Managing Cost and Time Overruns of Megaprojects

Megaprojects are large-scale, complex ventures that take many years to develop and build, involve public and private stakeholders, and transform the area in which they are located. They have a higher value, a higher level of aspiration, longer lead time, greater complexity, and need proper management from their planning stage to final delivery. When such projects go wrong, entire companies and national economies can suffer.
Dr. N. Subramanian, Consulting Engineer, Gaithersburg, Maryland, United States

Several years ago, professor Bent Flyvbjerg, working at the University of Oxford, U.K. sought to find out how often ‘mega’ infrastructure projects were completed on time and on budget. At that time, he realized that there is no record of these ‘megaprojects’ and hence created his own database. After analyzing the database, he discovered something extraordinary: The vast majority of these megaprojects - those with a value of more than $1 billion - did not meet their budget or deadline. It wasn’t just the mega infrastructure projects that involved concrete and steel; even the Information and Communication Technology (ICT) projects were among those with the worst outcomes.

This paper describes the types of megaprojects, the ‘four sublimes’ that attract decision makers, engineers and technologists, politicians, and business people to choose and execute these megaprojects, examples of megaprojects with cost and time overruns, megaproject’s paradox of choosing the break-fix model and its drawbacks, the managed services model which can be used to complete mega projects within budget or time frame, and an example of right megaproject planning and execution.

How big are Megaprojects?

Megaprojects may be defined as those large-scale, complex ventures that typically cost more than a billion US dollars, take more than 5 years to develop and build, involve multiple public and private stakeholders, impact more than a million people and must have a transformational impact on the area in which such a project is located (Aaltonen and Kujala, 2010 and Flyvbjerg, 2014).

Often, they are designed to be ambitiously unique, as opposed to smaller and more conventional projects that may fit nicely into pre-existing structures. Megaprojects, therefore, are not magnified versions of smaller projects; they are projects that have a higher value, a higher level of aspiration, lead times, complexity, and stakeholder involvement, and are therefore a very different type to manage.

Megaprojects are increasingly attempted across a range of businesses and sectors, including infrastructure, hydraulic structures, energy, information technology, supply chains, enterprise systems, government administrative systems, banking, defense, intelligence, air and space exploration, big science projects, urban planning, etc. Examples of megaprojects are high-speed rail lines, airports, seaports, motorways, hospitals, national health or pension, ICT systems, national broadband, the Olympics, large-scale signature architecture, dams, wind farms, offshore oil and gas extraction, development of new aircraft, high-energy particle accelerators, and the logistics systems used to run large supply chain–based companies like Amazon and Wal-Mart.

Not only are megaprojects large, but they are becoming ever larger. When New York’s Chrysler Building opened in 1930 with a height of 319 meters, it was the tallest building in the world. The record has since been surpassed seven times. Since 1998, the world record for highest building is held by Dubai’s Burj Khalifa, with 828 m. This is a 160% increase in building height over the past 80 years. Soon, The Jeddah Tower (earlier known as the Kingdom Tower, it is currently on hold) located on the north side of Jeddah, Saudi Arabia, will become the tallest tower when completed. It is planned to be the first one km (1008.2 m) tall building and will be 180 m taller than the Burj Khalifa in Dubai, UAE.

Similarly, the longest bridge span has grown faster by 260% over approximately the same period. Canada’s Quebec Bridge, connecting suburban Quebec City to the city of Lévis, was completed in 1917. This longest cantilever bridge in the world with a total length of 986.9 m and a central span of 548.9 m, was completed after two disastrous life-claiming construction failures. Whereas, Japan’s Akashi Kaikyō Bridge, carrying the six-lane Honshu-Shikoku Highway across the Akashi Strait, linking the city of Kobe to Awaji Island, has the longest central span of any suspension bridge in the world. Completed in 1998, it has a main span of 1991 m and total length of 3910.9 m.

Measured by value, the size of infrastructure projects has grown by 1.5- 2.5% annually in real terms over the past century, which is equivalent to a doubling in project size two to three times per century (Flyvbjerg, 2009; 2023).

