Unlocking the key to mega project delivery

Abstract

The Tier 1 contractors operating in the Australian marketplace have consistently failed to deliver their tendered financial targets on mega projects, which are defined as projects with contract values of more than $500m. Although these organisations have theoretically developed clear expertise in delivery, employed the best leaders, remunerated at the upper end, been governed by executive high profile directors and developed infallible systems, there is a high risk that the financial results on future mega projects will continue to erode shareholder value.

The aims of this study were to quantify the scale and impact of financial failures in the industry and then develop a method of improving the management of mega projects. To achieve this, the research examined the performance of 91 current and completed projects in Australia since 2000. The data used for the research was collected from the following categories of projects: • 28 completed mega projects from 2000–2015 • 22 current mega projects from 2015–2020 • 24 completed minor projects from 2010–2016 • 17 other projects from 2011–2015 that were used to test the model hypothesis.

The large number of projects sampled, the 20-year time span of the sample and access to unpublished industry data enabled this research to break new ground in the study of contractors’ financial performance. Analysis of the results from the mega projects studied indicates that on average, each completed project has posted a loss of 16%. This suggests that each project destroys its original 9% profit margin plus a further deterioration of 7%. In dollar terms, this represents a loss of $215m on an average project size of $1.32b. This equates to a $6b loss from corporate balance sheets between 2000 and 2015.

The causes of project financial failure have been extensively studied in the published literature. Many of them are technical in nature and can therefore be easily understood and quantified. Examples of technical causes are inappropriate risk transfer, inclement weather, latent conditions, industrial relations, scope growth and the like. However, contractors tend to regard their own lessons learned from project failures as valuable intellectual property and seldom share this knowledge externally to benefit the wider construction industry.

To develop a deeper understanding of the industry and search for potential solutions, the research explored the personal experiences of over 100 project leaders with experience of delivering mega projects. While the interviews with these project leaders confirmed that financial failure is indeed a real problem in the industry and that technical causes contribute to it, leadership and people factors emerged as being equally relevant when determining the causes of mega project failure. Although the technical aspects of a project can and do reduce project profitability, losses caused by human behaviours are very significant.

To study this hypothesis, a new and original model of personnel selection (the ‘A+ model’) was developed and tested on a series of infrastructure projects ranging over a period of five years. The model is designed to provide a set of tools that executives can use to select project leaders and build project teams that have the skills and knowledge to eliminate the technical causes of financial failure. The correlation between the model outputs and the financial outcomes from the projects studied provides confidence that it can be used to structure and maintain teams that will deliver outstanding performance against all key result areas on a project, not just financial performance.

The model is robust, simple to use and can be successfully applied to a diversity of project locations, types and sizes, ranging from $10m to over $500m in value across the road, rail, social and water infrastructure sectors. The results achieved by the model are exceptional and provide the theoretical basis for unlocking the key to mega project delivery.