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Heathrow Terminal 5 Project Success or Failure?- a tale of two halves 8th May 2009 Dr David Hancock PhD MBA BEng CEng FRSA FIMMM RRP Chartered FCIPD David Hancock Consulting

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Agenda <ul><li>Fundamentals of risk management? </li></ul><ul><li>Why was Terminal 5 different ? </li></ul><ul><li>T5 Handbook & Contract </li></ul><ul><li>Risk and Opportunity </li></ul><ul><li>Conclusions </li></ul><ul><li>Operations - So what happened? </li></ul><ul><li>Lessons from T5 and other projects </li></ul>

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“ The uncertainty of outcome, whether positive or negative threat, of actions and events. It is the combination of likelihood and impact, including perceived importance.” (HM Treasury, The Orange Book, 2004) A statistical certainty? What is meant by a Risk?

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Evaluating A Risk <ul><li>Likelihood </li></ul><ul><li>The chance that the risk may actually be realised, (occur), sometimes called probability </li></ul><ul><li>Impact </li></ul><ul><li>The effect that the risk being realised would have on the Objectives, sometimes called consequence </li></ul>

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Scoring and Traffic Light Notation L I K 5 E L I 4 H O O 3 D 2 1 1 2 3 4 5 SEVERITY LDA Legal Impact 1 Improvement notice 2 Prohibition notice. 3 Prosecution with fine. 4 Directors charged with Corporate killing, fraud etc.. 5 Directors charged with Corporate killing, fraud etc.. LDA Reputation Impact 1 No press coverage 2 Minor, local reputation damage. 3 Major, local reputation damage. 4 National adverse media coverage. 5 International adverse media coverage Financial 1 £ thousands 2 £ tens of 3 £ hundreds of 4 £ Millions 5 £ tens of millions thousands thousands Descriptor 1 Improbable 2 Unlikely 3 Less likely than not 4 Likely 5 Probable Likelihood Descriptor 1 Minor 2 Moderate 3 Significant 4 Substantial 5 Catastrophic Impact LDA Output Targets 1 Exactly meets targets 2 Significantly meets targets 3 Meets 50% of targets 4 partially meets targets 5 Does not meet targets Health & Safety 1 Negligible injuries 2 Minor injuries 3 Major injuries 4 Single fatality 5 Multiple fatalities Schedule 1 Day 2 Week 3 Month 4 Year 5 Years

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The Risk Process Set Objectives Monitor the risks Report movement of the risk Identify Threats and Opportunities to Objectives Assess the risks associated with each threat and opportunity ( Inherent ) and map exposure (PxC) Consider actions to manage risk terminate, tolerate, treat, transfer Reassess the risk ( Residual ) and remap (PxC) in light of actions in place

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Response to risk… the 4 Ts Terminate – Do things differently and thus remove the risk Tolerate – Nothing can be done at a reasonable cost to mitigate the risk or the likelihood and impact are at a reasonable level Treat – Take action to control the risk either by reducing the likelihood of the risk developing or limiting the impact it will have on the project Transfer – Some of the financial risk may be transferable via insurance or contractual arrangements or accepted by third parties

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Risk and Opportunity

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Risk Assessment <ul><li>Quantitative </li></ul><ul><ul><li>An attempt to apply meaningful and objective probabilities and subsequently consider and then quantify the potential of such risks in terms of time, cost and quality (Laxtons guide to risk analysis and management) </li></ul></ul><ul><li>Qualitative </li></ul><ul><ul><li>Involves the registration of the identified risks, by ‘experts’ in a formal manner using subjective probabilities. </li></ul></ul><ul><li>Selection of stakeholders is critical to its success. </li></ul><ul><li>Need to take into consideration Group Dynamics. </li></ul><ul><li>Also used to identify Opportunities </li></ul>

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What is Risk? (Part 2) <ul><li>Exists in the future </li></ul><ul><li>There are many possible futures available </li></ul><ul><li>The model is not reality </li></ul><ul><li>“ Recognising the possibility of different outcomes and trying to make sure that activities are directed towards making an acceptable set of outcomes more likely” - CIPFA Treasury discussion paper </li></ul>

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Understanding what is meant by project success is crucial

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<ul><li>General Project Delivery Trends </li></ul><ul><li>Increased complexity of solutions </li></ul><ul><li>Projects solved and delivered through diverse teams </li></ul><ul><li>Increased relationships/partnerships </li></ul><ul><li>Increased societal interaction </li></ul><ul><li>Increased interaction with ‘non experts’ (General Public) </li></ul><ul><li>Increased political involvement </li></ul><ul><li>Higher customer expectation </li></ul><ul><li>Increased expectations of performance </li></ul><ul><li>Increased informed risk taking </li></ul>What are the particular challenges?

