Episode 304: Planning and Controlling Megaprojects (Free)
This Interview with Frank Parth was recorded at the PMI Global Congress 2014 in Phoenix, Arizona.
Multiple independent research efforts are beginning to show a more consistent approach to developing successful megaprojects in the areas of oil/gas, mining, and construction projects than have been used in the past. These megaprojects are characterized by high value (often defined as greater than $1 billion), comparably high benefits, years-long timelines, and correspondingly high risk. While there have been great advances in both project management methodologies and in the tools the project managers have available (such as CAD/CAM, BIM, and advanced project scheduling and budgeting tools), the complexity of these multi-year programs has advanced even more quickly than the tools have. Construction and engineering projects have become more complex and ambitious faster than our ability to manage them. Oil/gas/infrastructure projects now are much longer in duration and far more complex than even ten years ago, with concomitant increased risks and failures. The International Energy Agency estimates that meeting global energy needs will require investing more than $17 trillion by 2030.
In this interview Frank Parth (http://www.projectauditors.com) looks at the classical project management approaches that focus on delivering the final product within cost and schedule constraints once the project enters the execution phase. We talk about multiple lines of research that show that the ultimate success of a complex program has very little dependency on how the program is managed once the construction phase begins and far greater dependency on what happens before that phase begins. If a $10 billion dollar refinery runs late and over budget, the failure has started long before the project schedule was created or the engineering/procurement/construction (EPC) process began. All of the serious research in this area shows that the only part of the effort where traditional project management approaches make sense in the later stages, the engineering and EPC stages. Earlier phases take a different approach to ensure success.
Furthermore we discuss an overview of current project management practices; current research on megaprojects; development stages for efforts on this scale; and some recommendations.
Below are the first few pages of the transcript. The complete transcript is available to Premium subscribers only.
Cornelius Fichtner: You are listening to The Project Management Podcast™ at www.pm-podcast.com and we are coming to you live from the Exhibit Hall here at the PMI Global Congress 2014 in Phoenix.
Cornelius Fichtner:With me standing here at a beautiful table is Frank Parth. Hello, Frank!
Frank Parth: Hello, Cornelius! How are you sir?
Cornelius Fichtner: I am very well. Glad to have you back on the program. It's been a while.
Frank Parth: It has been a while indeed. I'm glad to be back! Thank you for asking me.
Cornelius Fichtner: You're presentation topic was Planning and Controlling Mega Projects. When did you present it?
Frank Parth: I presented it this morning actually. I had 120 to 150 people in the room and it got some very interesting questions, a lot of good feedback on it.
Cornelius Fichtner: So it went well?
Frank Parth: It went well. From my standpoint, it went well.
Cornelius Fichtner: Okay, perfect! So let me ask you this: What do you get out of it as a presenter?
Frank Parth: What do I get out of it as a presenter? For one thing, I get to talk about topics I'm really interested in. These are complex projects and difficult to manage, to have a high failure rate and I get to talk about how to do it better. And talking to a group of people, I get a lot of feedback. Have you thought about this? This is how we do it and it works well. So not only do I get to present my ideas. I get feedbacks from all the people in the audience about how they do it.
Cornelius Fichtner: So you learn from the audience?
Frank Parth: I learn from the audience and I have developed some long-term relationships from people that working in this field and we've kept in contact. We're sharing what works, what doesn’t work, best practices and so on.
Cornelius Fichtner: Okay! So it’s a networking opportunity. That's great!
Frank Parth: It is certainly a networking opportunity. I'm not just standing up talking. This whole thing is a networking opportunity. And with people that are interested in what you're interested in which really makes it much more specific and much more interesting.
Cornelius Fichtner: Wow, okay! So planning and controlling mega projects. What is a mega project?
Frank Parth: The typical definition and it's not exact. The typical definition is anything over 1 billion dollars American.
Cornelius Fichtner: Okay!
Frank Parth: Many companies, so anything over 500 million dollars is really a mega project but they're getting larger and larger and larger. We're not talking about giga projects and the tens of billions of dollars of range.
The golf course Country of Cotter has budgeted 140 billion dollars just for infrastructure projects. These are huge complex projects. How do you manage something like that? How do you deal with it? So that's what we're going to be exploring and if you can learn to manage these are takeaways that help you manage smaller projects.
Cornelius Fichtner: Ah! I was going to ask this because my largest project was a million. Many of our listeners are probably never be touching a mega project. So what are they going to get out of our conversation?
Frank Parth: What they're going to learn is what works in larger projects that you can adapt downwards to smaller, less complex projects. Very frankly, if you can manage anything on this size, you can manage things that are simpler.
I have more faith in a 10-billion dollar oil refinery coming in on schedule and on budget than I do in a 1-year long software development project coming in on schedule and on budget. And there are examples of these. There's a high failure rate for these types of projects but there are good examples out there too.
Shell Oil Company last June delivered a 19 billion-dollar pipeline in Papua, New Guinea and they did it on schedule and on budget. Aramco consistently develops multibillion-dollar refineries on schedule and on budget. And there are ways to do this. We just haven't learned to adapt them all to getting the word out there which is hopefully what I'm helping to do a little bit.
Cornelius Fichtner: Okay! Here's a quote from your paper that you have submitted to the congress: "Research shows that the ultimate success of a complex program has very little dependency on how the program is managed once the construction phase begins and far greater dependency on what happens before that phase begins. If a 10-billion dollar refinery runs late and over-budget, the failure has started long before the project schedule was created or the engineering procurement construction, that's the EPC process has begun." Can you develop this for us? Why is this?
Frank Parth: This really is because what we're dealing with, Cornelius, are usual on projects with huge outside influences. Can you tell me what the price of oil is going to be in 6 years?
Cornelius Fichtner: It will fluctuate.
Frank Parth: Thank you very much!
Cornelius Fichtner: You’re welcome!
Frank Parth: The thing is we cannot predict what prices are going to be in 5 and 6 years and yet it takes that long to develop these projects. So the research and many companies divide long complex projects like this into 5, sometimes 6 phases and the early phases are what kind of projects do we want to do? What possible opportunities are there for us? And then we start narrowing them down.
The early decisions are all made by the business. Do I want to develop a new oil field off Brazil or do I want to do it off Nigeria? Where do I do these projects? Let's look at the geology. Let's look at the benefits, the cost, the risks of doing it in different part for different projects and then we narrow it down to maybe 1 or 2 projects and we develop them further.
Those early phases are all made by the business. Those are the people who have to decide what we're going to do now. There's a lot of research that shows that bad business decisions made early have a huge influence on the project later on.
We keep seeing the same old-fashioned project management saying: "It's better to manage the right project poorly than the wrong project perfectly." And research done by [Jurgen] back in the mid-2000's shows that the greatest value of a project is decisions made early on in the business stage before the engineers ever get involved, long before the project managers get involved. So that's the greatest value curation.
And what we see is that the business people that make these decisions in the normal business environment, by the time a bad decision gets floated out 3 or 4 years later, they've been promoted. So they never get a chance to learn from the decisions they made earlier because if the project fails, well it must be the project manager's fault. And yet it's based on decisions they made years ago.
Cornelius Fichtner: Okay. So there is a direct correlation to bad business decisions and a mega project that is failing and floundering?