Mega Project Benchmarking - In the 21st Century

MEGA PROJECT BENCHMARKING
IN THE 21ST CENTURY
CIPRAS INTERNATIONAL, LLC

CIPRAS INTERNATIONAL LLC
As board members, shareholders, and investors engaged in multibillion dollar
infrastructure investments, we know our risk. Our mega projects are both
exciting to experience and beyond the common human experience in complexity.
They have a staggering amount of numbers, details, moving parts, logistics, time
constraints, cash flows, information flows and process flows. They have
thousands of people managing, designing, building, and occupying them, and
they are prone to disastrous failure according to the record around the world.
We also know that our mega project investments can be high-risk threats to our
organization, our shareholder’s value, and our fiduciary responsibilities.
So, our question is this:

Why do mega project failures continue over time regardless
of their place, the industry, and purpose and despite the
confident assurances of their project executives?
Let’s address what we know from experience:

Mega project investments substantially change regions, cities and communities.
They place mega demands on local economies, management, professional
services, labor, material supply-chains, and natural resources.
Mega projects are the rule for economic development, rather than the exception.

In the 21st century, mega project investments are funded by public/government,
and private investment equally. As more investment will come from private
sources in the future, the economic, governance and operational performance
will need to substantially improve.
Question: how will the governance model meet demands of private investors?

Mega project investments require mega-level management organizations that
must effectively manage billions of details, swiftly over long periods of time.
This dynamic is critical to understanding why they are vastly different from
smaller investments.
Most management, professionals, and staff have never built a mega project.

While most challenges on the projects are solved, some are ignored,
misunderstood, hidden, or not reported until after it is too late to correct them.
The unresolved problems build and magnify into failures as the project moves
forward in time. Ultimately, those failures can and do become catastrophic.
Of course, no one likes catastrophic results, but here are the top ten:

1. Delayed completion and opening
2. Serious cost over-runs & financial losses
3. Staff & worker injuries and deaths
4. Project abandonment & fire sale of assets.
5. Expensive long-term project litigation
6. Operational losses and write-offs
7. Severe debt overhang
8. Corporate restructuring & bankruptcy protection
9. Severe reputational damage
10. Shareholder litigation against management and board members
That is what a mega project failure looks like.

Is your Mega Project investment a winner or a loser?
How would you know?

All mega projects, regardless of when and where they are built, the industry they
serve and their operational purpose, share common performance characteristics.
It is also true the each mega project has specific characteristics that are unique.
To understand the dynamics behind why and how mega projects succeed, we
have to know what the common success characteristics are, and benchmark them
against our experience, or against other’s experience.
This is what a mega project success looks like:

Successful mega projects have adept and experienced management cultures that
start with a clear, well-defined objective, and project scope. This is the essential
to a long and expensive journey.
While slight changes are common, the ill-defined objective and scope translates
into constant change, continues through the project’s construction phase and
magnifies into a certain failure in the end.

Successful project executives avoid reporting of falsehoods, diversions, or
management pretense about project scope, budget and opening dates.
Strategic misrepresentation is a common ploy to obtain project funding; to cover
up a project that is not viable, performing poorly, or failing. The perpetrators
and/or their incentivized professional staff hope their original misrepresentations
play out over time, are forgotten over time, or are muted by project process too
far along to stop. When the project failures start to mount, the perpetrators layer
additional misrepresentations to divert accountability for their failures.
Litigation will usually follow.

Successful project sponsors do not underestimate the complexity of the mega
project, or naively assume the project will proceed smoothly.
In the excitement, or rush to get approval and funding for their projects,
overconfident project sponsors may be blinded by optimism bias and fail to
address troubles, weaknesses, or real risks early in the process.
During the course of the mega project, that may last for years, optimism bias
will be certain to evolve into reality.

Successful mega projects have a detailed and honest market viability analyses.
They have adequate and secured capital structure and funding based on viability.
The project sponsors prove the project’s viability, the return on investment, and
avoid the hyper-marketing that is characteristic of projects that need a hard sale.
In the end, viability is proven by on budget, on time, and operational success.
Viability failures are proven by operational failures, fire sales and bankruptcies.
In the end, viability failures will be accountable to the project sponsors.

Successful mega projects have project sponsors that thoroughly assess the
project’s total risk picture, not just obvious risks with questionable color-coding
of risk likelihood, and impact estimates. They commit program risk
management, and internal audit resources that are independent of project
management to the challenge. They have robust risk planning, assessment,
mitigation, reporting and resolution processes.
Failing to assess internal risk, or risk inherent in the project will materialize in
certain future surprises, expensive mitigation, and/or unrecoverable disasters.

Successful mega projects possess each stakeholder’s full ownership,
commitment and investment in the project’s success. From leadership through all
levels of the project team, each member takes ownership in their part and their
contribution to the project.
A lack of individual ownership translates into political divisiveness among
stakeholders. Political divisiveness causes an unnecessary waste of resources,
adversarial conflicts, time losses, productive energy drain, and ultimately a
project failure ending in litigation and bankruptcy.

Successful mega projects have strong, competent leadership. Their leadership
establishes a strong project management structure, project controls, monitoring
procedures, and processes. They hire a strong, highly trained, and experienced
project management team. The leadership exhibits a positive, proactive,
professional demeanor and a project atmosphere of contagious positive
intelligence and attention to quality.
A lack of strong leadership is evidenced by chaotic production processes, a lack
of production, infighting, unresolved contractor claims and avoidant
management behavior.

Successful mega projects have the right people, with the right skills, in the right
places, doing the right things. They work together, not against one another. Each
person carries their weight and contributes to the project’s teamwork culture.
The culture is committed to health, safety and environmental protection
Planning, design, and construction flow into the successful completion process.
When people fail, it’s usually the failed leadership, or processes that proceed
them. Then turn-over is heightened, productivity declines, accidents and deaths
occur, and the project is certain to fail.

