Megaprojects are often needed for transformational impact but too many have budget and schedule overruns

A new report by EY finds that 64% of multibillion-dollar, technically and operationally demanding oil and gas megaprojects continue to exceed budgets, with 73% missing project schedule deadlines. On average, current project estimated completion costs were 59% above the initial estimate. In absolute terms, the cumulative cost of the projects reviewed for the report has increased to $1.7 trillion from an original estimate of $1.2 trillion, representing an incremental increase of $500 Billion.

KPMG also has a lengthy look at world megaprojects

Megaprojects are needed to have ‘transformational’ impact. Ask anyone involved in megaproject delivery what their greatest legacy is, and they’ll probably point to a slew of social and economic benefits that they have unleashed through their megaprojects.

In Canada, there are currently [2013] more than 175 megaprojects either on the books or under construction across a multitude of sectors. In total, these projects represent around USD420 billion worth of investment. Topping the list of sectors being developed is power and utilities which has nearly 50 projects underway with a total price-tag of around USD170 billion.

China is driving sustainable change through megaproject delivery

From the Great Wall of China to the Three Gorges Dam, few countries can rival China’s illustrious history of megaproject development. Over the past decade, China’s love affair with the megaproject has only become more passionate. Today, China’s pipeline and portfolio of megaprojects rivals any in the western world. Yet, to many in the West, China’s megaproject market continues to be shrouded in mystery and – on the whole – not open to foreign participation.

What lessons can foreign players and governments take from China’s extensive megaproject experience? Three main concepts stand out to Victor Chuan Chen [ Professor of Engineering Management with the Business School of Sichuan University] as viable models for foreign markets.

1. Focusing on infrastructure development, governments can help drive greater economic growth and stability. “In China, the government recognizes that if we want to develop our economy, we must develop more infrastructure projects and so the central and provincial governments have all made infrastructure development a key priority over the past few decades,” added Victor. “Nobody in China doubts the massive role that infrastructure has played in our progress to date.”

2. China has benefited from developing megaprojects at times where resource and labor costs were comparatively low. “Clearly, China’s cost advantages are going to shrink somewhat over the longer-term and prices for projects are only going to rise. I think the government has done an admirable job in getting many of these projects off the ground while the economics were still
very favorable.”

3. The ingenuity and innovation on the part of China’s construction and development companies. “On one hand, they have become very good at developing megaprojects using some very economical construction methods that could provide valuable opportunities to other developing countries,” noted Victor. “But in other areas, China’s innovation has led to amazing developments in areas such as high speed rail and water diversion that could stand as lessons to construction companies, engineering firms and project owners in both developing and mature markets.

Much of China’s megaproject success stems from the importance the country places on these massive undertakings. “From the central government right down to rural villages, there seems to be a general understanding that megaprojects are key to improving our country, our economy and our standard of living. It is no wonder that China has a love affair with megaprojects,” Victor concludes

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