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Dezi et. al (2010)
The global population is on the upswing, and with this growth comes mounting pressures on housing, transportation, and resource extraction. Not to mention the increasing impact on our natural and built environments. Super-sized projects to address rising demands have proliferated worldwide and are buoyed by growing economic, social, and environmental challenges.
These massive ventures are better known as megaprojects. Such megaprojects range from transport infrastructure to power plants, dams, power systems, ports, wind farms, and more! They’re typically contentious, hugely expensive, and can shape our modern landscape, igniting excitement and awe and eliciting criticism and even outrage.
So why are megaprojects so controversial? These projects are everywhere, on land, in the sea, in the skies, and beyond, dating back millennia. Yet, more recent endeavors seem to have ‘mega’ notorious track records for budget blowouts, schedule overruns, and broken promises upon delivery. So a list of failed megaprojects will probably be bigger than a list of successful ones based on these metrics alone. But despite this, the importance of these projects to cities, nation-states, and global and local communities is uncontested. Megaprojects are critical; they inspire, connect, redefine, and quite literally make and transform the environment in which they are placed.
Safe to say that mega-projects are here to stay and will only get bigger. Egypt’s new administrative capital with a price tag of US$40B, or the US$105B California high-speed rail, are examples of huge mega-projects currently under construction. As aspirations grow and sites become increasingly constrained, project complexity and stakeholder considerations skyrocket, it’s critical that we know where these projects go wrong and figure out how to manage them better.
what you should know about megaprojects and why an overview
There are several ways to define a megaproject. It is not just scaled-up versions of a smaller project; it varies radically in complexity, stakeholder involvement, and lead times.
A standard definition is that megaprojects are large undertakings that cost US $1 billion and up, take years to plan, develop and build and involve diverse public and private sectors. Megaprojects are also complex and ambitious. Outcomes aim to be ‘transformational’, affecting millions and generating immense economic and social value. Megaprojects also typically span many domains; they simultaneously impact financial, economic, engineering, construction, and social and geopolitical dimensions. Positive outcomes typically strike a careful balance across all these domains.
The global market size for megaprojects is estimated at a whopping US $6-9 trillion annually, approximately 8% of the total global GDP [2]! To put that in perspective, it's equivalent to spending the US’s entire accumulated debt owed to foreign countries annually, which currently sits at US$7 trillion [3]. It’s big business!
Business sectors from infrastructure to industrial processing, water, and energy, IT, mining, supply chains, banking, defense, air, and space projects make business cases for megaprojects. They are increasingly becoming the preferred delivery model to meet the needs of these diverse and expanding markets. But the list could go on, and their scale might not always be apparent. Megaprojects also don’t only come in the form of massive civil infrastructure projects; for example, the setup and delivery of ICT infrastructure supporting national health schemes or pensions information is indeed a megaproject.
Megaprojects are ‘mega’ attractive
What factors make megaprojects alluring? From an engineering perspective, it’s likely technical aspects; projects of such scale excite engineers and technologists. Building the longest bridge, the tallest building, or the fastest aircraft are projects engineers build in their careers. But there are many more factors at work here.
Social factors
The most important factor, of course, is social. Developing, building, assessing, and maintaining infrastructure is often critical for governments and industries. For example, delivering water supply/treatment and sewage systems are crucial for sanitation and disease protection. Further, where would the Netherlands be if it weren’t for the ‘Zuiderzee Works’ or North-Sea and Delta protection works? Without this marvel of civil engineering, involving a man-made system of dams, land reclamation, and water drainage works, a lot of the country would be underwater!
Economic factors
There are also economic incentives. Infrastructure projects at ‘mega’ scales can fuel economic activity for years. Consider Dubai’s International Airport; it is one of the busiest of its kind globally; it employs 21% of the Emirate and accounts for 27% of its GDP! [4]. Also, consider how much economic activity is generated in cities like Tokyo, Hong Kong, or Shanghai; a large portion of that is possible due to their efficient metro systems, all of which were constructed as a single or series of megaprojects. The economic allure and added value of job creation in construction and operation, combined with financial incentives for those directly involved, create a compelling case for megaprojects.
This appeal is evident in the speed at which spending on megaprojects occurs. For example, between 2004 and 2008, China increased its expenditure twentyfold on infrastructure projects, spending more than it did during the entire 20th century [2].
Political factors
Political motivations are also major factors in megaprojects. Endorsements and funding of major infrastructure development can generate excellent publicity for politicians and governments. Megaprojects have been credited with winning and losing elections on numerous occasions.
Aesthetic factors
Finally, there’s the aesthetic appeal; delivering something iconic, culturally significant, and beautiful is always a driving force in getting a project funded, designed, and delivered.