The term ‘giga-project’ may be used to represent projects costing US$50 to US$100 billion (e.g., the California and UK high-speed rail projects), and projects with a value of above US$100 billion, which are not uncommon (e.g., the International Space Station and the Joint Strike Fighter). When projects of such size go wrong, entire companies and national economies suffer. If we consider as projects ‘the stimulus packages’ launched by the United States, Europe, and China, to mitigate the effects of the 2008 financial and economic crises, then they surpassed trillion-dollars and can be termed as ‘tera-projects’. Projects of this size compare with the GDPs of the world’s top 20 nations, similar in size to the national economies of, for example, Australia or Canada (Flyvbjerg, 2014).

The McKinsey Global Institute estimates global infrastructure spending will be US$3.3 trillion (in constant 2015 dollar cost) per year between now and 2030, or approximately 4% of the total global gross domestic product, mainly delivered as large-scale projects, in ports, airports, rail, water, telecom, roads and power sectors (https://www.mckinsey.com/).

According to Oxford Economics, infrastructure spending worldwide is projected to grow from $4 trillion per year in 2012 to more than $9 trillion per year by 2025 (Rice and Walker, 2014). Overall, about $94 trillion is expected to be spent globally between 2016 and 2040. A further $3.5 trillion will be required to meet the United Nations’ Sustainable Development Goals for electricity and water (www.oxfordeconomics.com). It is interesting to note that China spent more on infrastructure during the entire 20th century (4.8 percent of GDP in future compared to the 7.3 percent of GDP between 2007 and 2015). Similarly, between 2005 and 2008, China built as many kilometers of high-speed rail as Europe did in two decades (By 2013, China had completed construction of a high-speed rail network of about 10,000 route-km). Between 2007 and 2015, China accounted for almost 30 percent of all global infrastructure investment.

The Four Sublimes

According to Flyvbjerg, megaprojects are attractive to decision makers due to the ‘four sublimes’ of megaprojects (Table 1).


The first of these, the technological sublime, is a term attributed to Miller (1965) and Marx (1967) to describe the positive historical reception of technology in American culture during the nineteenth and early twentieth century. Frick (2008) introduced the term to the study of megaprojects and described the technological sublime as the immense pleasure engineers and technologists get from building large and innovative projects. These projects may offer them opportunities for achieving the limits of technology, such as building the tallest building, the longest bridge, the fastest aircraft, the largest wind turbine, or the first of anything.

Flyvbjerg (2012; 2014) proposed three additional sublimes, beginning with the ‘political sublime,’ which is the pleasure politicians get from building monuments to themselves and for their causes (Fig. 1). Megaprojects often garner attention and give fame and great satisfaction to their promoters. In addition, they attract media attention, which is appealing to politicians who enjoy the visibility they get from starting megaprojects (by cutting ribbons during the starting and completion of these projects or flagging trains in the presence of notable persons of repute). This type of public exposure may help politicians in increasing or projecting their image or get re-elected; hence, they actively look forward to such events.


Next, there is the ‘economic sublime,’ which is the delight business people and trade unions get from making lots of money and providing many jobs from megaprojects. As these megaprojects require enormous budgets, there are ample funds for all involved, including contractors, engineers, architects, consultants, construction and transportation workers, bankers, investors, landowners, lawyers, and developers. Finally, the ‘aesthetic sublime’ is the pleasure architects, designers, and builders derive while designing and constructing such iconic buildings - some of which may get international attention (by being the tallest, longest or first of its kind) and may even become tourist attractions (e.g., San Francisco’s Golden Gate Bridge, Gujarat’s Statue of Unity, Sydney’s Opera House).

All four sublimes are important drivers for megaprojects. Taken together they ensure that strong coalitions exist between stakeholders who benefit from megaprojects and who will therefore work for more such projects. For policymakers, investing in infrastructure megaprojects seems particularly important because, such investing may:

• Create jobs and sustains employment
• Contain a large element of domestic inputs relative to imports
• Improve productivity and competitiveness
• Result in benefits to consumers through higher-quality services or saving of time
• Improve the environment when old infrastructures are replaced by infrastructures that are environmentally sound.

In fact, conventional megaproject delivery is found to be highly problematic, with a dismal performance record in terms of actual costs and benefits.

In many megaprojects, the following points are typically overlooked when the four sublimes are at play (Flyvbjerg, 2014). The result is cost overruns, delays, and benefit shortfalls that undermine project viability during project implementation and operations.