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Project Failures <ul><li>American Companies and Government agencies spent $81 billion on cancelled IT projects </li></ul><ul><li>31% of projects deemed complete failures </li></ul><ul><li>53% were late, over budget and did not meet expectations </li></ul><ul><li>Only 9% delivered on time or within budget </li></ul><ul><li>Only 16% considered successful </li></ul><ul><li>Average time overrun 222% of original estimate </li></ul><ul><li>52.7% of projects will cost over 189% of their original estimates </li></ul><ul><li>Projects completed by the largest American companies have only approximately 42% of the originally-proposed features and functions </li></ul><ul><li>UK Government procured construction projects suffer on average 11% time overrun. </li></ul>

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Why was T5 Different? Where we want to be

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Terminal 5 Project - Background The Public Inquiry into the proposal to build a fifth terminal at Heathrow Airport started in May 1995 and finally finished after having sat for 525 days, in March 1999, making it the longest public inquiry in British planning history and at a cost of £80m in legal fees. The report was submitted to the UK Government 20 th December 2000. Planning costs at risk were £320m. The decision to go ahead was given on 20 th November 2001 by Stephen Byers transport secretary and the terminal is expected to be completed by 04:00 on 30 March 2008.

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Terminal 5 Project – What? <ul><li>A main passenger terminal and two satellites to handle 30 million passengers a year. </li></ul><ul><li>The £4.2 billion complex would also include; service tunnels and roads, car parks, facilities for the next generation of 'super-jumbo' aircraft and a hotel. </li></ul><ul><li>A complete transport interchange with its own high-speed rail and Underground links, bus and coach station and a spur road to the M25. </li></ul><ul><li>Designed by Sir Richard Rogers, the terminal will feature a light, airy interior with spectacular views of the airfield. It will be spacious, elegant and user-friendly as well as functional. </li></ul><ul><li>Offering the highest customer service standards for essential airport procedures and a range of facilities to enhance comfort and enjoyment, including shops and catering. </li></ul><ul><li>Will provide an efficient and enjoyable airport experience for customers. </li></ul><ul><li>All British Airways flights will be concentrated in Terminal 5. </li></ul>

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Terminal 5 Project - Orientation Terminal 4 Terminal 1 Terminal 2 Terminal 3 Terminal 5

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Terminal 5 Project - Orientation

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Terminal 5 Project - Orientation

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The Vision <ul><li>To deliver the Terminal 5 project within our Cost Plan and Programme. </li></ul><ul><li>This will be done with sensitivity to the impact on the local community and with exemplary safety and environmental standards. </li></ul><ul><li>The project will deliver the quality of facility and service described by the Project Brief with a satisfactory return on investment for BAA. </li></ul><ul><li>BAA will implement the principles of the &quot;Memorandum of Understanding&quot; agreed with British Airways and work openly and constructively in the execution of a successful project. </li></ul><ul><li>There will be fair reward for the achievements of our partners in delivering the project - and no surprises for our shareholders. </li></ul><ul><li>By the time we’ve finished we will have created a new standard for project delivery in the UK </li></ul><ul><li>“ THE WORLD’S MOST REFRESHING INTERCHANGE” </li></ul>

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The Project Organisations Rod Eddington Chief Executive John Rishton Chief Financial Officer Mike Street Director Customer Service and Operations Robert Boyle Director of Commercial Planning Paul Coby Chief Information Officer Lloyd Cromwell Griffiths Director of Flight Operations Martin George Commercial Director Alan Mcdonald Engineering Director Robert Webb QC General Counsel Neil Robertson Director For People

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Environment – October 1994 Canteen & Welfare Units Cambourne House

