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  1. 1. Deconstructing the Big Dig: Lessons Learned from the Country’s Largest Mega Project NASA PM Challenge 2010 Above and Beyond, Galveston, Texas Presented By: Virginia A. Greiman, Assistant Professor, Boston University© 2009 V. Greiman Used with permission
  2. 2. Presentation of Research Literature review of cost escalation on mega projects and comparison to Big Dig Detailed analysis of cost and schedule data over life of project Presentation of techniques for analyzing data Discussion of lessons learned Recommendations for mega project managers© 2009 V. Greiman
  3. 3. Existing Literature Focus on causes of mega project cost increases Techniques for estimating costs Governance and support mechanisms Frameworks used in different countries Little comparative research on strategies and methodologies for cost estimation management© 2009 V. Greiman
  4. 4. Why Study Mega Projects? R & D Laboratories Major driver of economic development and globalization Largest Investment of Capital Worldwide Output of Technology and Innovation Critical cause of poverty is lack of access to infrastructure Resolution of political, legal and financial challenges Absence of research on cost estimation management Interdisciplinary© 2009 V. Greiman
  5. 5. Transportation Research Board In 2006, the Transportation Research Board’s Final Report for Cost Estimation and Management for Highway Projects, identified eight strategies to address cost escalation, and linked these strategies to 18 different causes of cost escalation on highway projects in the United States. Notably, the research concluded that most efforts in cost estimation have focused on creating tools to improve cost estimates with less emphasis on tools for cost estimation management. (Anderson et. al. 2006).© 2009 V. Greiman
  6. 6. Why the Big Dig? I-90 Never Finished in 1952 10-14 Hours of Gridlock Per Day Accident Rate Four Times National Average Rapidly Deteriorating Structure Improve Regional Network Economic Stimulation Environmental Improvements© 2009 V. Greiman
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  9. 9. Project Structure State Funding Public Government Relations/ Agency Community Regulatory Joint Venture Media Interests Interests And Audit Federal Funding Board of DirectorsProject FinancingTIF, GANS, GOBs SHAREHOLDERS (Taxpayers) 58% 100% 42% Professional Services Insurance Input Project Company Output: Labor and Materials (CA/T Project) Infrastructure and Technology Right of Technology Way Con- Design Construction tracts Operating & Contracts Contracts Maintenance 1CA/T Project Structure” Contract © 2009 V. Greiman
  10. 10. Project Organization Central Artery / Tunnel Project Interface MTA Chairman MTA Positions MTA MTA Project MTA General Headquarters Director Counsel Legal B/PB ProgramQuality Manager Risk Management Claims & Design Construction Changes Public Information Design Chiefs Design Mgmt. Construction Construction Geotech Human Services Management Fiscal Area Area Resources Civil/Structural Tech Support P.E. P.E. Safety Area Area Area Area Bridge Lab Accounting Architecture P.E. P.E. R.E. R.E. R.E. R.E. Cost & IPCS P.E. P.E. Schedule Experts - R.E. R.E. R.E. R.E. Internal Means/Methods Controls Traffic Engr. P.E. P.E. R.E. R.E. R.E. R.E. Metals Traffic Mgmt. Closeout/Training Procurement R.E. R.E. R.E. R.E. Environmental Administrative Rowars Utility Maint./Cond. T.O. Services Elect./Mech. Contractors Special Projects © 2009 V. Greiman Information Tech. Maint. of Traffic Milestone Engr. Services Managers
  11. 11. Cost History And Scope Evolution The Central Artery/Tunnel Budget 1985-2007 - $12B 14,475 14,625 14,785 14,075 Owners Growth from 2.5 B - Contingency $14.789 10,468 10,841 Inflation 7,886 7,972 8,000 7,658 Accounting 7,740 Changes 5,810 5,780 5,187 5,597 Scope, Schedule and Pricing 4,436 4,317 3,963 Changes 3,708 (1982 $)2,564 3,409 Original Scope1985 1989 1991 1992 APF 1994 1994 2000 2001 2002 2006 ICE EIS © 2009 V. Greiman APF w/NCRC CSU6 CSU6 CSU7 CSU8 CSU8 CSU9 w/Inflation 1997 Rebaseline
  12. 12. Eurotunnel Facts Project cost twice as much as original estimates. Project finance included a suspension of interest payments and conversion of debt to bonds. Project risks included a fire that damaged image and revenues. Enhanced environmental, safety, and security demands increased cost. Project was initially weakly staffed through seconded employees. Contracts were less tight than normal for a project financing of this size.Bent Flyvbjerg, Megaprojects and Risk, p. 97-98© 2009 V. Greiman
  13. 13. Why are Mega Projects Consistently Underestimated? A review of large public works projects over the last century concluded that costs are consistently underestimated, a phenomenon attributed to the desire of the project advocates to have their projects approved. (Flyvjberg 2002)© 2009 V. Greiman
