Future of Cities

Why Your Next Big Project May Be Riskier Than You Think

By July 9, 2015 April 8th, 2016 No Comments

The world is enamored with setting records: biggest bridge, tallest skyscraper, longest tunnel, fastest rail line. No matter the industry – construction, IT, energy, defense, oil and gas – more often than not, these megaprojects – large-scale, complex, transformative ventures – don’t live up to their extravagant expectations. It’s Bent Flyvbjerg’s Iron Law: over budget, over time, over and over again. To break the Iron Law, management of megaprojects needs a radical transformation.

“The conventional way of managing megaprojects has reached a ‘tension point,’” argues Flyvbjerg, the project management industry’s guru and most widely cited scholar in the field, in his research paper, “What You Should Know About Megaprojects and Why.” “Tradition is being challenged and reform is emerging.”

He’s helping lead the transformation. Professor at the University of Oxford’s Saïd Business School, Flyvbjerg directs a program that teaches megaproject managers how to beat the odds and achieve megaproject success.

The root causes of project failure – optimism bias and strategic misrepresentation – don’t just apply to cities’ ever-growing infrastructure projects; they are equally applicable to smaller scale and seemingly less risky corporate undertakings – like Levi Strauss’ information technology system revamp. As Flyvbjerg details in a Harvard Business Review article, the global clothing empire’s estimated $5 million project led to an almost $200 million loss and forced the resignation of its COO.

“What happened at Levi Strauss occurs all too often, and on a much larger scale,” explains Flyvbjerg, who frequently advises and consults with government and business to improve megaproject management. “Projects are now so big, and they touch so many aspects of an organization, that they pose a singular new risk … routinely cost[ing] the jobs of top managers.”

Indeed, out-of-control projects have sunk whole corporations, and even put entire cities and nations in peril. The risks can be profound and avoiding them requires top managers’ careful attention.

Smart managers should take steps to de-risk projects and avoid out-of-control projects. Flyvbjerg outlines two key strategies: predict & provide and predict & prevent. The former requires getting risk right when uncertainty is high and information scarce. The latter de-risks projects by decreasing complexities and increasing capabilities to plan and deliver.

The good news is that efforts to reform megaproject management are beginning to positively impact practice, says Flyvbjerg, and we’re making great strides in better understanding what causes megaproject failures and what project leaders and their organizations can do to avoid them. But perhaps more importantly, we’re beginning to understand success and how to replicate it.

You might be interested in reading Flyvbjerg’s commentary in a recent New Yorker article, “The Trouble with Megaprojects” as well as his interview with EconTalkabout the political economy of megaprojects.