Recently, Oxford professor of Major Programme Management, Bent Flyvbjerg, published a thought-provoking paper titled What You Should Know About Megaprojects and Why: An Overview. If you are familiar with Flyvbjerg, you already know that he is one of the foremost researchers and critics on megaprojects and has frequently and succinctly pointed out why megaprojects fail. In reading Flyvbjerg’s analysis, it may make you wonder if project success is possible in industrial megaprojects. With such high risk associated with megaprojects, what can be done to tackle the inherent issues that lead to megaproject failure? Flyvbjerg summarizes the paper in his Facebook article, Ten Characteristics of Megaprojects, listing the primary issues that lead to project failure. The following article includes five of the ten issues and discusses how organizations engaged in megaprojects can mitigate these risks and ensure project success.
Megaprojects are inherently risky due to long planning horizons and complex interfaces.--Bent Flyvbjerg
Megaprojects are definitely risky. At Coreworx, we’ve had the opportunity to work with industry leaders like Fluor, Suncor, Inpex, Sinopec, Saudi Aramco, and others who have identified interface issues as a significant project risk and recognized interface management as a key mechanism for mitigating this risk. Interface management is a “must-have” discipline for managing megaprojects. With a high likelihood of cost growth and schedule slippage, and with project owners underwriting all project risk, there is a growing need to systematically identify, document, and manage technical, project, organizational, and industry interfaces. As projects grow in size and complexity, ensuring project alignment between interface stakeholders charged with managing and delivering parts of the project scope is critical to achieving project success. The risk comes from the fact that two stakeholders may have no contractual obligation to each other, but are dependent on each other to deliver their respective parts of the project scope. When this ‘interface’ relationship is mishandled, the downstream effects can be massive. In order to avoid the costly risk associated with mishandled interfaces, organizations involved in megaprojects must go through a complete review of their existing project processes. The scope and complexity of these projects require organizations to establish an effective interface management program. This program will consist of: people, processes, and a software system to enable the aforementioned by identifying, documenting, and tracking the progress of interfaces. For further reading, see: Improving Project Outcomes with Interface Management, and keep an eye out for the soon to be published Interface Management Handbook.
Often projects are led by planners and managers without deep domain experience who keep changing throughout the long project cycles that apply to megaprojects, leaving leadership weak.--Bent Flyvbjerg
Not only do projects face a shortage of domain experience, they also face a lack of corporate knowledge. There’s no doubt the project world is transient and as employees come and go, whether through retirement or attrition, the corporate knowledgebase and experience follows them out the door. Job hopping is the new normal for young workers as many employees “follow the money” from project to project to project. Experienced workers may be less transient than their younger counterparts, but many are reaching retirement age and taking their knowledge and experience with them. It’s undeniable that Companies are faced with a serious human resources challenge. Ed Merrow points out in a recent Project Manager article that “The sheer amount of work that has to be completed on the front end, combined with our global shortage of first-rate project management personnel, means that teams are frequently understaffed and fail to complete the needed front-end work.”[i] To meet this challenge, companies need to look for ways to put systems and processes in place to capture the wisdom of their experienced managers. These systems help to supplement the knowledge from “personal experience” by implementing workflows and project best practices. Every company would rather have a 30-year veteran on the job, but when that isn’t possible, less experienced team members can lean on a knowledgebase of best practices and lessons learned within these implemented systems to make better decisions. Companies must accept the changing human resources dynamic and work to combine the knowledge of their experienced project professionals with industry best practices from organizations like CII, CMAA and CURT. Once these best practices are established, they need to be translated into corporate processes and enabled by user-friendly software solutions. As industry veteran, John Fish, said in a recent Fiatech presentation, “There must be a mandate to automate. Companies must do more with less by capitalizing on productivity improvement enabling systems and technologies to maximize efficiency.” The good news is that many of today’s online project information systems will support knowledge management, as well as help to automate processes and give project teams the information they need to make decisions efficiently and effectively. This will help to mitigate the risk caused by the human resources challenges outlined by Flyvbjerg.