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Heathrow Express Collapse Record fine after tunnel collapse One of the worst civil engineering disasters for 25 years. Builder Balfour Beatty has been fined a record £1.2m for the collapse of a tunnel at Heathrow Airport, which put lives at risk and caused the cancellation of hundreds of flights. The tunnel collapsed in the early hours of October 21, 1994. Fortunately no-one was in the tunnel at the time. However, the court was told that the collapse could have crushed to death people using the nearby Piccadilly tube line and the judge hearing the case, Justice Peter Cresswell, said it was &quot;luck more than judgment&quot; that this did not happen. Huge crater The collapse could have ended in real disaster. The engineering disaster caused a huge crater to appear between the airport's two main runways and caused damage to car parks and buildings. It took months to clear up the damage. The collapse occurred during the construction of a tunnel for the Heathrow Express Rail Link. Balfour Beatty pleaded guilty to failing to ensure the safety of both its employees and members of the public. Austrian engineering firm Geoconsult, which was responsible for monitoring the progress of the Heathrow Express Link, was also fined £500,000. The judge ordered both companies to pay a further £100,00 each in costs. Terrible disaster Justice Cresswell said: &quot;This was one of the worst civil engineering disasters in the United Kingdom in the last quarter of a century. The tunnels were being built below part of the world's busiest international airport and there was considerable potential for harm.&quot; Both firms were found guilty of falling &quot;seriously short&quot; of the appropriate standards and reasonable steps, resulting in serious breaches of the Health and Safety Regulations. Martin Thurgood, of the Health and Safety Executive, told the BBC: &quot;This level of fine sends a clear message to the industry, whether (to) the client's designers, contractors or sub-contractors, that they do need to take full account of workers safety and public safety in the way in which they go about their business.&quot; Balfour Beatty, based in Edinburgh, is one of the UK's largest building groups, and is part of the engineering group BICC. It said it deeply regretted the accident. The tunnel's collapse delayed the opening of the Heathrow Express by six months and caused long hold ups on part of the Jubilee line extension, where engineers were using similar building techniques.

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Understanding what is meant by project success is crucial

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BAA Risk Principles <ul><li>BAA HOLDS ALL OF THE RISK ALL OF THE TIME </li></ul><ul><li>USE OF INTEGRATED TEAMS TO HELP BAA MANAGE RISK </li></ul><ul><li>RISK IS LINKED TO REWARD </li></ul><ul><li>T5 HANDBOOK SETS OUT BASIC PRINCIPLES </li></ul>

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Risk and Opportunity

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Risk Assessment <ul><li>Quantitative </li></ul><ul><li>An attempt to apply meaningful and objective probabilities and subsequently consider and then quantify the potential of such risks in terms of time, cost and quality (Laxtons guide to risk analysis and management) </li></ul><ul><li>Qualitative </li></ul><ul><li>Involves the registration of the identified risks, by ‘experts’ in a formal manner using subjective probabilities. </li></ul><ul><li>Selection of stakeholders is critical to its success. </li></ul><ul><li>Need to take into consideration Group Dynamics. </li></ul><ul><li>Also used to identify Opportunities </li></ul>

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T5 Agreement

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Behavioural Contract

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Problem Areas <ul><li>Tame Problems </li></ul><ul><li>Systems Complexity </li></ul><ul><ul><li>Messes (Ackoff 1970) </li></ul></ul><ul><li>Behavioural Complexity </li></ul><ul><ul><li>Wicked Problems (Rittel & Weber 1973) </li></ul></ul><ul><li>Wicked Messes (Roth & Senge 1996) </li></ul>

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Problem Solving Problem Solution Gather Data Analyse Data Formulate Solution Implement Solution “ TAME” Problems can be solved by linear or “waterfall” process Time since beginning

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Systems Complexity <ul><li>Clusters of interrelated or interdependent problems </li></ul><ul><li>Messes (Ackoff 1970) </li></ul>

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“ MESSES ” meet the following criteria: Organisational Complexity - clusters of interrelated or interdependent problems, or systems of problems. Messes are puzzles; rather than solving them we resolve their complexities. Cannot be solved in relative isolation from one another .

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Behavioural Complexity <ul><li>Conflicting social ethics and beliefs </li></ul><ul><li>‘ Wickedness’ (Rittel & Webber 1973) </li></ul>

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“ WICKED PROBLEMS ” are characterised by: An evolving set of interlocking issues and constraints - no definitive statement of the problem (no understanding of the problem until the solution has been developed). Many stakeholders - the problem solving process is fundamentally social (getting the right answer is not as important as having stakeholders accept the solution). The constraints (resources, politics) change with time - stakeholders come and go, change their minds or change the rules. Since there is no definitive Problem there is no definitive Solution .

