Weekly Business Insights from Top Ten Business Magazines | Week 288 | Shaping Section | 1

Extractive summaries of and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 288 | March 17-23, 2023

From high-speed rail to the Olympics, why do big projects go wrong?

The Economist | March 16, 2023

Listen to the Extractive Summary of the Article

Lots of countries have big construction projects that become a byword for ineptitude.  Megaprojects are the subject of an entertaining new book called “How Big Things Get Done” by Bent Flyvbjerg and Dan Gardner. Mr Flyvbjerg is the compiler of a database of over 16,000 projects, which tells a grimly consistent tale of missed deadlines and shattered budgets. By his reckoning, only 8.5% of projects meet their initial estimates on cost and time, and a piddling 0.5% achieve what they set out to do on cost, time and benefits.

Over-optimistic time and cost estimates stem from both psychological and political biases: a reliance on intuition rather than data, and a problem that Mr Flyvbjerg and Mr Gardner call “strategic misrepresentation”. This is when budgets are deliberately lowballed in order to get things going, on the premise that nothing would ever get built if politicians went around being accurate. The sunk-cost fallacy, whereby people hesitate to halt projects because money spent will seem to have been wasted, means that the plug is seldom pulled once work is underway.  Planning is too often done in haste.  By keeping to a minimum the window when the project is actually being implemented, thorough planning reduces the probability of unexpected events derailing things. 

Big bespoke projects are particularly likely to run into trouble. The more that a project can be disaggregated into replicable processes, the better its prospects. Mr Flyvbjerg’s database shows that solar-power and wind power installations stand the best chance of not going wrong, in part because standard components can be snapped together into arrays and turbines. At the other end of the risk scale lie gigantic one-off efforts like nuclear-power stations and the Olympic games.

Mitigating the dangers inherent in big bespoke projects is possible.  Paris, the city hosting next year’s summer Olympics, is using existing facilities for most of the sporting venues. Standardized designs and manufacturing processes for everything from train tracks to viaducts helped China build the world’s largest high-speed rail network in less than a decade at the start of this century.

Projects run into problems for specific reasons as well as general ones.  If you plan rigorously and standardise where possible, you are less likely to dig yourself into a hole.

3 key takeaways from the article

1. Lots of countries have big construction projects that become a byword for ineptitude.  Only 8.5% of projects meet their initial estimates on cost and time, and a piddling 0.5% achieve what they set out to do on cost, time and benefits.
2. Over-optimistic time and cost estimates stem from both psychological and political biases: a reliance on intuition rather than data, a problem that Mr Flyvbjerg and Mr Gardner call “strategic misrepresentation” i.e, budgets are deliberately lowballed in order to get things going, the sunk-cost fallacy – whereby people hesitate to halt projects because money spent will seem to have been wasted, and planning is too often done in haste.
3. If you plan rigorously and standardise where possible, you are less likely to dig yourself into a hole.

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Topics: Project Management, Mega Projects, Decision-making