• Megaprojects are inherently risky due to the long-term planning and execution with complex interactions between different stockholders.
• Often, projects are led by planners and managers without deep domain experience; in addition, they may keep changing during the long project cycles that are typical in megaprojects, leading to inconsistent leadership.
• The typical processes of decision-making, planning, and management involve multiple stakeholders (who may be public or private) with conflicting interests (Aaltonen & Kujala, 2010).
• Technology and designs are often non-standard, leading to ‘uniqueness bias” among planners and managers, who tend to see their projects as singular or unique projects, which prevents them from learning from other projects (Flyvbjerg, 2014).
• Frequently, there is ‘over-commitment’ to a certain project concept at the early stages, leading to absence of analyses of alternatives, and ‘escalated commitment’ at later stages.
• Due to the large sums of money involved, principal-agent problems and rent-seeking behavior are common, as is optimism bias (Flyvbjerg, Garbuio, & Lovallo, 2009).
• The project scope or ambition level will typically change significantly over time.
• Delivery is a high-risk, stochastic activity, which will have a bearing on unpredictable or unforeseen events, typically with extreme consequences. Managers tend to ignore this, treating projects as if they exist largely in a deterministic Newtonian world of cause, effect, and control (Flyvbjerg, 2014).
• Historically, it has been observed that such complexity and unplanned events are often unaccounted for, leaving budget and time contingencies inadequate.
• As a consequence, misinformation about costs, schedules, benefits, and risks is the norm throughout the project development and decision-making processes.

Examples of megaprojects with cost and time overruns

Nine out of ten such projects have been found to have cost overruns; overruns of up to about 50% are common, and over 50% are not uncommon. For example, the cost overrun for the Channel Tunnel, the longest underwater rail tunnel connecting the United Kingdom and France, was 80% in real terms. The cost overruns for some of the following mega projects around the world are also staggering (Flyvbjerg, 2014):

• Great Belt East Bridge, Denmark-50%
• Brooklyn Bridge, USA-100%
• Denver International Airport, USA-200%
• Boston’s Big Dig, USA -220%
• Furka Base Tunnel, Switzerland-300%
• Montreal Summer Olympics, Canada- 1300%
• Sydney Opera House-1,400%
• Suez Canal, Egypt-1900%.

The cost and time overrun of the Sydney Opera House and the controversy that followed, completely destroyed the career of the architect Dane Jørn Utzon’s and he was not selected for any other major project. It has to be noted that Utzon was 38 when he won the competition for the Opera House. Only in 2003, when he was 85 years old, he won the Pritzker Prize (the Nobel for architecture) and became widely acclaimed again (Flyvbjerg, 2014).

Even the wealth of whole cities and nations may be affected by the failure of a single megaproject. For example, in Greece, a contributing factor to its 2011 debt default was the 2004 Olympic Games in Athens, for which cost overruns and incurred debt were so large that they negatively affected the credit rating of Greece, substantially weakening its economy during the 2008 international financial crisis. This resulted in a double-dip and disaster for Greece, while all other nations during that period had only a single dip (Flyvbjerg, 2014).

Cost and time overrun is a problem equally in private as well as public sector projects. This situation is not improving; overruns have stayed high and constant for the 70-year period for which comparable data exist. Geography also does not play any role; all countries and continents for which data are available suffer from overruns (Flyvbjerg, 2014). For example, in the Washington D.C. region, USA, there are several examples of projects that didn’t meet their initial budget and timeline. The second phase of the Silver Line, which extended Metrorail to Dulles International Airport and Loudoun County, opened four years behind schedule and at $250 million over budget. Maryland’s Purple Line light-rail project is more than $1 billion over budget and 4 1/2 years behind schedule.

Similarly, benefit shortfalls of up to 50% are also common, and above 50% are not uncommon, again with no signs of improvements over time and geography. With errors and biases of such magnitude in the forecasts, any assessment or analyses will also have high degree of uncertainty and strongly be misleading; as per the famous saying, it will be ‘Garbage in, garbage out,’.

The most important point to note here is that a megaproject may actually be a technological success, but a financial failure. There are many examples to prove this. For example, a systematic economic and financial post-evaluation of the Channel Tunnel concluded that ‘the British Economy would have been better off had the Tunnel never been constructed’ (Anguera, 2006). Large-scale Information and Communications Technology (ICT) projects are even more risky. One in six such projects becomes a statistical outlier in terms of cost overrun, with an average overrun for outliers of 200% in real terms (Flyvbjerg, 2014).

