Fresh thinking needed for managing mega projects

Peter Madden
21 March 2016

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With a third of all major projects possibly ‘unachievable’, the model needs revision, says Peter Madden, chief delivery officer at Arcadis

Major projects and programmes are now the chosen delivery platform for large-scale infrastructure as well as other significant public- and private-sector investments. However, sponsors and practitioners fail to recognise them as temporary production systems (or temporary organisations) that first need to be designed and established. Weak operating model design results in opaque leadership, misalignment of strategy, lack of expertise and a failure to deal with scale or address risk, which in turn results in weak accountability.

Although the NAO partly recognised this in its January report (Delivering Major Projects in Government: A Briefing for the Committee of Public Accounts), it is not clear whether it recognises that major projects and programmes are also deeply political environments. Even if good governance exists (and it usually doesn’t), programmes are a contested space where the numerous stakeholder groups both inside and outside the programme boundary compete for the ‘right projects’, so widening the debate that usually only focuses on ‘doing the projects right’.

Major projects and programmes therefore exhibit large asymmetries of power and objectives, which make their alignment hugely challenging. Big projects and programmes are also very dynamic through time, with emergent and unexpected properties further exacerbating these asymmetries, leading to entropy and antagonistic sub-goal pursuits if not actively managed.

Stakeholder management

To assure delivery of the planned outcomes, this process of emergence needs managing, and the need for collaboration (and co-operation) among the actors is high. During the front- end phase it is important the interests of participants and stakeholders are managed to achieve and maintain organisational stability for the longer term; the actor networks in large projects and programmes are usually dynamic and unstable and can only be stabilised, to a certain degree, when people, technologies, roles, routines, training, incentives and so on are actively managed.

“Current approaches may not be fit for purpose. Conventional project management methods are simply overwhelmed by such complexity.”

While conventional (or rational) project-based approaches may focus on efficiency and risk transfer, the management approach and subsequent contracting strategy for major projects and programmes must focus on the transformational opportunity and in turn, must be capable of maintaining the value created at the front end throughout the period of execution (with no erosion). It is often the asymmetries in power within such environments that lead to failure.

Greater risk and complexity

Major projects and programmes, then, need to be distinguished from smaller, more conventional projects. New methods are required that can accommodate high levels of complexity, ambiguity and risk, while recognising a high degree of emergence.

Major projects and programmes deliver strategic business transformation and are often massive, indivisible and (very) long-term undertakings. Their investment is usually well in excess of £1bn, often in waves or tranches. They exhibit greater risk than smaller undertakings, largely because of their exceedingly long and underinvested planning phases, great complexity and extraordinarily large number of stakeholder groups and interfaces, which require interdependencies to be understood and managed. The desire to lock down scope early also inhibits the proper consideration of alternatives, further reducing flexibility.

Systems engineering and systems thinking offer one alternative approach. Viewed through this lens, major projects and programmes can be considered as open systems, to an extent undefinable. Open systems interact with their context, environment and social setting, with many constant interactions across the programme (or system) boundary (Figure 1), presenting a significant challenge which can overwhelm closed- system approaches.

In big programmes where innovations proliferate, group boundaries are uncertain and the range of entities to be managed fluctuates, project-based approaches break down as the new parties’ associations cannot be traced. Technical project-based approaches, then, cannot limit in advance the shape, size, heterogeneity and combination of associations in large projects and programmes; it has to be tackled over time, which presents huge challenges for control and forecasting.

This is one of the many reasons why current approaches may not be fit for purpose. Conventional project management methods are simply overwhelmed by such complexity, leading to ambiguity and weak accountability.

Major projects and programmes are not simply scaled-up projects, so we need to look elsewhere for inspiration to design temporary organisations and management regimes adequately able to deliver indivisible investments of £1bn and more. Such approaches need to be clear on how risk can be managed when the planning horizons stretch into years, when the large number of stakeholders impact ever-growing and changing dependencies and inter- dependencies, and where early lock-in stifles alternative approaches.

New techniques required

New techniques for decision-making under conditions of high uncertainty are necessary, such as real options methodologies, which apply the modelling techniques of options pricing in financial services to the planning of real physical infrastructure. The industry is also beginning to experiment with the development of approaches for overcoming optimism bias in theplanning and delivery of large projects and programmes by applying reference class forecasting.

The parametric analysis of past projects and programmes on a common statistical basis are also driving a more sophisticated approach, and can support techniques for programme shaping, organisationally configuring the programme into a reasonably stable platform for delivery – usually by breaking down scale and setting up the programme in a series of shorter delivery phases, or sprints.

Front-end phase is critical

As touched on, the delivery of beneficial outcomes by major projects and programmes in the UK is often related to how risk is managed and transacted during the front-end phase. This phase of any major programme is critical to successful delivery and yet this is often overlooked (as the NAO conclude), as the majority of major programmes still fail to realise expected benefits for the initial forecast of time and cost. The industry does not yet fully understand that the determinants of success or failure often have their roots here. Even though this is broadly understood by the NAO, it still cannot account for why we perpetuate the problem by continuing to underinvest in terms of time, money, capability and capacity, which in turn leads to weak and flawed plans for execution.

Very few large projects and programmes actually fail owing to problems that originate in execution: the seeds for failure are often sown in the very early stages. For major projects and programmes where group boundaries are uncertain, and the range of public- and private-sector entities to be taken into account regularly fluctuates, conventional approaches will continue to fail. This is because the industry is slow to innovate and new approaches take time to diffuse.

The relative advantage of the innovation (the benefit of investing in the front-end phase), the type of innovation decision (optional or directional), the communication channels used, the industry cultural environment into which the innovation is launched (its degree of fragmentation) and the extent of the change agent’s attempts to lead the change all impact the rate of change.

We therefore urgently need a new paradigm which incorporates some of these thoughts and ideas and which starts with an appreciation that major projects and programmes are simply different, and will always resist scaled- up project management methodologies.