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Wickedness Time since beginning “ WICKED” Problems cannot be solved by linear or “waterfall” process Problem Solution

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Wicked Problem Solving Because of the number of stakeholders, changing constraints and dynamics of the problem, there is no ideal solution-it is “as good as it gets” or “good enough” The Problem solving process ends when resource (time, money energy etc.) runs out! Therefore we need a different approach when handling risk with respect to problems which are not Tame Resolving “ WICKED MESSES ” is “ SATISFICING ” (H. Simon 1956)

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Risk Management

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<ul><li>“ The most important difference between Terminal 5 and other large building projects has been the approach to project management, and especially to risk”. </li></ul><ul><li>Tony Douglas T5 Managing Director </li></ul><ul><li>The Economist </li></ul><ul><li>18th August 2005 </li></ul>

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Operations – So what happened? <ul><li>The first flight of the day was captained by BA’s first female pilot, Lynn Barton, and touched down a full eight minutes ahead of schedule. </li></ul><ul><li>Six months of trials failed to detect the glitches - Walsh said the problems had not emerged in the trial process. </li></ul><ul><li>T5 is designed to process 70,000 passengers per day but in its &quot;soft launch&quot; phase it should handle 40,000 - a reduced number that the baggage system was unable to cope with initially. </li></ul><ul><li>The problems, BA blamed on staff not being familiar with new systems </li></ul><ul><li>BAA claimed that the baggage system was working properly but had become clogged with bags because BA had too few staff to unload them from conveyor belts. </li></ul><ul><li>BA said that BAA had provided too few security staff to process its baggage handlers as they arrived for work. </li></ul><ul><li>A BAA spokeswoman admitted: A software problem has arisen in the baggage system at Terminal 5. This is entirely BAA's responsibility. </li></ul>

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Operations – So what happened? <ul><li>BA had been preparing for the switch to Terminal 5 for three years and claimed that it had trained thousands of staff on the new systems. But many were delayed after being unable to park their cars or to find their way to their work stations. </li></ul><ul><li>Pilots slam BA management over Terminal 5 chaos. </li></ul><ul><li>British Airways pilots urged investors to take action over the airline's leadership yesterday after warning that poor management had turned the airline into a &quot;laughing stock&quot;. In a scathing letter to shareholders and government ministers, the British Air Line Pilots' Association (Balpa) blamed BA executives including the chief executive, Willie Walsh, for the bungled debut of Heathrow airport's Terminal 5 </li></ul><ul><li>The baggage handlers identified a few system glitches during the trials but as usual with BA management their concerns were ignored, (we get paid to manage - you get paid to do as we say).&quot; </li></ul><ul><li>My heart goes out to all the staff, they have tried to do their best with very little or no training under extreme pressure. </li></ul><ul><li>Willie Walsh, the chief executive, said he needs the extra time to avoid the &quot;staff familiarisation issues&quot; </li></ul>

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Operations – So what happened? <ul><li>Apparently there was a lot of ’show and tell’ rather than hands on involvement. Simulations were unrealistically light in the amounts of baggage used. Not enough people - handlers and passengers - were involved. </li></ul><ul><li>Simple work aids have been misplaced or mis-managed, and pre-opening testing was too light weight to reveal this. Having enough parking so that your baggage handlers don’t spend vital time driving around looking for a space is a good idea. So, too, is having enough direction and information signs so that staff know where they are and what they’re doingThe baggage handlers identified a few system glitches during the trials but as usual with BA management their concerns were ignored, (we get paid to manage - you get paid to do as we say).&quot; </li></ul><ul><li>the problem was not insufficient training, but the wrong type of training: show and tell lectures without sufficient realism, live testing of systems, full simulations of everything from driving to work to dealing with stroppy customers. Done right, as part of a coherent management plan, the right sort of training would have made some difference </li></ul>

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Why might this be?

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British Airways Financial Highlights

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BAA Terminal 5 Project Costs Multiplex losses £183 million Multiplex sues Cleveland steel for £38 million counter case for £22.6 million Multiplex sues FA for £150 million (Settled at £36 million) Multiplex sued by shareholders for £40 million Multiplex sues designer Mott MacDonald for £253 million ** Costs at project end * Costs at contract signing Costs Original (millions) Costs Final (millions) Costs Claims (millions) Opening Costs (millions) Terminal 5 £4,200 £4,200 0 £10 ? Wembley £326.5 *£445 £900 **£757 £36 (£291) 0

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Terminal 5 – The future?

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“ When all you have is a hammer, everything looks like a nail ” . Japanese Proverb “ Successful problem solving requires finding the right solution to the right problem. We fail more often because we solve the wrong problem than because we get the wrong solution to the right problem”. Russell Ackoff, 1974

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