Delays are a separate problem for megaprojects and they cause both cost overruns and benefit shortfalls. The seven major delay factors have been identified as: deficit budget allocation, economic problems of the country, delay in preparing and mistakes/modifications in detail design by the consultant, the problems in site management due to the contractor, unqualified personnel in construction management, inaccurate proposal in tenders by the contractor, and improper selection of the contractor by the client.

Of course, there are some projects that were built on budget and on time and which delivered the promised benefits. The Guggenheim Museum Bilbao is an example of that rare breed of project. Similarly, recent metro extensions in Madrid were built on time and within budget. Complex rail projects, too, including the Paris–Lyon high-speed rail line and the London Docklands light railway extension have been built on budget. According to Flyvbjerg and Gardner (2023), only about 8.5% of projects finish on time and on budget. Flyvbjerg (2021) argues that two factors play a critical role in determining success or failure: modularity in design and speed in iteration, and cites the examples of metro extensions in Madrid, Spain.

Mega Project’s Paradox and the Break–Fix Model

As many megaprojects take between 5 to 15 years to become fully operational, all sorts of unexpected changes can happen during this period which can affect their construction progress. Now-a-days, technology tends to change almost every 5 years, especially for ICT projects. Hence, a project may be affected by two or even three major technological changes between its planning stage and final delivery. For example, the technology that was selected in the planning phase may become obsolete by the time the project becomes operational.

Political cycles (a different party may come to power and may consider the project as an unnecessary expenditure), financial cycles, and consumer preference cycles, are constantly changing and adding new complexities to the construction and delivery of megaprojects.

Generally, megaproject planners and managers (and their organizations) do not know how to deliver successful megaprojects and hence such projects tend to ‘break’ sooner or later. For example, when reality catches up with optimistic estimates of schedule, costs, or benefits, there may be delays, cost overruns, and subsequent benefits shortfalls. Megaproject planners and managers are stuck in the paradox because their main delivery method is what has been called the ‘break-fix model’ for megaproject management (Flyvbjerg, 2013).

The break-fix model of megaproject management is a cyclical approach to project delivery that is characterized by a series of phases of planning, implementation, and troubleshooting. This model is often used for large, complex projects that are subject to change and uncertainty. The break-fix model typically begins with a period of planning and design. During this phase, the project team develops a detailed plan for the project, including its scope, schedule, and budget. However, as the project progresses, it is inevitable that some aspects of the plan may change. This is because megaprojects are often subject to change due to factors such as unforeseen challenges, new information, or changes in stakeholder requirements. When changes occur, the project team must troubleshoot the problem and develop a solution. This process of troubleshooting and fixing problems is often referred to as ‘breaking’ and ‘fixing.’ Thus, the break-fix model is cyclical in nature, i.e., the project team will continue to break and fix problems throughout the life of the project.

The key characteristics of the break–fix model are:

• The project is broken down into smaller, more manageable phases.
• Each phase is planned and implemented separately.
• Problems are identified and fixed as they arise.
• The project is constantly evolving and adapting.

The break-fix model can be an effective way to manage megaprojects, but it is important to be aware of its limitations. The model can be time-consuming and expensive, and it can lead to inefficiencies and delays. However, the break–fix model can also be flexible and takes an adaptable approach that can help reduce the risk of project failure. The disadvantages of the break-fix model are:

• It is reactive, meaning that the problems are fixed as and when they occur.
• It is not proactive, meaning that the steps to prevent problems from occurring are not considered from the beginning.
• It can be time-consuming and expensive to troubleshoot problems after they occur.
• It can lead to inefficiencies and delays in the project schedule.
• It can be disruptive to the project team and stakeholders.

The Managed Services Model (MSM)

The cure to the break-fix model is to get involved in megaprojects right from the beginning (so that they will not break) through a proper Managed Services Model (MSM). With MSM, involving IT support, there will be 24/7 monitoring, proactive maintenance, and problem resolution. Thus, project leaders, owners, and developers must strive to understand and think about how these future changes will impact their megaproject over the project’s time frame and consider some strategies to overcome such inevitable changes. This understanding and possible shortening of project delivery may reduce the level of complexity that megaprojects face. Thus, the specific benefits of moving to a managed services model can be listed as:

• Reduced downtime: Managed service providers (MSPs) can help to identify and fix potential problems before they cause downtime. This can save money in lost productivity and revenue.
• Improved security: MSPs can help implement best practices of security and monitor the network for threats. This can help protect project data and assets from cyber-attacks.
• Increased compliance: MSPs can help to ensure that the adopted information technology (IT) systems are compliant with industry regulations. This can help avoid costly fines and penalties.
• Reduced IT costs: Managed services can be more cost-effective than to hiring in-house IT staff. This is because MSPs can leverage economies of scale and share their expertise with multiple clients.
• Peace of mind: Knowing that the project’s IT is in the hands of experts can give the management team peace of mind. This can free it to focus on other aspects of the business.