Nevertheless, a Mckinsey Global Institute (2016) study warns that international investment figures in essential infrastructure such as transport, water, or communication systems are insufficient. It warns that investment will fall short of meeting expected population growth rates and increasing business demands.
‘Mega’ problems: pitfalls and challenges
Megaprojects require mega project management, so what defines failure in the context of megaprojects? If we take it to mean falling short of meeting projected targets or planned objectives, then megaprojects have a substantial history of failure. Based on these metrics, megaprojects have a 65% failure rate! Indeed, the poor performance metrics don’t end there: research by Bent Flybjerg concluded that only 1 in 10 projects are delivered on schedule, and similarly, only 1 in 10 are completed within the projected budget. The most damning stat is that only 1 in 10 projects deliver expected benefits [5]!
‘Over cost, over schedule over and over again’ 💬 – Bent Flyvbjerg
These figures are pretty alarming, so why is this case? What are the root causes of such disappointment, and how can we improve these numbers?
First, we must delve into megaprojects' common challenges and pitfalls and how they translate to real-life scenarios. The first major feature and significant challenge of megaprojects are cost overruns. This is an extremely common denominator; you can see it clearly in the data. The graph below shows a list of global megaprojects by their respective percentage cost overrun; notice how far back in time it goes.
Similarly to cost overruns, there’s the big issue of benefit or demand shortfalls compared to targets and promises. There’s often a disconnect between the reality of megaprojects and the extensive analysis which forms the backbone of planning and decision-making. For example, major rail projects experience an average cost overrun and demand shortfall of 44.7% and 51.4%, respectively [2]. On average, roads and other transport projects experience a cost overrun of 20.4%. The magnitude of these errors suggests that business forecasts, cost-benefit analyses, and other relevant projections are often misleading and overly optimistic.
Megaprojects are risky and uncertain because they take so long to complete. Dealing with this uncertainty in projections and analyses requires assumptions and assertions, so it’s no surprise there are a lot of surprises upon completion. But historical data would suggest that such assumptions are consistently overly optimistic and geared toward selling the project rather than accuracy. As a result, we’re left with strategic misinterpretations, optimism bias, overconfidence, and underestimation of timelines and budgets. This has undermined megaprojects time and time again.
👉 Case Study
Consider the Channel Tunnel between the UK and France as a quick example. The Channel Tunnel, completed in 1994, was a monumental feat of engineering, providing the only fixed link connecting the British Isles to the European mainland. The tunnel carries passenger trains, shuttles for road vehicles, and freight trains. You might have even used this service and probably can’t fault it for its convenience, efficiency, and speed.
But did you know that the Tunnel actually detracted from the British economy rather than adding to it? It took 20 years before the project’s first profit was declared. The project also fell short of accurately predicting its expected benefits. Even after aggregating the ridership from the last two decades (~325 million passengers), the tunnel still has to carry the annual numbers initially predicted. The project was originally forecast to lead to immense financial and economic benefits. In reality, construction costs blew over budget by 80%, financing costs skyrocketed by over 140% from initial estimates, and the total loss to the British Economy was US$17.8 billion with an RoR of -14.5%. [6]
Staying in the UK, one of Europe’s biggest rail infrastructure projects, Crossrail’s new Elizabeth Line, was initially set to be completed in 2018. Started in 2009 and opened on May 24, 2022; it's safe to say it hasn’t all been hunky-dory. The budget was initially forecasted to be £14.8 billion, but actual costs ballooned to £18.7 billion in 2020. While Transport for London still predicts substantial returns on its investment by 2024-25, the final magnitude of extra schedule and cost overruns is still uncertain [7]
Keeping a project on schedule is another major challenge. Time overruns have major financial implications, and it’s not uncommon to see major projects, particularly public transport projects, overrun expected schedules by over ten years. There is also the question of leadership; complexity is elevated across all project interfaces, often leaving project planners, leaders, and managers out of their depth. It also doesn’t help that prolonged project timeframes often see leadership changing hands multiple times.
What does this mean? Well, it leads to further fragmenting and can bump up the risk of inconsistencies and misinformation in project management, particularly when costs, schedules, and risks are concerned. Projects of such a scale are inherently riskier, given their exposure to economic downturns or black swan events.
Finally, there is the issue of inadequate stakeholder management. Projects are deemed unsuccessful if they don’t effectively balance economic, environmental, and social objectives. This is often due to improper engagement of internal and external stakeholders in its design and development stages. Further, since projects of such scale typically involve many stakeholders, conflicting interests can mire decision-making.
How should all these challenges be addressed, we hear you ask? We’ll get into that next.
Making good on a promise
Clearly, megaprojects tend to repeat the same mistakes. But as megaprojects continue to be the go-to solutions for emerging economic and social problems, what should be our strategy for success?