  14. 14. Underestimation of Costs is the Rule Rather than the Exception! “The difference between actual and estimated investment cost is often 50- 100 per cent, and for many projects cost overruns end up threatening project viability. Underestimation of costs at the time of the decision to build is the rule rather than the exception for transportation infrastructure projects.” (Flyvjberg 2002 and 2006)© 2009 V. Greiman
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  19. 19. Jacked Tunnel Process •Jacking Pit Constructed •Freeze Pipes Placed •Ground Frozen over 3-4 mo. •Tunnel Segments built •Tunnels Jacked 3 ft/day© 2009 V. Greiman
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  22. 22. Modification Cause by Volume 13,490 Scope Transfer Change Different Site 695 - 5% Condition Design 2,411 - 18% Development 4,975 - 37% 3rd Party 966 - 7% Schedule Adjustment Other 372 - 3% © 2009 V. GreimanAs of September 30, 2004
  23. 23. CA/T Safety Performance Recordable Source: CA/T Project Management Monthly Report© 2009 V. Greiman
  24. 24. Common causes for cost escalation Failure to include a cost for inflation in each contract and actual rate of inflation greater than planned estimate Delays in project completion Financing shortfalls and interest rates Scope changes Shortages of materials and labor© 2009 V. Greiman
  25. 25. More causes for cost escalation Price increases and market changes Weak project managers Technical and design complexity Unexpected events and force majeure© 2009 V. Greiman
  26. 26. Unique Factors in Big Dig Cost Estimating Impact of Long Term Agreement Demands of Public Relations Subsurface Conditions Enormous volume of claims and changes Enforcement of safety, quality, budget, and schedule Management of Political and Regulatory Risk© 2009 V. Greiman
  27. 27. Unanticipated Site Conditions Uncharted utilities Obstructions Ground water conditions Environmental problems Archeological discoveries Weak soil and hazardous materials Design changes Change in milestones© 2009 V. Greiman
  28. 28. Cost History And Scope Evolution Environmental / Mitigation 15% Scope Growth/Claims & Changes 15% Inflation 55% Traffic 5% Schedule Contingency Maintenance Other for 3% 5% Unknowns 2%© 2009 V. Greiman Total change from $2.6B to 14.6B = $12.0B
  29. 29. Actual v. Projected Costs Using Actual Inflation Rates© 2009 V. Greiman
  30. 30. Published Inflation Rates© 2009 V. Greiman
  31. 31. Comparison of 1999 and 2003 Costs© 2009 V. Greiman
  32. 32. Growth of I-93 Contracts© 2009 V. Greiman
  33. 33. Lessons Learned The importance of calculating inflation from the inception of the project Monitoring and managing the impact of changes Critical factors analysis Similar factors cut cross all projects© 2009 V. Greiman
  34. 34. Recommendations Study the historical data from mega project – the patterns in the data are valuable indicators of trouble. – Recognize the limitations of the assumptions in historical projects with comparable characteristics. Identify the attributes of the project that will grow and change over time. Recognize that the accuracy of cost estimates vary throughout the project. Adopt a baseline for cost control during inception and update the baseline when schedule, scope and quality change.© 2009 V. Greiman
  35. 35. More Recommendations! Enforce project standards and requirements on all project contractors. Utilize contingency reserves and management reserves solely within the framework for which they are maintained.© 2009 V. Greiman
  36. 36. The Most Important Recommendations! Establish an open and transparent process! – Throughout the project – Necessity for accurate and realistic estimation and budgeting Plot instantaneous data – No matter what the accountants say! – Every blip is a management decision Do your own analysis – Use the primary data© 2009 V. Greiman
  37. 37. References Anderson, S., Molenaar, K., Schexnayder, C. (2006, September) Final Report for NCHRP Report 574: Guidance for Cost Estimation and Management for Highway Project During Planning, Programming, and Preconstruction. National Cooperative Highway Research Program, Transportation Research Board of the National Academies. 52, 55, 56 Flyvjberg, B., Holm, M. and Buhl, S. (2002). Underestimating Costs in Public Works Projects, Error or Lie?, Journal of the American Planning Association, Vol 68, No. 3, American Planning Association, Chicago, Illinois 279-295 Flyvbjerg B., Bruzelious, N., and Rotherngatter, W., (2006) Megaprojects and Risk, Cambridge University Press© 2009 V. Greiman
  38. 38. Contact Information Virginia A. Greiman Assistant Professor Boston University 617-353-6860© 2009 V. Greiman