Is this the end of the billion-dollar megaproject disaster?

Oxford academic asks: Are we seeing the end of the billion-dollar megaproject disaster?

Saïd Business School

The number and costs of megaprojects are so large, and the penalties of failure so catastrophic, that there are signs that governments and private companies may at last be beginning to insist on better governance of these billion-dollar ventures, and to use academic research into the failures of megaproject management to improve practice, believes major programmes expert Professor Bent Flyvbjerg from Oxford University’s Saïd Business School.

In a paper for Project Management Journal, “What You Should Know About Megaprojects and Why: An Overview”, published April 2014, Professor Flyvbjerg argues that we are now entering a new “tera era”, in which projects cost trillions, rather than millions or billions of dollars, and that this represents the biggest investment boom in human history.

"It is unacceptable for projects of this scale to go ahead based on the under-estimated costs and over-estimated benefits that have been typical of large projects over the past 80 years."

He claims that a combination of increasing private finance in megaprojects, more stringent legislation in most countries against deliberate misrepresentation, and a greater understanding of megaproject failures as a result of academic research are all steps in the right direction for improving the management of these projects.

“Although progress is slow, good governance is gaining a foothold even in megaproject management. The main drivers of reform come from outside the agencies and industries conventionally involved in megaprojects and this is good because it increases the likelihood of success,” he said.

The cost overruns (anything between 50 per cent and 1900 per cent according to Professor Flyvbjerg’s figures) typical of these megaprojects come about because of deliberate or naïve miscalculation of costs at the commissioning stage. 

While some theorists have suggested that optimistic miscalculations are often necessary simply to get projects off the ground, and that no-one would now regret the building of the Sydney Opera House (1400% over budget), for example, Professor Flyvbjerg argues that the consequences of failure on the current scale are too great. In Hong Kong, months of obstacles during the opening of a new international airport made traffic go elsewhere, resulting in a fall in GNP for the entire city state.

For Greece, a contributing factor to the country’s 2011 debt default was the 2004 Olympic Games in Athens, for which cost overruns and incurred debt were so large they negatively affected the credit rating of the whole nation.

“For reasons of economic efficiency alone, we must reject the argument that cost underestimation and benefit overestimation are justified for getting projects started. But the argument must also be rejected for legal and ethical reasons,” said Professor Flyvbjerg.

“There is an ‘obligation to truth’ built into most democratic institutions that is violated by deliberate misrepresentation of costs and benefits, whatever the reasons for such misrepresentation may be. Not only does economic efficiency suffer but also democracy, good governance, and accountability.”

The UK Treasury now requires that all ministries develop and implement procedures for megaprojects that will curb so-called “optimism bias”. Funding will be unavailable for projects that do not take into account such bias, and methods have been developed for doing this.

The US government is implementing similar measures as are Switzerland and Denmark while, in Australia, the Parliament of Victoria has conducted an inquiry into how government may arrive at more successful delivery of significant infrastructure projects. Similarly, in the Netherlands, the Parliamentary Committee on Infrastructure Projects has held extensive public hearings to identify measures that will limit the misinformation about large infrastructure projects presented to the Parliament, public, and media. In Boston USA, the government sued to recoup funds from contractor overcharges for the Big Dig related to cost overruns.

“Things are moving in the right direction for megaproject management,” said

. “It is too early to tell whether the reform measures being implemented will ultimately be successful. It seems unlikely, however, that the forces that have triggered the measures will be reversed, and it is those forces that reform-minded individuals and groups need to support and work with in order to improve megaproject management.”

Notes 

1. About the paper

The paper is published in the April/May issue of Project Management Journalhttp://www.pmi.org/Knowledge-Center/Publications-Project-Management-Journal.aspx

1. About Professor Bent Flyvbjerg

Professor Bent Flyvbjerg is founding chair of Major Programme Management at Saïd Business School, Oxford University. He is the most cited scholar in the world in megaproject management and his work has been featured by Harvard Business Reviewas "Ideas to Watch". Flyvbjerg's books and articles have been translated into 19 languages and his research has been covered by Science, The Economist, The Wall Street Journal, The Financial Times, The New York Times, The BBC, and many others. He has worked as advisor to government and business, including the UK and US governments and several Fortune 500 companies. Flyvbjerg has received numerous honours and awards. He was twice a Fulbright Scholar and holds the Knighthood of the Order of the Dannebrog. Flyvbjerg was Principal Investigator for the dams study.

http://www.sbs.ox.ac.uk/community/people/bent-flyvbjerg

1. About Saїd Business School

Saïd Business School at the University of Oxford blends the best of new and old. We are a vibrant and innovative business school, but yet deeply embedded in an 800 year old world-class university. We create programmes and ideas that have global impact.  We educate people for successful business careers, and as a community seek to tackle world-scale problems. We deliver cutting-edge programmes and ground-breaking research that transform individuals, organisations, business practice, and society. We seek to be a world-class business school community, embedded in a world-class University, tackling world-scale problems.

In the Financial Times European Business School ranking (Dec 2013) Saïd is ranked 12th. It is ranked 13th worldwide in the FT’s combined ranking of Executive Education programmes (May 2013) and 23rd in the world in the FT ranking of MBA programmes (Jan 2014). The MBA is ranked 5^th in Businessweek’s full time MBA ranking outside the USA (Nov 2012) and is ranked 5^th among the top non-US Business Schools by Forbes magazine (Sep 2013). The Executive MBA is ranked 23^rd worldwide in the FT’s ranking of EMBAs (Oct 2013). The Oxford MSc in Financial Economics is ranked 6th in the world in the FT ranking of Masters in Finance programmes (Jun 2013). In the UK university league tables it is ranked first of all UK universities for undergraduate business and management in The Guardian (Jun 2013) and has ranked first in nine of the last ten years in The Times (Sept 2013). For more information, see http://www.sbs.ox.ac.uk/

ENDS

 

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