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A framework to measure megaprojects

www.telanganatoday.com | June 10, 2020
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We cannot use iron triangle parameters of scope, time and cost to determine the success of such projects

Megaprojects are high-risk, high-investment, long-duration initiatives that are meant to deliver benefits to the masses. Implementing a metro rail service, building power plants, creating new road infrastructure, and even conducting major sporting events like the Commonwealth Games and Olympics would be classified as megaprojects. Governments around the world have been using megaprojects as vehicles to deliver social benefits.

A recent McKinsey report has estimated that about $57 trillion would be spent on infrastructure development by 2030, most of which would be implemented presumably using megaprojects. While there is no generally accepted definition or criteria yet, researchers, led by social scientist Bent Flyvbjerg, refer to a megaproject as a different breed of projects that typically require an investment of $1 billion or higher. The Ministry of Statistics and Program Implementation (MoSPI) uses an estimated monetary value (Rs 1,500 crore) of a project to classify it as a megaproject.

Successful Projects

A successful megaproject can positively impact a country’s economy. But, globally, there are very few examples of successful megaprojects. From an Indian perspective, the Delhi Metro and the Aadhaar may fall in this category, depending on how one sees it.

A failed megaproject can even take a country towards bankruptcy. A case in point is the Athens Olympics in 2004. Though there are several other contributing factors such as the global slowdown, management researchers argue that the debt of executing this sporting megaproject was so massive that the credit agencies downgraded the sovereign rating of Greece, which, in turn, led the country to default in 2011.

Another case would be the Belt and Road initiative led by China, which, according to some academicians, is taking participating countries and entities towards bankruptcy. The Hambantota port in Sri Lanka is a classic example. So, the critical question is: how would one classify a megaproject as success or failure?

Evaluating Projects

Traditionally, projects have been evaluated using the iron triangle principle of measuring deviations of planned scope, time and cost from their actuals. If a project was delivered with significant (negative) deviation in terms of these three parameters, it would be branded a failed project, and vice-versa. Can the same measures be used to evaluate a megaproject as well? If they were to be used for megaprojects, then the cost overruns would have ranged from 100% to 1,200%. It would translate to an actual expenditure of at least two times the money that was initially estimated.

For long, researchers have been trying to come up with techniques that can help stakeholders identify megaprojects that have higher chances of succeeding. However, the current practice of financial analyses is based on rough-order-of-magnitude estimates of cash flows. It has now been proven beyond doubt that political stakeholders and managers, just to get their megaproject initiated for their community, tend to underestimate the costs and overestimate the returns. Any appraisal technique that has low-quality input is bound to fail, and so would the corresponding investment decisions. How would practitioners measure the performance of megaprojects? This question needs to be addressed.

Two Dimensions

Measurement of megaproject performance has two dimensions – what to measure, and when to measure. Indices (“what to measure”) used to measure performance typically are based on computing deviation from the plan, eg, actual benefits delivered versus planned benefits, or actual cost versus budget, etc. These indices are suitable and continue to be used for evaluating the performance of small projects.

But, these cannot be used to measure the performance of megaprojects for the following reasons. First, as Flyvbjerg states, “megaprojects are not just magnified versions, but a completely different breed of projects in terms of their level of aspiration, lead times, complexity, and stakeholder involvement.” Since a megaproject execution takes a long time, estimates provided during its appraisal are usually very different from the actuals at the close-out stage.

Werner Rothengatter, an expert in megaproject performance studies from the Karlsruhe Institute of Technology, Germany, opines that there is no point in measuring variances when it is known that significant variances will exist. Second, megaprojects involve a large number of stakeholders – local and central governments, investors such as international banks and consortiums, project team members and managers, suppliers, users, and other interested entities, groups, and individuals. Each stakeholder or group uses different criteria to assess performance. No metric provides a single view of the megaproject performance.

A Better Option

The timing (“when to measure”) is another essential aspect of megaproject performance measurement. Typically, performance measurements are carried out at three different points over a project lifecycle: before the project starts (ex-ante), during the project (ex-nunc), and after completion (ex-post). In the case of small projects, measurements at all three points are possible. However, in the case of a megaproject, since its execution takes several years, end-user satisfaction can only be measured after its product or service is in operation. Megaproject sponsoring agencies will not have the patience to wait this long to determine if their investment has succeeded. Current methods of megaproject performance, adopted from traditional project management practices, will be grossly insufficient.

It is given that there is an urgent need to design a framework for megaproject performance measurement. One option is to look at different sub-systems (technology, social, financial, etc) of a megaproject and evaluate those separately. For example, a megaproject can be declared a technological success even if it has not entirely met its other objectives. Some researchers have suggested key performance indicators such as stakeholder satisfaction, reduced conflicts and efficient use of resources as measures of megaproject success.

A better option would be to estimate the preparedness of all its stakeholders to undertake a megaproject. It would indicate the degree of potential success if the megaproject were to be undertaken. A high value of this estimate would indicate high confidence in the success of the megaproject and vice versa. Such a metric will also enable stakeholders to make informed investment decisions, avoid the wasteful expenditure of resources, and, most importantly, avoid bankruptcies.

We cannot use iron triangle parameters of scope, time and cost to determine the success of megaprojects. There is a lot at stake in megaprojects for all its participants. To avoid waste, one would need to assess the potential performance of a megaproject, ie, well before the megaproject execution begins.

(Dinesh Shenoy is Assistant Dean, Research and Professor of Operations Management, FLAME University, Pune. Gautam Sinha is Vice-Chancellor of IMS Unison University, Dehradun, and founder-director of IIM, Kashipur)
*Views expressed are personal.

(Source: https://telanganatoday.com/a-framework-to-measure-megaprojects)