mega project benchmarking - in the 21st century

MEGA PROJECT BENCHMARKINGIN THE 21ST CENTURY

CIPRAS INTERNATIONAL, LLC

MEGA PROJECT BENCHMARKING

As board members, shareholders, and investors engaged in multibillion dollar

infrastructure investments, we know our risk. Our mega projects are both exciting

to experience and beyond the common human experience in complexity. They

have a staggering amount of numbers, details, moving parts, logistics, time

constraints, cash flows, information flows and process flows. They have thousands

of people managing, designing, building, and occupying them, and they are prone

to disastrous failure according to the record around the world.

We also know that our mega project investments can be high-risk threats to our

organization, our shareholder’s value, and our fiduciary responsibilities.

So, our question is this:


Why do mega project failures continue over time regardless

of their place, the industry, and purpose and despite the

confident assurances of their project executives?

Let’s address what we know from experience:


Mega project investments substantially change regions, cities and communities.

They place mega demands on local economies, management, professional

services, labor, material supply-chains, and natural resources.

Mega projects are the rule for economic development, rather than the exception.


In the 21st century, mega project investments are funded by public/government,

and private investment equally. As more investment will come from private

sources in the future, the economic, governance and operational performance

will need to substantially improve.

Question: how will the governance model meet demands of private investors?


Mega project investments require mega-level management organizations that

must effectively manage billions of details, swiftly over long periods of time.

This dynamic is critical to understanding why they are vastly different from

smaller investments.

Most management, professionals, and staff have never built a mega project.


While most challenges on the projects are solved, some are ignored,

misunderstood, hidden, or not reported until after it is too late to correct them.

The unresolved problems build and magnify into failures as the project moves

forward in time. Ultimately, those failures can and do become catastrophic.

Of course, no one likes catastrophic results, but here are the top ten:

MEGA PROJECT BENCHMARKING1. Delayed completion and opening

2. Serious cost over-runs & financial losses

3. Staff & worker injuries and deaths

4. Project abandonment & fire sale of assets.

5. Expensive long-term project litigation

6. Operational losses and write-offs

7. Severe debt overhang

8. Corporate restructuring & bankruptcy protection

9. Severe reputational damage

10. Shareholder litigation against management and board members

That is what a mega project failure looks like.


Is your Mega Project investment a winner or a loser?

How would you know?


All mega projects, regardless of when and where they are built, the industry they

serve and their operational purpose, share common performance characteristics. It

is also true the each mega project has specific characteristics that are unique.

To understand the dynamics behind why and how mega projects succeed, we have

to know what the common success characteristics are, and benchmark them against

our experience, or against other’s experience.

This is what a mega project success looks like:

1. THE CLEAR OBJECTIVE

Successful mega projects have adept and experienced management cultures that

start with a clear, well-defined objective, and project scope. This is the essential

to a long and expensive journey.

While slight changes are common, the ill-defined objective and scope translates

into constant change, continues through the project’s construction phase and

magnifies into a certain failure in the end.

2. STRATEGIC MISREPRESENTATION

Successful project executives avoid reporting of falsehoods, diversions, or

management pretense about project scope, budget and opening dates.

Strategic misrepresentation is a common ploy to obtain project funding; to cover up

a project that is not viable, performing poorly, or failing. The perpetrators and/or

their incentivized professional staff hope their original misrepresentations play out

over time, are forgotten over time, or are muted by project process too far along to

stop. When the project failures start to mount, the perpetrators layer additional

misrepresentations to divert accountability for their failures. Litigation will usually

follow.

3. OPTIMISM BIAS

Successful project sponsors do not underestimate the complexity of the mega

project, or naively assume the project will proceed smoothly.

In the excitement, or rush to get approval and funding for their projects,

overconfident project sponsors may be blinded by optimism bias and fail to

address troubles, weaknesses, or real risks early in the process.

During the course of the mega project, that may last for years, optimism bias

will be certain to evolve into reality.

4. VIABILITY

Successful mega projects have a detailed and honest market viability analyses.

They have adequate and secured capital structure and funding based on viability.

