Why large projects fail

By STEPHEN COHEN
November 6, 2013 22:03

A project is a success if it achieves its objective and is completed on time and within budget.




The USS Kearsarge as it sails through the Suez canal.

The USS Kearsarge as it sails through the Suez canal 370. (photo credit: REUTERS/Stringer)

A project is a success if it achieves its objective and is completed on time and within budget. By these criteria most major projects are failures, and those involving transport infrastructures are the worst.

These facts are indisputable, and there are logical reasons why this is so.

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Pre-evaluation is flawed. In general an idea germinates, and eventually reaches a point where a small organization is set up to evaluate its practicality. Those appointed to the task are seldom critical; if they were they would not be invited to the team.

So we now have a group of people who want to approve the project. A group working on an idea for six months or a year or more will develop a familiarity with and affinity for the project regardless of the facts. They also have an interest in moving the project forward. If the project is canned, they will feel that they will have wasted their time, if the project proceeds the members of the evaluating team will have an excellent chance of getting further remunerative work as consultants or employees. The “sunk cost” fallacy applies here. A project has to be very bad to be turned down by the evaluating group.

If one wants to prevent this happening one should appoint two teams, the second one to acts as a “devil’s advocate.” Their job would be to detect all the flaws. This never happens.

Once the initial evaluation has been completed, and the decision is made to proceed, the detailed planning is started, including a refinement of the cost estimate. At this stage it is invariably found that the initial estimate was low, and the cost estimate is raised – but not by enough to derail the project. Remember, there are now more sunk costs to worry about.

It is almost certain that during construction one or more of the suppliers will fail to deliver, causing unplanned cost increases, but this contingency is not included in the estimate.

A more serious problem arises when circumstances dictate a change in the specifications. Frequently the scope of a project is expanded, allowing sub-contractors free reign to charge more than their original quote.

If the over-runs were in the 10 percent to 20% range, this would not be too bad, but in fact final costs are generally multiples of the original budgets. The Sydney opera house, a magnificent building, deemed a great success, cost 15 times the original estimate! At least projects like the famous opera house and the Suez Canal, which also overran its estimate by a large multiple, achieved their objectives – eventually.

Most serious are those projects which in spite of the huge expenses involved, fail to achieve their objective.

This generally happens because of technological change. People always underestimate the long-term effects of technological change.

England is threaded by thousands of small canals which were built at the beginning of the industrial revolution. They were rendered obsolete by the development of railroads.

A recent example was the building of a magnificent new airport for Montreal. It was deemed necessary because the existing airport did not have sufficient capacity, and was close to residential areas whose inhabitants objected to the noise. The new airport was located about 70 km from Montreal, and has now been mothballed.

The volume of passengers did indeed increase, but the capacity of an airport is limited by its runways, which can handle only so many planes per hour. By the time Mirabelle airport was built, the newest planes were capable of carrying three times as many passengers as the old ones, so the capacity of Dorval was tripled. Furthermore the newer planes were much quieter so the residents were no longer bothered by the noise.

Because large projects take many years to evaluate, plan and execute, and are expected to provide benefits for many years after, they are certain to be affected by technologic change. It is normal for planners to include an environmental impact study in their evaluations, but seldom will there be a technological impact study.

We don’t know what technology will produce in 20 years, but we certainly know that the future will be different.

Currently there are several large railway transportation projects in the works. One in England and another in California involve high-speed rail lines intended for passenger traffic. A third is proposed in Israel for a line between Eilat and the center of the country. All are certain to fail.

In these cases the original estimated costs are already escalating alarmingly. It is a sure bet that the escalation will continue, but that is not why the projects will fail. Transportation technology is changing radically and will likely make rail transport virtually obsolete for passenger travel.

There are at least two disruptive processes that are occurring today, one well under way, the other looming over the horizon. Others will occur, but let’s deal with the “known unknowns”: things we know about, but whose impact we cannot estimate.

Natural gas has become cheap because of new extractive technology, and new discoveries. Use of NG as fuel for vehicles will reduce costs and make road transport more competitive with rail.

A number of research projects are underway aimed at developing self-driving vehicles. There’s a tendency to think this might be handy, but is otherwise unremarkable. Nothing could be further from the truth.

The disruptive effect of this change will be profound. It will have as big an effect on our lives as the automobile did.

One effect it will have is increasing the capacity of our highways. Road vehicles must maintain large gaps between them to allow for human reaction time. A computer-controlled vehicle will react instantaneously, hence highway vehicles will proceed safely at high speeds close together, or even touching. Suddenly the capacity of our highways will be increased by a factor of three to 10.

At present most people own private cars because the alternatives are expensive, inconvenient or unavailable. The biggest factor in taxi prices is the driver; a self-driving taxi will be cheap. Eventually private ownership of cars will become obsolete.

This will increase the capacity of our urban streets just as the computer-controlled vehicle expands the capacity of our highways.

Imagine the procedure required to travel inter-urban distances of a few hundred kilometers. Option A: get to the train station, wait for the train, enter and find a seat. The train then whisks you at high speed to your destined city, where again you must use inconvenient means to reach your final destination.

Option B: call a taxi via your cell phone a few minutes before you are ready to leave, step into it, punch in the address of your destination, enter your payment code and relax. Your TP (transportation pod) will do the rest.

It will take the quickest route to the highway, where it will attach itself to a train of other TPs going to your destination city, thus minimizing energy costs. On arrival it will exit the highway and drop you off at your desired destination.

Meanwhile you have been sitting in comfort, watching the movie you didn’t catch last night, or working on that project that needed undisturbed concentration, or even angling your seat back and sleeping.

The Israeli rail project to Eilat is less ambitious than the British or Californian ones, but is certainly doomed. Its justification is to provide a passenger rail link to Eilat, and secondly to provide a land bridge for cargo from the Far East to Europe; an alternative to the Suez Canal. This flies in the face of current trends. Maritime transportation is very cheap and has huge economies of scale. Already most oil is shipped in supertankers, too large to pass through Suez, so they travel around Africa to Europe. Super-sized freighters will carry containers on the same route.

A land bridge to bypass Suez is already obsolete, and the passenger link is a non-starter. This project should be dropped.

The author, a retired engineer, has worked in Canada as a computer analyst and entrepreneur. Has lived in Israel since 1990, is father of three, grandfather of 15 and great-grandfather of 10, all of whom live in Israel.


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