European Energy MegaprojectsReport Results from a Multi-Case Study

byDr. Giorgio LocatelliDipl.-Ing. Paul Littau

Content

Introduction

Results

Conclusions

1.

3.

4.

Research Questions & Methodology2.

3

• Megaprojects: extremely large-scale investment projects – typically: more than EUR 0.5 billion

• In EU Megaprojects planned, or are in the execution or delivered

• Many of them are power plants and capital intensive

• Because of bad performance the EU financed the COST Research project aiming "to understand how megaprojects can be designed and delivered more effectively to ensure their effective commissioning within Europe"

• This document present the methodology used in the COST action and the results related to the Energy group

Introduction

Content

Introduction

Results

Conclusions

1.

3.

4.

Literature & Methodology2.

5

• Megaproject have high degree of uniqueness, "white elephant"• Megaproject usually are late and over budget (Cantarelli et al.,

2012)• Few of them are successful (Giezen, 2012)• Once completed usually provide benefit less than what was

expected (Flyvbjerg, 2006)• Still not clear which aspects make a project successful

Literature & Methodology

6

• Cross case analysis (REF)• Protocol

1. Definition of a common template for all the researchers involved2. For each project data collection according to the template3. Competition of the template areas with enough data4. General overview at project level and lesson learned5. Data organisation in an excel spread sheet6. Statistical analysis (Fisher exact test)7. Result analysis8. Investigation of the most relevant variables.

• Eisenhardt (1989): “researchers should stop adding cases when theoretical saturation is reached […] incremental learning is minimal because the researchers are observing phenomena seen before […] the incremental improvement in its quality is minimal.”

Literature & Methodology

Content

Introduction

Results

Conclusions

1.

3.

4.

Literature & Methodology2.

8

Results Category Independent Variables Correlating with p-value

1. StakeholderThere is a presence of one major stakeholder delay construction 5%

More than 50% share of the client is under government control not delay planning 17%

2. Project Environment Project has been delayed by the authority over budget 20%

3. Project Management Client and Owner are different not delay planning 20%

3. Not classified

Financial Support from the European Union

not delay construction 7%

Tough physical or environmental conditions

not delay construction 18%

The project is nuclear over budget 17%

9

Correlations:1. more than 50% share of the client is under government control

(p-value 17%) correlates with not delaying in planning phaseo A possible explanation: if the main shareholder is the

government itself, then its plans are very likely to meet requirements of local and regional authorities.

2. the client and owner are different (p-value 5%), correlate with not delaying in planning phaseo (Possible explanation and CASE).

Results: delay planning

10

Correlations:1. the presence of one major stakeholder (p-value: 5%)

o Possible Explanation: HERE

Examples:• Flamanville 3: main contractor, EDF (Électricité de France) is client

and project owner and caused authorities to stop construction works for a month.

• Olkiluoto 3 (nuclear power plant): turnkey contractor Areva was responsible for problems that led to construction delays

Results: delay construction (1/3)

11

Correlations:2. Project is supported financially by the EU correlated to not

delaying in construction phase (p-value 7%). o Possible explanation: demanding approval process required by

the European Union before funding an energy project could motivate the EPC-company to increase the quality of plans and cost estimations

• Examples:o Andasol project o Anholt Offshore project.

Results: delay construction (2/3)

12

Correlations:3. Tough physical environmental conditions are correlated to not

delaying in construction phase (p-value 18%).o Possible explanation: tough physical environmental conditions

are (explanation + CASE)…

Results: delay construction (3/3)

13

Correlations:1. Project has been delayed by the authority (p-value 20%)

Example:• Moorburg power plant project: problems with the environmental

requirements, led to a construction of an additional cooling tower which caused a huge cost increase

2. fact that the project is a nuclear power plant (p-value 17%).o Possible explanation is provided by G. Locatelli & M. Mancini

(2012): Flamanville and Olkiluoto 3 showing that the budget overrun is mainly caused by too low original estimations

Results: over budget

14

Common sense independent variables not correlated • Some independent variables are presented which surprisingly do not

correlate to common-sense-expectations regarding the performance of megaprojects.

