Why Megaprojects So Often Fail
With a total capital cost of $1 billion or more, megaprojects are extremely risky ventures, notoriously difficult to manage, and often fail to achieve their original objectives. The question is why. The construction industry is one of the oldest and largest industries in human commercial history, yet it continues to contract for megaprojects it apparently can’t manage.
In 2013, McKinsey suggested that $57 trillion would be spent in the US on infrastructure investment between 2013 and 2030. They project that global spending on megaprojects across the world would be $6 to $9 trillion annually (McKinsey Global Institute, 2013).
No small potatoes. So why can’t our industry complete these projects on time, on budget and make a profit in the bargain?
Research Summary
Construction academics have been asking this question for many years and have accumulated a body of research trying to answer – why do megaprojects so often fail to meet the objectives of the stakeholders? The short answer is, of course, that they are too big and too complex to handle.
In this blog I am attempting to start with the big picture by summarizing the findings of the academic literature I have reviewed over the years including my own work on the subject. The insight I would like to share with all contractors (large and small) is that construction projects, mega to single family homes, fail for essentially the same management reasons.
Four Causes of Failure
The research identifies four main causes of megaproject failure:
- SIZE
- UNCERTAINTY
- COMPLEXITY
- INSTITUTIONAL STRUCTURE
Size
Size speaks for itself. A $20 billion project that takes ten years to complete might well be plagued by uncertainty. This, however, begs the question as to why any construction organization would want to bid on such a risky venture. In other words, the question has become, why do we keep doing this over and over and it hardly ever works out?
Uncertainty
Research reveals that the decision-making that leads construction organizations to repeatedly contract for megaprojects, which have a history that suggests they have little chance of being completed successfully, is flawed for at least three reasons:
- Optimism bias: biased judgment and advice provided by experts in their fields who tend to create an optimistic scenario and discount risks and unforeseeable uncertainties.
- Strategic misrepresentation: refers to diverse pressures (political, organizational, and individual) urging decision makers to manipulate the situation that can lead to underestimating costs and ignoring risks.
- Escalating commitment: the overall perception that once started, a megaproject will be too big to fail and too costly to interrupt. (Causes and Cures of Poor Megaproject Performance; Denical, 2/13)
Complexity
Complexity can be defined by the uncertain interactions between the large number of moving and evolving parts within the megaproject system, as well as their relationships with the external environment.
Institutional Structure
One of the causes of poor performance may be associated with the excitement surrounding megaprojects that can affect all concerned. It can foster an unusual, even inappropriate project culture and sense of purpose that can lead to intra- and inter-organizational conflicts. This can promote dysfunctional management structures that encourage behavior driven to attend to individual goals rather than the collective vision and objectives. (Denical, 2/13)
A Deeper Dive
The next series of blogs will delve more deeply into each of these areas and explain how management dysfunction can cause the repeated failure of megaprojects and can also be blamed for the high rate of contractor failure across the entire industry. Stay tuned to this space.