Decision-making, planning, and management are typically multi-actor processes involving multiple stakeholders, public and private, with conflicting interests.--Bent Flyvbjerg
As mentioned earlier, megaprojects are inherently risky so the level of risk, capital investment, and management effort are too great for a single company to undertake. As such, joint ventures have arisen as the standard model for both owners and EPC companies. With megaprojects, the ability to employ successful joint ventures is critical. With so many potential conflicts of interest and so many ways of reporting, transferring knowledge, and sharing information, involved parties must agree on a method to achieve a ‘single source of truth’ for all to follow if the project is going to succeed. A project information system built for megaprojects must be used to act as the reliable source of current information so there is always a fully-auditable master source of project information. As discussed in the previous section, the system should support industry best practices and automate processes to manage risk and establish compliance through things like transmittals, version control, workflows, and approval processes. Using a tool that automates and enforces these processes helps to ensure the right people get the right information at the right time. This will empower project teams to make strategic decisions and take actions to mitigate risk. Consistent transparency of information ownership and flow is essential to supporting successful joint ventures and successful project execution.
Technology and designs are often non-standard, leading to “uniqueness bias” amongst planners and managers, who tend to see their projects as singular, which impedes learning from other projects.--Bent Flyvbjerg
Again, to quote John Fish and his Fiatech discussion, “Construction must move from the field to the factory.” This is happening to a certain extent with modular construction and fabrication becoming the standard process for megaprojects. These modularized projects allow owners to take advantage of cost savings, better resource optimization, and quality workmanship from around the world. In order to avoid the “uniqueness bias” that Flyvbjerg refers to, modularization must move towards more standardization rather than less.
This modularized method does, however, create additional complexity as the diversity of the suppliers, stakeholders, time zones, and cultural differences involved in supplying a modular package puts a large-scale project in jeopardy of mismatched interfaces and stakeholder conflicts. In order to accommodate for this, an interface management program must be implemented.[ii]
Due to the large sums of money involved, principal-agent problems and rent-seeking behavior are common, as is optimism bias.-- Bent Flyvbjerg
Projects are built by humans and with that comes all the baggage associated with human decisions. Egos and ambitions often circumvent rational process resulting in poor decisions and negative results. Flyvbjerg quotes the mayor of San Francisco after a large project cost overrun as saying, “If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in.”[iii] Ed Merrow echoes this sentiment in Industrial Megaprojects, saying “Ultimately the problem comes down to a simple matter of lack of accountability. Business executives who set in motion a process that will destroy huge amounts of shareholder wealth are rarely held accountable for their errors and omissions. In the usual case, not the extraordinary one, the executive that championed a bad project at the outset has been promoted out of any line of responsibility and accountability for the poor result long before the depth of the problem becomes known.“ [iv] A recent article by Booz & Company stated that megaprojects “combat a 30 percent average figure of overrun in schedule and cost.” [v] Clearly, the human element must be accounted for in order to combat decisions made for reasons other than the good of the project. This is where project management and front-end planning make their mark. Front-end planning must get proper attention in order for a project to avoid becoming part of the Booz statistic above. With proper front-end planning, the “principal-agent problems, rent-seeking behavior and optimism bias” will be detected and accounted for. As John Fish pointed out in a presentation he did for Project Excellence a few years ago, “The purpose of project management is to create an environment for success.” In order to create this environment, front-end planning is key. The overarching purpose of front-end planning is to ensure that decisions are being made for the good of the project and that the project meets your business objectives – if it doesn’t, the project should be killed. There is a cost for good front-end planning. As a rule of thumb, front-end planning should be around 2-6% of total installed costs (TIC) – that’s a lot of money on a $1B+ project, but it’s money well spent it if helps avoid being over budget and over schedule in excess of 30% as per the Booz statistic mentioned above.
In summary, there is plenty of evidence that megaprojects can go terribly wrong, but there is also hope that they can be successful. An environment of success can be created by having:
- The right people – a healthy mix of experienced project professionals with sufficient corporate knowledge
- The right processes – capturing the wisdom of experienced managers and industry best practices and integrating that into the project culture
- The right systems – enabling and automating those processes and providing timely information to project decision makers
And, most importantly, project teams must recognize the interdependence of the three pillars to each other. Bringing these three pieces together will result in on-time, on-budget projects that meet or exceed operational targets.