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Jon Rimmer
Jon Rimmer

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Megaproject Mismanagement

What follows is a summary of What You Should Know About Megaprojects, and Why by Professor Bent Flyvbjerg, an analysis into the difficulties faced by very large projects. Many of these problems will be all-too familiar to those whose careers in tech have involved working on big IT projects. All insights are those of Flyvbjerg and his sources and collaborators. Any errors are mine.

The Good

"Megaprojects" are extremely large, complex projects, with budgets of billions or more, and years-long delivery timescales. Their size makes them different from regular projects, and they require a different approach to manage successfully. Typical megaprojects are very large buildings, bridges, public transportation systems and space missions.

The popularity of megaprojects has increased in the public and private sector, and a conservative estimate of their market size is $6-9 trillion a year. They possess four "sublimes" that makes them attractive a to different type of decision maker:

  • Engineers – their technical ambition and boundary-pushing.
  • Politicians – as a monument to them and their causes.
  • Businesses and unions – the amount of money and jobs they provide.
  • Designers and design enthusiasts – their beauty and iconic scale.

Policy makers in general favour megaprojects due to their apparent benefits in terms of greater employment, domestic consumption, better services, and potential for environmental improvement.

The Bad

Despite their supposed benefits, megaprojects have an awful performance history. Their size makes them inherently risky and difficult to properly plan or lead over the long term. Optimism bias infects projections of costs and likely benefits, and they are almost always wrong. Actual cost and timescales overrun and demand is lower than expected. ICT megaprojects are particularly bad.

Only one in a thousand megaprojects is delivered on budget, time and benefits. So few that there isn't enough of them to do proper statistical analysis on why they succeeded where most failed. The ratio of successful to unsuccessful projects does not seem to be improving over time.

Most megaprojects follow a "break-fix" model. Implementors don't know how to succeed, but carry on anyway until a moment of crisis, the "break", when reality hits home. At this point there is usually a pause to "fix" the project through reorganisation and refinancing.

Some argue that mis-planning is a necessary evil to help valuable projects get started. This idea is commonly expressed by insiders but rarely on the record. Hirschman argued underestimation of problems can be matched by underestimation of ability to creatively solve the same problems. He called this the "Hiding Hand" principle.

These theories have proved popular, especially amongst those with a vested interest in seeing megaprojects happen. This has enabled a culture of strategic misrepresentation, where promoters willingly engage in overoptimistic projections in order to get projects started.

The Ugly

However, these theories are flawed. The research underpinning them is based on insufficient and biased data. In fact, optimism bias applies at all levels, to cost and benefits, and problems tend to stick around to impair projects, rather than being creatively solved.

Deceptive promotion of megaprojects leads to Pareto inefficiency, misallocating resources that could have been better spent elsewhere. It is also unethical and sometimes illegal for individuals in the public or private sector to knowingly mislead others in their efforts to promote projects.

In fact, very large projects can have a positive benefit to cost ratio, but the problem is distinguishing these from the majority of bad proposals, something made harder by rampant dishonesty. There is a "survival of the unfittest" whereby those projects that are most unrealistic about their benefits and costs on paper are most likely to get selected, even though this same dishonesty leads to bigger problems down the line.

The Future

There are some positive signs. For example, the willingness of the Obama administration to call out problems in US public procurement. Also, projects are now so big that a single one can bring down an executive or a whole corporation, giving an incentive for better oversight.

The UK government established the Major Projects Authority in an attempt to get control of project overrun, and some other countries have followed suit with similar schemes, in a general trend towards stronger governance following corporate scandals like Enron. Greater involvement of private finance from capital and pension funds has also lead to somewhat better oversight through more independent auditing of project projections.

Finally, research into megaproject management has improved, stemming from a better understanding of how optimism bias and strategic misrepresentation cause them to go awry in the first place. Outcomes from this research have begun to impact practice. Although it is too early to tell if reforms will be successful.

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