Successful mega projects measure and monitor all of the pertinent Key
Performance Indicators (KPIs). The KPIs are monitored independently by a
strong internal audit team in conjunction with project management to accurately
report the project’s true status and forecast status to the project stakeholders.
When there is a lack of independent performance monitoring, project
management may lack an understanding of the project’s true performance status,
up play the positive, or down play the negative as work in progress.

The successful mega project culture will strictly adhere to anti-corruption
policies and engage competent law enforcement when bribery, extortion, fraud,
larceny, murder, drug use, drug trafficking, or any other illegal activity occurs
within the limits of the project, or among the people involved in the project.
In countries, cultures, or on projects where various forms of corruption are
acceptable, project controls will largely be ineffective, costs will certainly rise
and the corruption risk variables may translate into certain project failure.

Successful mega projects start design and finalize critical project criteria before
construction commences. They never allow the construction process to get ahead
of the design process. Further, they do not allow on-going design changes to
negatively impact the construction process.
When construction activity catches the design activity, the fast-track delivery
process fails. The construction slows, and rework and changes reduce production
efficiency. Late stage design changes invariably lead to delays, disruption,
ongoing added costs, claims and litigation.

Successful mega projects possess strong, cost accounting, budgeting, accounting
and cost estimating skills and disciplines, which flow into strong financial
controls. They have robust schedule (programme) management resources to best
manage, monitor, and control the time resources of the project. They have clear;
concise and customized contract documents tailored to the project, clear and
unambiguous terms and conditions, strong safety requirements, strong audit
rights, remedies, and well-defined dispute resolution processes.
A lack of project controls will be self-evident in certain project failure.

Successful mega projects possess robust change management processes and the
people that can manage high-speed, large volume changes as they occur.
Successful project executives proactively avoid cardinal changes, or large
project changes to avoid project disruptions to construction inefficiency,
productivity and sequencing. They anticipate change and avoid scope creep well
before the change affects construction production, minimizing costly field
changes, and schedule delays.
Not managing high speed change in a mega project will lead to certain failure.

Successful mega projects consistently possess a healthy cash flow, information
flow and process flows. Efficient cash flow is essential to efficient production.
Efficient information flow is essential to the speed and accuracy of information
transfer between project managers and into the construction process flow.
Weakness in managing these micro-flow processes constrains or causes
cumulative friction in the macro-flow process, thereby increasing the odds of
project failure.

Successful mega projects possess strong local labor, materials, equipment and
supply-chain resources. These strong links make a strong chain. Mega-projects
can and do stress local management, labor, material and equipment resources.
Not managing inadequate numbers of qualified tradespeople, labor troubles,
insufficient materials, low-grade materials, insufficient equipment and
constrained supply-chain operations increases the chances of project failure.

Successful mega projects possess swift decision-making by the project
executives through project management to design team and construction teams.
Project executives, project managers, or design professionals have the authority
to make detailed, routine decisions to avoid slowing the overall process.
Inadequate decision management forces the contractors to move ahead without
approvals, to replace installed work, causes resequencing of work flows,
increases cost and slows the construction schedule, increasing the chances of
project failure.

Successful mega projects have effective and fluid communications between the
executives and the project management team. This high-level of communication
is enabled by 21st century technologies and the people that exploit them to their
highest use. Emerging budget and schedule issues, design issues, strengths,
weaknesses, opportunities and threats are communicated immediately and
guidance is communicated immediately for immediate action.
Poor, or closed communications, or language barriers causes misunderstandings
among the project team. A complete lack of communication indicates a failed
project.

Successful mega projects possess management cultures that encourage accurate
and transparent project reporting, and effective, timely solutions to the
challenges. They forecast project progress accurately. They report the whole
story and not just the good news.
Project executives must report the truth to the public and in regulatory filings. If
bad news, poor performance, and management departures, etc. concerning the
project are withheld, they and the board members are at risk for shareholder
litigation.

Successful project executives manage differences in cultures, language, means
and methods, time zones, economies, currencies and local customs. They
manage in multinational and local markets with variable levels of labor skills,
material quality, and technological availability. They seamlessly manage supply
chain operations involving multiple international suppliers.
The international risk variables are complicated and commonly underestimated.
Not addressing the multiple impacts of these risks at the beginning of the project
will usually impair the project throughout the duration and lead to certain
litigation failure.

Successful mega project executives know the internal risks inherent within the
project. They also realize their professional limits. External unknown risks in
regard to market shifts, regulatory compliance, financial markets, corruption,
force majeure events, or external economic conditions may be beyond their
control.
Project executives that fail to identify external risks, and fail to seek professional
resources equipped to manage those risks will be surprised and ill-equipped to
manage, or mitigate the impacts to the project.

Is your mega project investment a success, a failure or
somewhere in between?
We hope your benchmarking self-assessment score was high.
However, if your score is a cause for concern, what is that worth to you?
Is your mega project investment able to absorb added costs,
losses and damages equal to $US 100 Million, $500 million,
$1 Billion, or $2 Billion, or more?
We didn’t think so.

We would like to suggest detailed and effective ways to increase your confidence
level, save and recover substantial cost; avoid delayed completion dates, serious
financial losses, expensive long-term litigation, bankruptcy, irreparable
reputation damage, and lawsuits against your project, your company, your
executive management teams and your board members.
For more details on how we help our client’s mega project investments succeed,
please contact us.
J.M. Cunningham, Senior Managing Director, CIPRAS International, LLC.  jmc@cipras.com

Mega Project Benchmarking - In the 21st Century

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