65% of Mega-Projects Fail

DBOX for CIM Group & Macklowe Properties

Project Journal

There�s a reason why Mega Projects are simply called �MegaProjects.� Extremely large in scale with significant impacts on communities, environment and budgets, megaprojects attract plenty of public attention and frequently are more expensive than 1 billion. Because of its grandiose, an excellent megaproject takes a lots of planning, responsibility and work. Likewise, the magnificence for these projects also results in a large margin for failure.

Mega-projects have big expectations. However a project�s success can often be inside the eye in the beholder

Despite their socio-economic significance mega-projects – delivering airports, railways, power plants, Olympic parks and also other long-lived assets – have a very good reputation for failure. It is belief that over optimism, over complexity, poor execution, and weakness in organizational design and capabilities are the most frequent root reasons for megaproject failure.

Programme Management

Blinded by enthusiasm for that project, individuals and organizations involved with megaprojects often miscalculate the complexness of the project. Each time a megaproject is pitched, its common for costs and timelines to become underestimated as the making use of your project are overestimated. According Danish economist Bent Flyvbjerg, its not unusual for project managers who will be competing for funding to massage the info until it really is deemed affordable. In fact, revealing the true costs at the start can make a job unappealing, he was quoted saying. Therefore, these projects are destined for failure.

For instance, building new railways spanning multiple countries could prove to get disastrous if plans are overly complex and over-optimized. Such a large-scale project involves national and local governments, various environmental and health standards, a wide range of skills and wages, private contractors, suppliers and consumers; therefore, one issue could end the project. Such was the situation when two countries spent nearly 10 years working out diplomatic considerations while constructing a hydroelectric dam.

Complications and complexities of megaprojects have to be considered thoroughly before launch. One way to review the ins and outs of a project is thru reference-class forecasting. This method forces decision makers to check out past cases that might reflect similar outcomes on their proposed megaproject.

Poor execution is a cause of failure in megaprojects. Because of the overoptimism and overcomplexity of an project, it�s feasible for project managers and decision makers to cut corners trying to maintain cost assumptions and protect returns. Project execution will then be overwhelmed by problems such as incomplete design, unclear scope, and mathematical errors in risk assessment and scheduling.

Researchers at McKinsey studied 48 struggling megaprojects and located that in 73 percent in the cases, poor execution was accountable for cost and time overruns. Another 27 percent bumped into difficulty with politics including new governments and laws.

Low productivity is the one other facet of poor execution. Even though trends reveal that manufacturing has nearly doubled its productivity over the last Twenty years, construction productivity remains flat along with some instances has declined. However, wages always increase with inflation, ultimately causing higher costs for similar results.

According to McKinsey studies, efficiency in delivering infrastructure can help to eliminate total costs by 15 %. Efficiency gains in areas like approval, engineering, procurement and construction can result in up to A quarter of savings on new projects without compromising quality outcomes. This proves that planning before execution may be worth how light it is in gold.

We tend to exaggerate the significance of contracting method of project failure or success

Finally, weaknesses in organizational design and capabilities leads to failed megaprojects. For example, organizational setups can have multiple layers and in many cases the work director falls four or five levels beneath the top leadership. This leads to problems since the top tier with the organizational chain (by way of example, subcontractors, contractors and construction managers) have a tendency to target more work plus more money while the ‘abnormal’ amounts with the chain (for example, owner�s representative and project sponsors) are devoted to delivery schedules and budgets.

Likewise, too little capabilities is an issue. Due to the large-scaled, complex nature of megaprojects, there exists a steep learning curve involved as well as the skills needed are scarce. Each of the problems of megaprojects are compounded by the speed of which projects are started. When starting from scratch, megaprojects may create organizations of countless people within Yr. This scale of work resembles the functional operational and managerial challenge a whole new start-up might face.

Ultimately, it appears that if organizations invest time to thoroughly prepare and plan for their megaprojects, problems like overcomplexity and overoptimism, poor execution, and weaknesses in organizational design and capabilities could possibly be avoided. In fact, megaprojects are so large and too costly to rush into.

65% of Mega-Projects Fail