Industrial megaprojects - key drivers of success and failure, 19th July 2016
The Hong Kong Branch July event was about the success and failure of megaprojects. An interesting talk entitled “Industrial megaprojects – Key Drivers of Success and Failure” was delivered by Ms. Karine Cung of Independent Project Analysis (IPA). The presentation was held at the Wharney Guang Dong Hotel, Wanchai.
The main theme delivered was that “Poor execution can severely hamper economic returns through cost and/or schedule overruns, as well as downstream operability problems.” Therefore “a key requirement to a successful megaproject venture is the ability to shape the opportunity in the early stages into a reasonably stable platform from which to then execute the project.”
Over the years, IPA has been investigating practices in the planning and execution of capital projects and it has adopted a structured approach to analyze projects. Its mission is to conduct research into the functioning of capital projects and to apply the research results to help create and use capital assets more efficiently. It has collected data on over 17,000 capital projects all over the globe and benchmarks around 800 projects per year against best practice. Karine has led numerous studies and evaluated projects from small to megaprojects (over US$1 billion). She is the IPA focal point for new “downstream” clients (including pharmaceutical, FMCG and power industries) in Asia-Pacific.
Karine firstly briefed the audience about the uniqueness of “megaprojects”. They are normally characterized by their long execution period of an average of 66 months and average cost of US$4 billion+. These issues alone would be enough to render a megaproject difficult in acquiring and managing huge physical and financial resources. Coupled with complicated communications, often inadequate infrastructure and multiple major contractors, megaprojects fail so often due to cost overrun and programme slippage. The industry failure rate is around 65%.
Karine then also pointed out that the failure was often attributed to the basic project data, such as logistics, infrastructure requirements and construction constraints being late and/or incorrect; under-investment in front-end planning; inadequate/no reshaping of the project’s initial design or business goals; or even sponsors/owners inability to complete their share of the work.
At this juncture, it was stressed that the data problems needed to be resolved up front if major projects were to be successful. The project examples quoted included the problems of ever changing technology and owner’s inexperience with the type of projects they were procuring. Success or failure was measured on whether the projects had been delivered to cost, to the desired level of quality and on time, which was in-line with or even beyond an owner’s expectations. The ultimate goal of shaping the initial design/business requirements is to stabilize the megaproject environment, reduce unpredictability and ongoing change, ensure consensus and agreement amongst the stakeholders and the organizational structure so that clear decision making is managed.
Karine also highlighted a robust team as a success driver. Experience shows that if there are many members in the core team, it is more difficult to reach consensus and engage in effective negotiation, yet the integrated teams need to be adequately staffed and have decision-making authority. However, limiting membership can equally undermine the legitimacy of the group’s early decisions and increase the chance of conflict and major changes later on. Another key success driver identified was a highly involved owner’s team that engages with the contractor rather than expecting the contractor to solve all of the problems on its own.
To conclude the presentation, Karine quoted a case study of a large greenfield petrochemical project in SE Asia. Analysis of the project, found that there was a highly integrated owner/contractors project management team and a dedicated site based team managing the basic data. There were weekly meetings between core team members and the various contractors, and close partnership between the prime contractor with local contractors. The project was profitable for all concerned.
The key takeaway from the presentation was that time spent up front in setting a megaproject up for success is often a far more influential factor than the actual project execution phase in determining the final outcome, the implication of which is some projects are doomed from the start not to succeed no matter how efficient and well managed the later execution phase proves to be.