The project sponsors prove the project’s viability, the return on investment, and

avoid the hyper-marketing that is characteristic of projects that need a hard sale.

In the end, viability is proven by on budget, on time, and operational success.

Viability failures are proven by operational failures, fire sales and bankruptcies.

In the end, viability failures will be accountable to the project sponsors .

5. INTERNAL RISK

Successful mega projects have project sponsors that thoroughly assess the

project’s total risk picture, not just obvious risks with questionable color-coding

of risk likelihood, and impact estimates. They commit program risk

management, and internal audit resources that are independent of project

management to the challenge. They have robust risk planning, assessment,

mitigation, reporting and resolution processes.

Failing to assess internal risk, or risk inherent in the project will materialize in

certain future surprises, expensive mitigation, and/or unrecoverable disasters.

6. OWNERSHIP

Successful mega projects possess each stakeholder’s full ownership,

commitment and investment in the project’s success. From leadership through

all levels of the project team, each member takes ownership in their part and

their contribution to the project.

A lack of individual ownership translates into political divisiveness among

stakeholders. Political divisiveness causes an unnecessary waste of resources,

adversarial conflicts, time losses, productive energy drain, and ultimately a

project failure ending in litigation and bankruptcy.

7. LEADERSHIP

Successful mega projects have strong, competent leadership. Their leadership

establishes a strong project management structure, project controls, monitoring

procedures, and processes. They hire a strong, highly trained, and experienced

project management team. The leadership exhibits a positive, proactive,

professional demeanor and a project atmosphere of contagious positive intelligence

and attention to quality.

A lack of strong leadership is evidenced by chaotic production processes, a lack of

production, infighting, unresolved contractor claims and avoidant management

behavior.

8. PEOPLE

Successful mega projects have the right people, with the right skills, in the right

places, doing the right things. They work together, not against one another. Each

person carries their weight and contributes to the project’s teamwork culture.

The culture is committed to health, safety and environmental protection

Planning, design, and construction flow into the successful completion process.

When people fail, it’s usually the failed leadership, or processes that proceed

them. Then turn-over is heightened, productivity declines, accidents and deaths

occur, and the project is certain to fail.

CIPRAS INTERNATIONAL LLC

9. PERFORMANCE MONITORING

Successful mega projects measure and monitor all of the pertinent Key

Performance Indicators (KPIs). The KPIs are monitored independently by a

strong internal audit team in conjunction with project management to accurately

report the project’s true status and forecast status to the project stakeholders.

When there is a lack of independent performance monitoring, project

management may lack an understanding of the project’s true performance status,

up play the positive, or down play the negative as work in progress.

10. CORRUPTION

The successful mega project culture will strictly adhere to anti-corruption

policies and engage competent law enforcement when bribery, extortion, fraud,

larceny, murder, drug use, drug trafficking, or any other illegal activity occurs

within the limits of the project, or among the people involved in the project.

In countries, cultures, or on projects where various forms of corruption are

acceptable, project controls will largely be ineffective, costs will certainly rise

and the corruption risk variables may translate into certain project failure.

11. DESIGN BEFORE BUILD

Successful mega projects start design and finalize critical project criteria before

construction commences. They never allow the construction process to get ahead

of the design process. Further, they do not allow on-going design changes to

negatively impact the construction process.

When construction activity catches the design activity, the fast-track delivery

process fails. The construction slows, and rework and changes reduce

production efficiency. Late stage design changes invariably lead to delays,

disruption, ongoing added costs, claims and litigation.

12. PROJECT CONTROLS

Successful mega projects possess strong, cost accounting, budgeting, accounting

and cost estimating skills and disciplines, which flow into strong financial

controls. They have robust schedule (programme) management resources to best

manage, monitor, and control the time resources of the project. They have clear;

concise and customized contract documents tailored to the project, clear and

unambiguous terms and conditions, strong safety requirements, strong audit

rights, remedies, and well-defined dispute resolution processes.

A lack of project controls will be self-evident in certain project failure.

13. CHANGE MANAGEMENT

Successful mega projects possess robust change management processes and the

people that can manage high-speed, large volume changes as they occur.

