Question

4. Large projects or megaprojects are becoming increasingly important and will be even more relevant in the near future (a) Discuss the historical performance of megaprojects in respect to cost, schedule and benefit in operations. Provide an example to support your discussion [9 marks] (b) With regards to the project management performance, explain what are "Optimism bias" and "strategic misinterpretation" [10 marks]

Answer 1

A) discuss the historical performance of megaprojects in respect to cost, schedule and benefit in operations. provide an example to support your discussion.

The Cost Control Problem

During the execution of a project, procedures for project control and record keeping become indispensable tools to managers and other participants in the construction process. These tools serve the dual purpose of recording the financial transactions that occur as well as giving managers an indication of the progress and problems associated with a project. The problems of project control are aptly summed up in an old definition of a project as "any collection of vaguely related activities that are ninety percent complete, over budget and late." [1] The task of project control systems is to give a fair indication of the existence and the extent of such problems.

In this chapter, we consider the problems associated with resource utilization, accounting, monitoring and control during a project. In this discussion, we emphasize the project management uses of accounting information. Interpretation of project accounts is generally not straightforward until a project is completed, and then it is too late to influence project management. Even after completion of a project, the accounting results may be confusing. Hence, managers need to know how to interpret accounting information for the purpose of project management. In the process of considering management problems, however, we shall discuss some of the common accounting systems and conventions, although our purpose is not to provide a comprehensive survey of accounting procedures.

The limited objective of project control deserves emphasis. Project control procedures are primarily intended to identify deviations from the project plan rather than to suggest possible areas for cost savings. This characteristic reflects the advanced stage at which project control becomes important. The time at which major cost savings can be achieved is during planning and design for the project. During the actual construction, changes are likely to delay the project and lead to inordinate cost increases. As a result, the focus of project control is on fulfilling the original design plans or indicating deviations from these plans, rather than on searching for significant improvements and cost savings. It is only when a rescue operation is required that major changes will normally occur in the construction plan.

Finally, the issues associated with integration of information will require some discussion. Project management activities and functional concerns are intimately linked, yet the techniques used in many instances do not facilitate comprehensive or integrated consideration of project activities. For example, schedule information and cost accounts are usually kept separately. As a result, project managers themselves must synthesize a comprehensive view from the different reports on the project plus their own field observations. In particular, managers are often forced to infer the cost impacts of schedule changes, rather than being provided with aids for this process. Communication or integration of various types of information can serve a number of useful purposes, although it does require special attention in the establishment of project control procedures.

Schedule

Scheduling and project planning is an activity that continues throughout the lifetime of a project. As changes or discrepancies between the plan and the realization occur, the project schedule and cost estimates should be modified and new schedules devised. Too often, the schedule is devised once by a planner in the central office, and then revisions or modifications are done incompletely or only sporadically. The result is the lack of effective project monitoring and the possibility of eventual chaos on the project site.

On "fast track" projects, initial construction activities are begun even before the facility design is finalized. In this case, special attention must be placed on the coordinated scheduling of design and construction activities. Even in projects for which the design is finalized before construction begins, change orders representing changes in the "final" design are often issued to incorporate changes desired by the owner.

Periodic updating of future activity durations and budgets is especially important to avoid excessive optimism in projects experiencing problems. If one type of activity experiences delays on a project, then related activities are also likely to be delayed unless managerial changes are made. Construction projects normally involve numerous activities which are closely related due to the use of similar materials, equipment, workers or site characteristics. Expected cost changes should also be propagated thoughout a project plan. In essence, duration and cost estimates for future activities should be revised in light of the actual experience on the job. Without this updating, project schedules slip more and more as time progresses. To perform this type of updating, project managers need access to original estimates and estimating assumptions.

Unfortunately, most project cost control and scheduling systems do not provide many aids for such updating. What is required is a means of identifying discrepancies, diagnosing the cause, forecasting the effect, and propagating this effect to all related activities. While these steps can be undertaken manually, computers aids to support interactive updating or even automatic updating would be helpful.

B) with regards to the project management performance, explain what are " optimism bias" and strategic "misinterpretation"

Optimism Bias

The term optimism bias was invented by the Nobel prize winner Daniel Kahneman describing the idea that most people consider themselves less likely to experience something unpleasant. This leads to the effect of overconfidence in personal judgments, leading to project managers misjudging the outcome of their decisions. Risks tend to be seen lower and own capabilities better although previous experience shows the opposite. This can result in project managers undertaking projects with too optimistic expectations about budget, risks and the project scope, which will most likely not be met. [3].

Strategic Misrepresentation

You have a great idea for a book, and you have found a publisher who is willing to pay. However, he needs to know more about the time perspective. "When can I have the first manuscript? Can you have it done by the end of next month?", he asks. You lower your eyes and gulp. "Of course, no problem" you answer. You have never managed that kind of timeline before, but you are aware that if you tell the truth, the publisher will not go with your idea. You do not feel like you just lied - and in official social terms, you did not, you performed the behavior of Strategic Misrepresentation and sorted out some of the truth. In a larger project, this Strategic Misrepresentation can result in underestimating costs, pre-determining and quite likely also overestimating the potential clients' benefits. Applying additional pressure and strain on individuals through manipulation, competing for scarce funds or jockeying for a position all qualify for the same over-arching category. [2]. Note that Strategic Misrepresentation is a form of bias as well but is used more intentional, and more likely to be a form a technique. When project planners present their cases, they often brighten the numbers regarding the risk and the benefits of their projects. Regarding Flyvbjerg, they are deliberately deceiving the decision makers, since the projects that look the best on paper will be approved. One of the things that can make a project more vulnerable to Strategic Misinterpretation is the end date is a few years down the road [4]. No one knows more about large-scale projects than professor Bent Flyvbjerg. Why are cost and schedule overruns so frequent? Because it is not certain that it is the best offer or project that wins. It is the project which looks best on the paper that wins.