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A Simple Roadmap to Tackle Cost Overruns on Mega Projects

A Simple Roadmap to Tackle Cost Overruns on Mega Projects

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Almost two thirds of multibillion-dollar, technically and operationally demanding megaprojects continue to exceed budgets, with close to three quarters missing project schedule deadlines.

There are several internal and external factors that influence the success of a megaproject. While external factors such as regulatory issues and geopolitical challenges can only be mitigated to some extent through good project management practices; internal factors can be effectively addressed.

Internal factors may include aggressive estimate, inadequate planning, poor procurement (of vendors & contractors) etc. Most of these areas can be addressed through effective estimate development and efficient & effective management through all knowledge areas under project management.

An estimate, by definition, is a prediction of probable cost and hence involves uncertainty and risk. Therefore, the correctness and completeness of the basis used for the estimate development are critical; and it needs to be validated throughout the project life cycle through all knowledge areas under project management.

The very first response from the assigned project manager on any mega project is more than likely negative on the project estimate. While it is important to be under budget for the capital cost; the project managers need to see, think and work beyond time, cost and quality. Project managers and teams have to think more strategically and take accountability for achieving project’s business objectives and not just for “getting the job done”. This in turn would expect the teams to be effective more than just being efficient.  Otherwise avoiding capital cost overrun may not necessarily guarantee avoidance of overrun of life cycle cost.

Project validations undertaken during the project life cycle should be beyond cost, time and quality. It should be in line with the overall business objective of the project. We can see effective validation of estimate basis blended with best project management practices as key differentiator with highly matured EPC companies.

This presentation will discuss some important aspects on avoiding or at least minimizing cost over-runs on mega projects.

Madhu Pillai

Executive Director (Middle East) for International Cost Engineering Council (ICEC)

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