Successful project executives proactively avoid cardinal changes, or large

project changes to avoid project disruptions to construction inefficiency,

productivity and sequencing. They anticipate change and avoid scope creep well

before the change affects construction production, minimizing costly field

changes, and schedule delays.

Not managing high speed change in a mega project will lead to certain failure.

14. FLOW MANAGEMENT

Successful mega projects consistently possess a healthy cash flow, information

flow and process flows. Efficient cash flow is essential to efficient production.

Efficient information flow is essential to the speed and accuracy of information

transfer between project managers and into the construction process flow.

Weakness in managing these micro-flow processes constrains or causes

cumulative friction in the macro-flow process, thereby increasing the odds of

project failure.

15. RESOURCE MANAGEMENT

Successful mega projects possess strong local labor, materials, equipment and

supply-chain resources. These strong links make a strong chain. Mega-projects

can and do stress local management, labor, material and equipment resources.

Not managing inadequate numbers of qualified tradespeople, labor troubles,

insufficient materials, low-grade materials, insufficient equipment and

constrained supply-chain operations increases the chances of project failure.

16. DECISION MANAGEMENT

Successful mega projects possess swift decision-making by the project

executives through project management to design team and construction teams.

Project executives, project managers, or design professionals have the authority

to make detailed, routine decisions to avoid slowing the overall process.

Inadequate decision management forces the contractors to move ahead without

approvals, to replace installed work, causes resequencing of work flows,

increases cost and slows the construction schedule, increasing the chances of

project failure.

17. COMMUNICATIONS

Successful mega projects have effective and fluid communications between the

executives and the project management team. This high-level of communication

is enabled by 21st century technologies and the people that exploit them to their

highest use. Emerging budget and schedule issues, design issues, strengths,

weaknesses, opportunities and threats are communicated immediately and

guidance is communicated immediately for immediate action.

Poor, or closed communications, or language barriers causes misunderstandings

among the project team. A complete lack of communication indicates a failed

project.

18. REPORTING

Successful mega projects possess management cultures that encourage accurate

and transparent project reporting, and effective, timely solutions to the

challenges. They forecast project progress accurately. They report the whole

story and not just the good news.

Project executives must report the truth to the public and in regulatory filings. If

bad news, poor performance, and management departures, etc. concerning the

project are withheld, they and the board members are at risk for shareholder

litigation.

19. INTERNATIONAL RISK

Successful project executives manage differences in cultures, language, means and

methods, time zones, economies, currencies and local customs. They manage in

multinational and local markets with variable levels of labor skills, material quality,

and technological availability. They seamlessly manage supply chain operations

involving multiple international suppliers.

The international risk variables are complicated and commonly underestimated.

Not addressing the multiple impacts of these risks at the beginning of the project

will usually impair the project throughout the duration and lead to certain litigation

failure.

20. EXTERNAL RISK

Successful mega project executives know the internal risks inherent within the

project. They also realize their professional limits. External unknown risks in

regard to market shifts, regulatory compliance, financial markets, corruption,

force majeure events, or external economic conditions may be beyond their

control.

Project executives that fail to identify external risks, and fail to seek

professional resources equipped to manage those risks will be surprised and ill-

equipped to manage, or mitigate the impacts to the project.


Is your mega project investment a success, a failure or

somewhere in between?

We hope your benchmarking self-assessment score was high.

However, if your score is a cause for concern, what is that worth to you?

Is your mega project investment able to absorb added costs,

losses and damages equal to $US 100 Million, $500 million, $1

Billion, or $2 Billion, or more?

We didn’t think so.


We would like to suggest detailed and effective ways to increase your

confidence level, save and recover substantial cost; avoid delayed completion

dates, serious financial losses, expensive long-term litigation, bankruptcy,

irreparable reputation damage, and lawsuits against your project, your company,

your executive management teams and your board members.

For more details on how we help our client’s mega project investments succeed,

please contact us.

J.M. Cunningham, Senior Managing Director, CIPRAS International, LLC. [email protected]

mega project benchmarking - in the 21st century

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