Preparing for mega-project mega risks: Tips from Arche’s project management consultants

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Mega-projects have long captured the fascination of societies worldwide, promising innovation and progress on a grand scale.

However, most mega-projects are delivered or perceived to be delivered, late and over budget.

In this blog, we will explore how good Project Management Consultants, like Arche Energy can prepare for and mitigate risk in mega projects, offering insights into the factors causing these overruns and the strategies to address them.

Australia has committed to a very large number of mega-projects including the Olympics, renewable energy zones, transmission upgrades, pumped hydro, road and rail projects.

Our construction contractors are not doing well and we have wrapped ourselves in ‘red tape’, which means a negative impact on the successful delivery of all mega projects slated for construction this decade.

The allure and ambition

Let’s go straight to an episode of Utopia. I believe if you want to learn about infrastructure development and planning in Australia, there is no better place.

In Utopia Rhonda and Jim march straight into Tony’s office and state “The Minister wants to announce [insert name of ambitious infrastructure project here]”.

The rest of the episode is Rob trying to upwardly manage expectations, Nat trying to navigate an impossible bureaucracy and everyone else getting in the way.

At the end of the episode, it is clear that the project will never be built or achieve its stated objectives.

Real life is much the same; everyone loves a good mega-project and they make great election promises.

This is particularly true if they will be delivered long after you leave office and the debt only becomes a problem in decades to come.

Choosing the right language

The first step when announcing a mega-project is to change the language.

Rather than announcing “we are going to build [something enormous that will prove that I am a visionary leader]”, better language might be “We have commissioned a concept study” or “we have entered into feasibility phase”.

This is because our politicians’ words and our press’s interpretation of those words need to reflect a realistic interpretation of where the project sits on the project development cycle.

It will also set an expectation that, until the FEED (front end engineering design) is complete, there is still significant uncertainty in the project’s cost and schedule.

In the private sector, particularly for listed companies who are obligated to provide continuous disclosure, we see a more disciplined approach to announcements and the process of stepping projects through concept, pre-feasibility, feasibility and FEED phases prior to construction commencing.

Building the right project

Spending the time in the concept and pre-feasibility phases to define the project will increase the likelihood that the benefits of the project will be realised and the project concept is optimised for both cost and function.

Once you have completed a concept study, then you have something to talk about, before then, it is just a dream.

The concept study should define a workable solution for the project.

At the end of the study you might say, “we are confident that the project can be built, will perform its function and we expect it to cost between $xB and $yB”.

The pre-feasibility study aims to select the best option or best compromise of options.

During the pre-feasibility phase the net is cast wide to consider a range of options, assess these options and select the option that best meets the objectives of the project.

During the pre-feasibility study, we are also defining risks and establishing methods to address these risks.

For example, we might do early geotechnical studies, economic modelling or social benefits studies.

Setting realistic budgets and schedules

The feasibility phase and FEED study is to define the cost and schedule of the project to the point where a firm commitment (which is not risk free) can be made.

These phases involve significant investment into the engineering of the project.

Nominally 30% of the design work will be completed in this phase.

At the end of the FEED, the budget should be down to a level of detail where quantities of concrete, steel, nuts and bolts are defined.

During the feasibility phase, we are also developing and refining the project schedule down to the point where all activities are planned on a day-by day basis and workforce requirements are define for each day of the project.

Don’t make it impossible

In my 27 years of experience as a project management consultant, it has only become more difficult to manage regulation.

In my view this is a key driver of low productivity in both project development and project management.

A pragmatic and outcome based approach to regulation is the most efficient.

Rather than a culture of risk aversion and/or obstructionism, providing regulators with discretion and a mandate to facilitate will go a long way.

Tendering processes

Do we really want the lowest priced tenderer, or do we want a contractor who is well resourced and has a realistic plan?

While procurement should preserve public resources and seek the best value for money, over focus on low price will naturally drive a selection of the contractor who is likely to be willing to take on the most risk, or be willing to play the claims game to squeeze back some costs.

We actually want the contractor to make a profit (not a killing, but a sustainable profit), so that we have a robust and experienced infrastructure construction industry in Australia.

A collaborative approach is best fostered through an ECI (early contractor involvement) program, which is typically integrated into the FEED program.

During this phase, one or more, contractors are selected to undertake detailed project costing and planning in order to identify and reduce risks and refine the project execution plan.

This process allows a more developed final contract price to be presented for approval prior to commitment to the project.

The land of opportunity

Australia has great potential and will need to continue to deliver Mega projects to facilitate economic growth and energy transition.

Arche Energy’s project management service can help guide mega projects though the project lifecycle from concept through to execution.

Contact us to find out more.

References

Flyvbjerg B. (2014) What you should Know about Megaprojects and Why: An Overview. Project Management Journal, Vol 45 (April/May), Number 2

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