Megaprojects are often just too big and complex for the public sector to deliver on their own and so a level of collaboration between the public and the private sector is critical for achieving success. The public sector must look to the private sector to support a wide range of aspects from raising the funds required for investment to delivering the systems and technologies on which the asset will operate. Similarly, the private sector must work closely with the public sector, even in those projects that are 100 percent privately funded and developed (Flyvbjerg, 2013). The Governments should be responsible for upholding safety, environmental and other regulations, providing permissions for designs and zoning, and even how customer or user fees are structured, as all of this will have a significant impact on the success of the project.

Although the risks faced in megaprojects are similar to those found on any infrastructure project; but due to the sheer size of megaprojects, the risks may become overbearing and eventually alter the relationship between the public and private sectors. But the real challenge is in the contracting process. Often, the public sector puts out tenders that try to push a very large amount of the risk onto the private bidders. In such situations, the project owner may get a lackluster response from potential bidders, or, more often, the bid price may increase substantially, to safeguard against any future risk. In a few cases, the bidders may try to under-bid the tendering process and then make up for this through later scope changes.

Most often, the public sector is less experienced in negotiating megaproject contracts and is therefore at a disadvantage, leading to asymmetrical contracts that create problems in the future. The two main considerations for the success of megaprojects are:

Have an experienced front-end management: This will result in a better understanding of the potential large risks that the megaproject may face during its life cycle and the methods that will curb them. It is important to identify these risks at the early stages of project design and planning so that the project management has a good understanding of what could happen at each stage of development.

Select a management team with proven experience in megaproject delivery: This will ensure that the project is delivered on time and to budget. It has to be emphasized that it is extremely hard to find such a team because project managers in large companies are either tied to a single project for 5-10 years or more, and are therefore in short supply. In some companies, the project managers may be rotated in different departments in their organization every few years, such that they will have a broader experience, but they may not develop a deeper experience as needed in megaprojects. Having a management team with deep domain experience is one of the most important criteria for success in megaproject delivery. As is often said, ‘grey hair is often an asset in megaproject management’ (Flyvbjerg, 2014).

Example of Right Megaproject Planning and Execution

In his book, Flyvbjerg cites architect Frank Gehry as an example of someone who uses a specific process to get to the right goal (Flyvbjerg and Gardner, 2023). It is because, when Frank Gehry gets new clients, he doesn’t just accept what the client wants, but asks the question” “Why? Why? Why?” and based on answers to several such questions develops the real reason why his clients want to have the project. Once the required answers are obtained, Gehry starts simulating and iterating the project. First, he would physically build models of the project using wood, cardboard, and other materials. Then he would digitize the models and put them into a computer so that more details can be worked out and iterated faster. He would make hundreds and even thousands of iterations of the project or input different details on the project to improvise on them. Known as ‘digital twin’ this is a very cheap way of making a project. So, when the contractor goes to the actual construction site, the process is more straightforward, as each nut and bolt has been pre-specified on the computer.

References

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About the Author

Dr. N. SUBRAMANIAN, Ph.D., FNAE, an award-winning author, consultant, and mentor, living in Maryland, USA, is the former chief executive of Computer Design Consultants, India. He holds a doctorate from IIT Madras, and has worked with the Technical University Berlin and the University of Bundeswehr, Munich for 2 years as Alexander von Humboldt Fellow. He has 45 years of professional experience which includes consultancy, research, and teaching, has authored 25 books and 300 technical papers; and served as past vice president of Indian concrete institute (ICI) and the Association of Consulting Civil Engineers (India). He is a recipient of several awards like the ICI - L&T Life-Time Achievement award of ICI (2013), Tamil Nadu scientist award (2001), Gourav Award of ACCE (I) (2021), and the ACCE(I)-Nagadi best book award for three of his books (2000, 2011 and 2013). He has been in the editorial board/review committee of several Indian and international journals.