Why megaprojects matter, even when they go wrong

 

Read the first article of our four-article series on megaprojects by Connor Butler, Billy Glennon, Chauncey Bell and Charles Spinosa.

 

Look up to the skyline

 

Megaprojects represent much more than buildings and infrastructure. While they may be defined as capital projects costing more than $1bn, their value stretches beyond money.

 

Megaprojects define our skylines, our environment of bridges and tunnels, our sense of time travelling in trains and planes, and our sense of connection through digital infrastructure. Megaprojects are monuments to human progress. We need them because they showcase who we are.

 

In the first of four articles, we explore why megaprojects are important to wider society and what characteristics they have in common, including their much-maligned tendency to come in late and over budget. Our three follow-up articles will then explain why they go wrong, how to fix them, and why the fix works.

 

The authors of this series have extensive experience in steering successful megaprojects, on time, on budget and with all the promised benefits. They also know how to apply insights from megaprojects to business-critical capital projects of any scale.

 

Megaprojects matter to us as members of small or large communities. They’re monuments to our progress. They demonstrate technological wonder and celebrate the heritage and greatness of our communities. They are often projects of aesthetic delight and beauty. They create economic impact in their marshalling of resources and their payments to the workers involved.

 

It’s very hard to put a value on the greatness of megaprojects. How much are the Egyptian pyramids worth? How much the Parthenon? How much the palaces of Venice? How much would we charge someone who wanted to tear them down? Megaprojects are much more than just buildings or transportation and energy infrastructure. They nourish our hearts and souls by revealing who we are when we are at our best.

 

But apart from their greatness and their $1 billion-plus price tag, megaprojects share a number of other defining features. These include lengthy timescales, a multitude of active stakeholders, and a significant impact on public and private enterprise finance. Megaprojects also have a major, lasting impact on markets and the communities they serve.

 

The Big Dig

 

The number of megaprojects has regularly increased over the last 90 years – the period over which Bent Flyvbjerg, the Danish economic geographer, has been diligently tracking them. And it’s not just the number that’s gone up, it’s the cost. The Joint Strike Fighter program is projected to be the first megaproject to come in at a cost of more than $1.1 trillion1. Megaprojects in the $50-$100 billion range, such as US and UK high-speed rail projects, are becoming common.2 Global spend on megaprojects is now running at $6-9 trillion per year or 8% of the global gross domestic product.3

 

So far so good, but we all know there’s a flip side to megaprojects, and the statistics are a bit of a shocker. At best, according to Flyvbjerg, only eight out of 1,000 (0.8%) deliver the promised benefits at the budgeted cost and on time.4 Our investigations have shown a slightly higher success rate but, in either case, would you invest if you were told that you had only a 1% chance of hitting a sensible return?

 

Take the Boston Central Artery/Tunnel Project (the Big Dig). The original cost estimate was $2.56 billion. In 1992, estimators revised the cost to $7.74 billion; then in 1994 to $10.4 billion. When completed in 2007, the cost came in at $15 billion. That’s nearly six times the original budget.

 

The Willie Brown Solution

 

The former mayor of San Francisco, Willie Brown, knows all about the bad publicity that follows when you fail to keep a megaproject on track. Faced with reports that his Transbay Terminal development was millions of dollars over budget, he had a blunt message.

 

“News that the Transbay Terminal is something like $300 million over budget should not come as a shock to anyone,” he wrote in his weekly column in the San Francisco Chronicle. “We always knew the initial estimate was way under the real cost. Just like we never had a real cost for the Central Subway or the Bay Bridge or any other massive construction project. So get off it. In the world of civic projects, the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging.”5

 

Willie Brown was right about costs and cost expectations, but the big question is whether we should simply “get off it”.

 

We say no. We shouldn’t get off it. At VISION and Relevate, we have led teams who have expertly guided several megaprojects and many other significant capital projects in Ireland, the UK and North America to completion on budget, on time and with all the promised or even enhanced benefits. The example we are most proud of is our work at Intel where we helped them stay in the chip fabrication market by cutting megaproject fab production costs by 30%. Yes, we helped a megaproject come in under budget.

 

In the next article, we’ll explore how megaprojects can go wrong and how you can start to think about fixing them.

 

If you are involved in a megaproject or smaller capital project, our thinking and insights can help you now. 

 

Read the other short articles in this series or, for a complimentary copy of our full report How To Fix Megaprojects (And All Capital Projects That Matter), email Mark Crampton.

 

Listen to our Megaprojects podcast series.

 

Contact the authors:

Notes

1 Flyvbjerg, B. (2017). Introduction. In B. Flyvbjerg (ed.) The Oxford Handbook of Megaproject Management, pp. 1-18). Oxford, UK: Oxford University Press, p. 5

2 Flyvbjerg, 2017, Introduction, p. 4.

3 Flyvbjerg, 2017, Introduction, p. 5.

4 Flyvbjerg, 2017, Introduction, p. 12.

5 Flyvbjerg, B. (2017). Did megaproject research pioneer behavioral economics? The case of Albert O. Hirschman. In B. Flyvbjerg (ed.) The Oxford Handbook of Megaproject Management, pp. 155-193). Oxford, UK: Oxford University Press, p. 155

 

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