1. First of a kind (FOAK)o FOAK-megaprojects tend to be over budget and delay (REF),o In sample one might expect that FOAK-megaprojects in the energy sector

also might perform badly. But results are showing, that …o Thus, XY proofs that

2. Mono culturalo Mono cultural are expected to perform better, because of cultural barriers

(Anbari et al., 2004).o Analysed sample does not show relevant correlations

Results

15

Common sense independent variable not correlated (continued)

3. The project is modularo Modular projects are expected to reduce project complexity

(especially in megaprojects) and thus increase project performance (REF).

o Analysis: no such correlation

4. Local residents were involved in the projecto In many cases: local residents try to stop the project o Communicating with critical stakeholders and to integrating them into

the project could should increase their support of the projecto Not found any relevant correlation

Results

16

Results – Don‘t do‘s Don’t… Times

1.Authorities

…underestimate the power, duties and influence of local authorities IIII

…forget that national and / or local politics might change over time and thus, their attitude towards the project – national and local authorities are not always in agreement with each other

III

…build a nuclear FOAK if there is not a clear long term strategy for nuclear power I

…underestimate the great deal of bureaucracy required (e.g. Italy) I

2. Stakeholders

…trust too much your suppliers (and sub-suppliers): check the track record of EPCs involved II…underestimate the effort environmentalist groups are ready to invest through creative public-attractive actions in order to stop the project II

…underestimate suppliers whose economic viability is poor and cannot guarantee the company’s survival for the duration of the project I

…involve local populations and their representatives early on, and on a continuous basis I… underestimate the importance of local public acceptability (NIMBY SYNDROM I…build power plants to close to a residential area (less than 500 meters), even if a permission is given I

3. Project Management

…run the project with people inexperienced in power plant projects I…have a plentiful, centralized and too powerful project management staff for the megaproject I

…start the construction without a great deal of legislation understanding I…ignore similar projects, instead, gain more reliable forecasts from looking at similar projects and thus, aviod biased forecast II

…rely on old or over-sophisticated new technologies II

…start the construction if the design is not developed to the detail level I…put in place, long before actual project start, a real time systematic information system I…consider that each project or sub-project is unique I…consider risk management as important, while simplifying and streamlining is in fact more important I

4. Busines

s Strateg

y

…get into the trade-offs with subsidized buy-in tariffs that you do not understand I

…sell licenses too cheap so that some interim entrepreneur makes lots of money I

…clutch at straws when trying to make your 'renewable' energy provision targets I

Content

Introduction

Results

Conclusions

1.

3.

4.

Literature & Methodology2.

18

Conclusions• Despite the media coverage focused on projects over budget and

late there is a clear evidence that it is possible to successfully deliver energy megaprojects in Europe

• The statistical analysis shows which project characteristics are correlated to project performance

• Internal and external stakeholders play a major role toward project success

• A well designed project governance is critical success factor

19

Further developments• To deep the analysis among the statistical correlated variable to

investigate the causation.• Test 3 level (e.g. the different technologies) using the chi-squared

test.• Enlarge the analysis to the infrastructure life cycle with a particular

focus on the benefit delivered.• There are several specific areas (like stakeholders management and

governance) deserving a specific investigations. A further step in the research should be the cross-case analysis on them.

20

ReferencesAnbari, F. T., Khilkhanova, E. V., Romanova, M. V., & Umpleby, S. A. (2004). Cross Cultural Differences and their

Implications for Managing International Projects. Journal of International Business Ethics.

Flyvbjerg, B. (2006). From nobel prize to project management: getting risk right. Project management Institute, 37(3), pp. 5-15.

Giezen, M. (2012). Keeping it simple? A case study into the advantages and disadvantages of reducing complexity in mega project planning, International Journal of Project Management, Volume 30, Issue 7, October 2012, Pages 781-790.

Cantarelli, C.C., Flyvbjerg, B., Buhl, S.L. (2012). Geographical variation in project cost performance: the Netherlands versus worldwide, Journal of Transport Geography, Volume 24, September 2012, Pages 324-331,

Eisenhardt, K. M. (1989). Building Theories from Cases. The Academy of Management Review , Vol. 14, No. 4 (Oct., 1989), pp. 532-550

END