Challenged as to why the Transbay Terminal development was millions of dollars over budget, former San Francisco mayor Willie Brown famously retorted that people should just live with it. “In the world of civic projects, the first budget is really just a down payment,” he said. “If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging.”
So, was he right? Some may agree with Willie Brown, but here at VISION and Relevate, we don’t. Our teams have expertly guided several megaprojects (and many other significant capital projects) to completion on budget, on time and with all the promised benefits.
While the price tag bestows the “mega” label to a project, other defining factors include longer timescales, a multitude of active stakeholders, a significant impact on public and private enterprise finance, the project’s future in markets, and the community it serves.
The scale, risk and impact relative to the budget holder’s enterprise value is clearly visible, and achieving the project’s benefits becomes the central focus for the budget holder. As the project encounters unplanned difficulties, sacrifices are made, one on top of another, in pursuit of the benefit. Budget holders break agreements, collaborators become enemies, suppliers reduce quality, everyone accepts longer timelines, and costs spiral higher.
Many people blame the estimators for the problem. Most theorists write about the overconfidence bias, the optimism bias, the planning fallacy (where planners do not adequately assess risks.) There is also “strategic misrepresentation” – otherwise known as lying – which is sometimes excused by the “hiding hand” thesis of economist Albert Hirschman.
Hirschman’s theory is that, while we are overoptimistic about what we can do, we are also overly sceptical about how creative we can be in overcoming things going wrong.
Of course, one solution to ending the mismanagement of megaproject budgets is to simply get rid of megaprojects altogether. But the reason we build these projects is as testimony to the heritage and greatness of our community or organisation. These are projects that demonstrate technological wonder by doing something never done before. They are often projects of aesthetic greatness and iconic beauty. They create economic impact in their marshalling of resources and their payments to all the workers involved. They establish monuments that will last for decades, even centuries, and it is very hard to put a value on such greatness.
We say that accepting cost overruns as inevitable is nonsense. We know that you don’t have to blow your megaproject budget – not if you know what you’re doing, and we do. Our track record proves it. You can deliver the full benefits of your megaproject on time and on budget.
To read the full report How to Fix Megaprojects click here, where you can also download a pdf, or visit visionconsulting.co.uk
VISION is an international organisation that helps businesses transform their operational practices, leadership, and culture for the long term – a combination that is essential for organisations managing capital projects of significant scale.