Jan 8, 2020
Why do major capital projects often arrive over-budget and later than expected? In stats according to the Oxford Global Projects Database, nearly 12,000 megaprojects share the above distinctions on timeliness and costliness.
The OGPD claims that megaprojects in every category did not meet the time and budget expectations. This includes nearly 40% of all rail projects and 60% of aerospace megaprojects. Shockingly, only 8% of all major capital projects were delivered at the expected timeline and budget. We can do better.
Why do megaprojects fail to be on time and budget? A study undertaken by Oxford Major Projects maintains that the problems in budget and scheduling begin with incorrect forecasting models. These megaprojects are extremely complicated. For these reasons, major capital projects can present challenges to even the most skilled project manager.
To make these megaprojects tenable, project managers break down these major capital projects into bite-sized manageable chunks. There is a risk management process called Monte Carlo analysis. This involves a kind of risk simulation by running various problem scenarios through a computer simulation to determine the myriad of ways a project could go wrong. This gives project managers a “three-point estimate” which breaks down the project into a series of dates that predict when the megaproject’s completion is “very unlikely”, “somewhat likely”, and “very likely”. However, many experts claim this three-point estimate is flawed because of “uniqueness bias” which occurs when project managers assume that their complicated megaproject is the first of its kind.
Major capital projects are also susceptible to extremely rare disasters called “Black Swan” events. These need to be taken into account because megaprojects take such a long time to be complete. There is good news on the forecasting horizon that can pre-empt these problems. This is called “reference class forecasting and it was developed by behavioral scientists Daniel Hahneman and Amo Tverskey. In this new methodology, algorithms work to analyze and compile previous megaprojects with the experience and expertise of the engineers and project managers who guide these major capital projects. However, this type of forecasting can only succeed if the construction industry trusts this new type of big data.
Thomas Owen of Re-Space explores the dilemma governments often face when building megaprojects – mainly, why they always seem to cost a lot more and take a lot more time than planned
If it always seems like a megaproject is destined to cost more and arrive later than planned — then you are right. At least, that’s according to the Oxford Global Projects Database, which holds the data on nearly 12,000 different projects.
According to the OGPD, nearly every category failed to meet its time and budget deadlines, including 39% of rail projects and 61% of aerospace projects. Only 7.8% of all projects were delivered on time and on budget, and only 0.5% provided all of the “expected benefits” that they were intended for.