June 14, 2011 Vol. 4, Issue 4
Most megaproject failures “stem from a basic lack of being able to pursue a common goal with clarity and good behavior,” according to Edward Merrow, author of Industrial Megaprojects.
Merrow, who has studied projects at the RAND Corporation and Independent Project Analysis (IPA) for the past 30 years, examines a dataset of 318 commercial industrial projects with budgets larger than $1 billion, most of which are in the energy or chemical sectors. What he finds is not so good: by his account, 65 percent of these projects are failures. (Merrow defines the thresholds for failure as: greater than 25 percent in cost overruns, cost competitiveness, or slip in execution schedules; greater than 50 percent in schedule competitiveness; and significantly reduced production into the second year of operations.)
He attributes the majority of these failures to seven key mistakes, some of which are specific to private sector projects (e.g., greedy behavior associated with profits). Most are common to projects in any sector: schedule pressure; inadequate spending in the early phases of a project; across-the-board budget reductions; misuse of firm-fixed price contracting arrangements and efforts to transfer project risk to contractors; and a tendency to fire project managers whose projects overrun greatly on cost. “I have yet to meet one [project manager] who starts the day by asking, ‘What can I do to screw up my project?’” Merrow writes. “Large cost overruns on major projects can almost never be honestly laid at the door of the project director.”
Merrow observes that successful megaproject managers typically share three qualities: they are generalists, politically savvy within their own organizations, and good communicators, “especially good at communicating upward,” he notes. Most importantly, he says that project leadership depends on the ability to protect the team from external pressures:
“Whether a megaproject leadership is able to hold the trust of the project team depends above all on its ability to insulate those at the working level from interference from outside the project. If people outside the project team do no cooperate with the project director, respect for his or her leadership erodes. Project professionals are willing to work on megaprojects because the projects themselves are interesting and exciting. If the leadership cannot keep the project momentum up, it is very difficult to maintain team morale.”
While Merrow’s analysis focuses on the management of private sector projects, many of his observations about teams, partners, front-end loading, project controls, and risk will interest project professionals in any sector.
Read more about Industrial Megaprojects: Concepts, Strategies, and Practices for Success.