We see time and time again the miscalculation of forecasted costs and an overzealous pitch of the benefits a major project can bring. The economic risk and consistent waste of resources that comes with megaprojects beg the question: would a scaled-back version of the project be a more viable option?
Misallocations can be avoided through meticulous cost forecasting methods, especially in real-time, as forecasts on a project are made or updated. Furthermore, it becomes clear that there has to be a more effective alignment of stakeholder goals, strategies, and interests. This means that all stages of project development should engage internal and external stakeholders and be able to receive, send, and access the necessary information and data in real-time. What kind of forum or platform could facilitate this large-scale transfer, access, and coordination of stakeholders, technology, and data? We’ve written an article about it! Check it out here.
There’s also the tried and true: learning from past mistakes. This seems to be overlooked or deliberately glossed over, and it is sometimes hard to determine why. The best estimate is that some megaprojects, in their scale and promise, are believed to be the first of their kind, so little weight has been put on aggregating past insights. However, there are often similarities between megaprojects that would allow some organizational learning, albeit differences in governance, standards, stakeholders, or sustainability commitments. Again data integration could solve this problem, creating an accessible repository of data, designs, processes, constraints, and solutions to allow project managers, governments, investors, etc., to make informed decisions from reliable and acquired insights. A problem we’re actively working on.
In Australia, the Grattan Institute issued a report that discussed how government spending on megaprojects has never been bigger, yet they have been poorly considered most of the time. Indeed, as populations and cities grow and more pressure is put on natural and built environments, the business case for megaprojects becomes increasingly compelling. Yet the reality is that investment spending is driven not by rigorous evaluation of the costs, benefits, social, environmental, and risk impacts but by political agendas.
The report argues that governments are too quick to commit to major infrastructure projects before a thorough and independent evaluation of the proposals and a business case are appropriately developed. Not doing so is a precursor to all the challenges and pitfalls we’ve already discussed, and will find the same issues being rehashed in a costly and unfortunate feedback loop.
We want to see accurate social and financial projections, precise forecasts, and pragmatic and precautionary approaches that identify, define, and assess the risks and the expected benefits.
A case for project sustainability
Given the accelerating support for increased ecological consciousness in governmental and regulatory actions, sustainable and environmental best practices are becoming significant concerns for megaproject stakeholders. One of the significant challenges facing megaproject development today is community member engagement and reliable business cases that prove that such massive undertakings are economically, socially, and environmentally sustainable. More and more stakeholders, including local, national, and even international communities, want to implement environmental sustainability into megaprojects’ development. Engaging with these stakeholders, a major social sustainability pillar provides organizations with tremendous insights into designing, building, planning, and executing megaprojects. This ensures that decisions are responsive to community needs and helps avoid benefit shortfalls. Another ‘collateral benefit’ [8] that can come from this is public approval and demand for the kinds of services that megaprojects can provide.
Like all projects, megaprojects must reach outcomes that find a medium between sustainability and economic value. Flybjerg contends, ‘A megaproject may well be a technological success but a financial failure’, so striking a balance between technological, social, and financial success is paramount.
It begs the question of whether megaprojects should be a first or last resort. We benefit from being able to look back and learn from the past and to be able to see the magnitude and frequency of cost blowouts to make sound and studied decisions, yet there have never been more mega projects in the pipeline than now. In Australia, there are over nine major transport projects worth at least AU$5 billion under construction, a scale and number unthinkable a decade ago. These include the Inland rail, Sydney Metro City, and Melbourne’s North-East link. All initially cost almost half their current cost estimates [9]. Big projects are risky, and we’ve seen the pitfalls they can fall into. So, it leaves us wondering whether countries and governments would get a bigger bang for their buck by upgrading existing civil and social infrastructure instead of overcommitting on promises that megaprojects, just by nature of their scale, magnitude, and complexity, can’t let them keep.
So, we’ve seen the pitfalls of poor project management and business process fragmentation; if only there were something to help! Look no further, CalcTree has the toolbox you need.
CalcTree
📚 References
- [2] Bent Flyvbjerg. (April 1, 2014). What you Should Know about Megaprojects and Why: An Overview.
- [3] Department of the Treasury/Federal Reserve Board (March 15, 2023). "MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES".
- [4] Nicklas Garemo, Stefan Matzinger, and Robert Palter (July 1, 2015).“Megaprojects: The good, the bad, and the better”.
- [5] Bent Flyvbjerg, Oxford University, UK (October 2014). "What Should I know about Megaproject and Why: An Overview".
- [6] Jane Wild (May 5, 2014). "Channel tunnel’s 20th birthday holds lesson on big projects".
- [7] Lovemoney. "Over-budget, delayed megaprojects around the world"
- [8] Prof. Donald Roy Lessard (2020). "Megaproject Management A Multidisciplinary Approach to Embrace Complexity and Sustainability".