Alarming Results from a Study of Project Outcomes
Bent Flyvbjerg has done a lot of research on megaprojects, a term he uses to describe large-scale ventures requiring an investment of at least $1 billion. He has spent years studying the numerous ways in which these projects can go wrong and also how they can be done right. His research validates what we already know: big things are often done very badly, as they often exceed their budgets, take longer to complete, and fall short of expectations. Flyvbjerg refers to this as the "Iron Law of Megaprojects: over budget, over time, under benefit, over and over again."
However, the results of his research are staggering. Only 47.9% of megaprojects are delivered within budget, a mere 8.5% are delivered within budget and on time, and an abysmal 0.5% are delivered within budget, on time, and with the projected benefits (WSJ).One of his main points is not just that megaprojects are unlikely to go according to plans, but rather they are more likely than other projects to “go disastrously bad.” The complexity, novelty, and difficulty of this class of projects increases risks across the board, leaving them particularly susceptible to punishing outcomes.
Why are megaprojects so vulnerable to extreme outcomes? Dr. Flyvbjerg believes it’s because of people. “Humans are optimistic by nature and underestimate how long it takes to complete future tasks. It doesn’t seem to matter how many times we fall prey to this cognitive bias known as the planning fallacy. We can always ignore our previous mishaps and delude ourselves into believing this time will be different. We’re also subject to the power dynamics and competitive forces that complicate reality, since megaprojects don’t take place in controlled environments, and they are plagued by politics as much as psychology. Take funding, for example. “How do you get funding?” he said. “By making it look good on paper. You underestimate the cost so it looks cheaper, and you underestimate the schedule so it looks like you can do it faster.” (WSJ)
So, what can we learn from the 0.5% of projects that go according to plan? He offers advice that applies to any project, mega or not: Minimize uncertainty and risk through proper planning.
A leaked study from a large energy company gives color to Flyvbjerg’s conclusions. The review found that the company had spent $138B more on 110 projects than early-stage estimates, a tremendous discrepancy they attributed to the complexity of the projects and to “human biases” resulting from “overoptimistic” plans.
At Relay, we believe that a centralized planning and estimating process, informed by insights and benchmarks from historical data, can significantly improve the planning of projects of all sizes and prevent the cost and schedule overruns that are so common. Centralized planning prevents gaps and allows you to track a project through its lifecycle to identify in real-time when actuals are diverging from plans. Historical data minimizes the influences of optimism and confirmation biases, giving teams objective insights into trends and repeated areas of risk. An integrated, real-time platform like Relay enables your team to deliver more predictable project outcomes.