider project, focusing instead also on strategic and fast limited information processing with accurate judgement built from a wide range of sources. “It focuses on helping steer the project by identifying and enabling decisions within the context of the ever-changing reality […] The RADAR is tailored to the specific needs and situation of the megaproject at hand.” the report states. The benefits of such oversight within mega projects could be staggering, given the €30 - €75 trillion to be invested; even a 10% better outcome in costs would net €3.0 - €7.5 trillion in savings.

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