Author
Scenario
Cost overruns is a complex issue that unfortunately doesn’t operate in isolation. When they occur it has a significant impact on project risk – consuming resources, delaying timelines, and impacting successful outcomes.
At Scenario, we often see that these overruns are exacerbated by an organisation’s inability to handle the sheer scale of information generated by mega projects as it limits their ability to stay informed and make accurate decisions. What is therefore critical for project stakeholders to understand, is why these problems can occur and ensure they have adequate processes in place that empowers them with the oversight to manage any potential risks.
KEY PROCESSES MANAGED BY SCENARIO
The Growth of Mega Projects
In today’s world, we can execute projects of unprecedented scale and complexity.
The number of mega projects in Australia has surged in recent years. Nearly half of these projects exceeded their initial budget estimates, with the Grattan Institute outlining in their 2020 report that six projects in the country had already accumulated cost overruns of $24 Billion. The scale of the projects themselves is a contributing factor to this predicament.
Cost Overruns: A Persistent Risk
As the project size increases, this also rises the risk of cost overruns occurring.
Larger projects tend to experience cost overruns more frequently, and these overruns can be substantially higher in absolute terms. This underscores the need for vigilant oversight and meticulous planning when dealing with mega projects.
The Drivers Behind Cost Overruns
Research highlights that several factors contribute to cost overruns in mega projects. Some of these factors include
- Complexity and Uncertainty: Mega projects often involve intricate technical, engineering, and logistical challenges. Uncertainties related to these complexities can lead to unforeseen costs.
- Scope Creep: As projects progress, stakeholders may introduce changes or expansions to the project’s scope, which can increase costs.
- Political and Regulatory Challenges: Mega projects often require approvals and support from various government bodies and stakeholders, making them susceptible to delays and additional expenses due to political or regulatory changes.
- Inadequate Risk Assessment: Failing to identify and mitigate risks in the early planning stages can result in cost overruns when these risks materialise.
- Contractual Issues: Poorly structured contracts, disputes with contractors, and legal battles can escalate project costs.
- Inadequate Information Management: Utilising ineffective methods of managing project information (eg. manual processes) limits transparency, access to real-time data and impacts the ability to make project decisions timely and with confidence. Decisions made with the wrong information can have serious repercussions on project timelines, resulting in increased costs to fix what has gone wrong.
- Poor Communication: Ineffective communication is the root cause of one-third of construction project failures. If parties are unable to collaborate effectively on a project, this impacts the flow of information and critical project details can get lost.
Why Does This Matter? The Toll of Cost Overruns
Cost overruns in mega projects have far-reaching consequences. They strain finances, divert resources, and can lead to delayed benefits realisation. Moreover, they erode trust in an organisation’s ability to effectively manage a project, damaging brand reputation and making it harder to secure support for future mega projects.
The Way Forward
Addressing the issue of cost overruns in mega projects requires a multifaceted approach:
- Thorough Planning and Risk Assessment: Rigorous upfront planning and comprehensive risk assessment are crucial to identify potential issues early and mitigate them proactively.
- Transparent Reporting: Transparency in reporting project costs and progress can help stakeholders stay informed and hold project managers accountable.
- Robust Project Governance: Effective project governance structures can help in managing complexities and ensuring that projects stay on course.
- Continuous Monitoring and Adaptive Management: Regularly monitoring a project’s progress and being willing to adapt to changing circumstances can help prevent cost overruns.
- Experienced Project Teams: Employing experienced project managers and teams with a track record of successfully managing mega projects can significantly reduce the risk of cost overruns.
- Digitalising Project Processes: Digitalisation mitigates the risk for mega projects that can lead to cost overruns as a result of inadequate information management. It facilitates real-time data collection and analysis, enables collaborative decision-making, as well as resource optimisation. Project information management is transparent and accurate, ultimately ensuring more successful and cost-effective outcomes.
To ensure the successful execution of these ambitious ventures, it is imperative that governments, project owners, and stakeholders work together to tackle the complex issue of cost overruns head-on. Digitalising project processes enables organisations to adopt best practices, ensuring transparency, and prioritising effective governance. Ultimately mitigating the risk of these overruns occurring and ensuring mega project success.