Monumental ambitions: Efforts are afoot to tackle the poor planning that busts budgets and wastes time on big projects

July 24, 2013 5:26 pm

Monumental ambitions

By Andrew Hill

Thinking ahead: better Olympics planning has cut budget over-runs, although the London games overshot by 100%

Frank Gehry, the architect, does not like project managers, but over his career he has learnt a lot about project management. His acclaimed Walt Disney Concert Hall in Los Angeles, completed in 2003, fell into a mire of lawsuits about cost overruns, settled five years later with none of the parties admitting blame. The Guggenheim Museum in Bilbao, however, came in 18 per cent under budget and, as important, has yielded greater benefits for the Spanish city than forecast. Mr Gehry urges fellow architects to take more control of the execution of their work: “Don’t be the baby, be the parent and better things will happen,” he said in a 2010 lecture in Oxford.Unfortunately, he is the exception. The recently revealed £8bn increase in the estimated cost of building the controversial HS2 high-speed rail line bet­ween London and the north of England – to £42.6bn – is only one example of the risks inherent in big projects. Failures can unbalance tight­ly drawn government budgets and undermine political careers.

The importance of good project management applies increasingly to the private sector, too. Companies in areas such as mining, information technology and aerospace are learning to apply project management skills to increase efficiency, reduce risk and improve customer satisfaction.

Mark Langley, chief executive of the US-based Project Management Institute, says that as companies “recognise that a large part of their organisation is tied up in this area, they’re seeing [that] project management is increasingly critical”.

Bent Flyvbjerg, the plain-speaking Dane who is professor of major programme management at Oxford university’s Saïd Business School, thinks countries and companies still have a long way to go. “Optimism, which is one of the reasons why projects go wrong, is something we are hard-wired with,” he warns. “It takes a lot of hard work to root out these political and psychological biases.”

The potential for disaster is large. McKinsey, the management consult­ancy, estimates global infrastructure alone will require $57tn of investment between now and 2030. A chunk of that will be devoted to “major programmes” – transformative projects that cost more than $1bn, af­fect more than 1m people and run for more than five years. Here, history tells a sorry tale of politicians’ “monumentalist” tendencies, deliberately mis­leading forecasts and projects thrown off-course by last-minute changes in scope, unexpected geological obstacles and outright corruption.

Must try harder: British public servants go back to school

Britain is sending its senior civil servants back to school to learn how to run the biggest of the public sector projects better.

The government set up a Major Projects Authority in 2011 to improve its control over large programmes, the biggest of which now require explicit Treasury approval. A year later, it created the Major Projects Leadership Academy. The academy aims to train about 340 civil servants who are – in Whitehall jargon – “senior responsible owners” or project directors.

Cohorts of 35 officials – the first of whom undergo final assessments this month – receive 30 days of tuition over about a year, including three week-long residential courses, “masterclasses” from private and public sector experts, and even essay-writing assignments.

Paul Chapman, director of the academy at Oxford’s Saïd Business School, says one aim is to help officials responsible for, say, a big defence manufacturing project, learn from the challenges faced by colleagues managing health service reform. Just as a strategy vision without a plan for implementation is worthless, he says, “policy without thinking about delivery is just wishful thinking”.

The government’s aim is that “in future, no one will be able to lead a major government project without completing the academy programme”.

Progress is being made, however. To combat inefficiency and fraud, governments and other organisations are:

● Centralising major projects, to al­low sharing of information and expertise as well as tighter control. Olympic Games organisers were not­orious for running over budget until the Sydney games of 2000, when the International Olympic Committee in­stituted a knowledge transfer programme that meant subsequent organising committees no longer started from scratch. Even so, Prof Flyvbjerg has pointed out that London 2012 overshot the budget set when awarded the games in 2005 by more than 100 per cent. That may be good by historic standards but it is poor compared with the preceding decade’s average Olympic over-run of 47 per cent.

● Planning projects better and scrapping or scaling back those that fail to meet strict standards. According to McKinsey, South Korea, having established a centre to beat the blight of poor forecasting and fraud in infrastructure projects, now rejects almost half the plans it reviews, compared with 3 per cent in the past, saving 35 per cent on its budget. Chile rejects 25-35 per cent of projects.

● Educating and training civil servants and others who handle huge programmes. Oxford university has set up a Major Projects Leadership Academy for the UK government, to train civil servants who handle big programmes such as HS2, the restructuring of the National Health Service or the procurement of a new generation of jet fighters (see below).

. . .

Some of these public sector lessons can be applied to the private sector, and vice versa. Ian King, chief executive of BAE Systems, the British aerospace and defence group, has talked to one MPLA class, for instance.

Paul Chapman, director of the academy, says “a very large project is better thought of as a temporary organisation”, with the senior civil servant in charge as chief executive. As the project develops, so the team managing it must change shape and scope. This is one of the more broadly applicable lessons from running the Olympic Games: organising committees start small but grow to the size of large companies during the games themselves, before winding down, all according to a set programme.

IBM realised in the 1990s that it would have a competitive advantage if it improved its project management skills. It set up a “centre of excellence” that develops managers to handle ever more complex and interconnected programmes. Michael Dixon, head of IBM Smarter Cities, which helps integrate urban services and infrastructure, says a project ap­proach brings discipline and clarity to collaborative teams made up of sector specialists, system designers and project managers.

Yet many companies still underestimate just how important some individual large projects may be to their future. BP’s Deepwater Horizon disaster was an example of a complex, risky project gone fatally awry.

The advice to companies – and countries – that worry about being unable to manage huge projects is to break them down into smaller pieces carried out over shorter periods.

McKinsey says long-running programmes should be “stage-gated” – the norm for big oil and gas projects – to ensure contractors do not move to the next phase before assessing progress. On big building projects, such as One World Trade Center in New York, or the Burj Khalifa tower in Dubai, architects and contractors used computer simulation be­f­ore the first pile was driven to show how changes in design would affect the timing and cost of the programme.

The customer also needs to be closely involved as a big project develops. Mr Dixon says IBM’s programmes are a two-way “iterative” process that is monitored at least weekly. “In the past, we had all sorts of people who had judgment, expertise and good gut feel, but that’s not enough any more,” he says. “We’re increasingly analysing sophisticated data.”

Perhaps the biggest hidden management cost is the chilling effect of pro­ject failure on legitimate future opportunities. Prof Flyvbjerg, who has studied Mr Gehry’s success, likes to ask people to name the architect of the Sydney Opera House. Few can. It wasJorn Utzon, a fellow Dane. The point is that although Mr Utzon’s work was recognised later, the politicking and poor project management that resulted in a 1,400 per cent cost over-run not only infected his reputation but also deprived the world of countless Utzon masterpieces.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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