European Energy Megaprojects
Report Results from a Multi-Case Study
by
Dr. Giorgio Locatelli
Dipl.-Ing. Paul Littau
Content
1.
Introduction
2.
Research Questions & Methodology
3.
Results
4.
Conclusions
Introduction
• 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
3
Content
1.
Introduction
2.
Literature & Methodology
3.
Results
4.
Conclusions
Literature & Methodology
• 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
5
Literature & Methodology
• Cross case analysis (REF)
• Protocol
1.
2.
3.
4.
5.
6.
7.
8.
•
Definition of a common template for all the researchers involved
For each project data collection according to the template
Competition of the template areas with enough data
General overview at project level and lesson learned
Data organisation in an excel spread sheet
Statistical analysis (Fisher exact test)
Result analysis
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.”
6
Content
1.
Introduction
2.
Literature & Methodology
3.
Results
4.
Conclusions
Results
1.
Category
Independent Variables
Correlating with
Stakeholder
There is a presence of one major
stakeholder
delay construction
More than 50% share of the client is
under government control
not delay planning
2.
Project
Environment
Project has been delayed by the authority
3.
Project
Management
Client and Owner are different
not delay planning
3.
Not classified
Financial Support from the European
Union
Tough physical or environmental
conditions
not delay
construction
not delay
construction
The project is nuclear
over budget
over budget
p-value
5%
17%
20%
20%
7%
18%
17%
8
Results: delay planning
Correlations:
1. more than 50% share of the client is under government control
(p-value 17%) correlates with not delaying in planning phase
o 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 phase
o (Possible explanation and CASE).
9
Results: delay construction (1/3)
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
10
Results: delay construction (2/3)
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.
11
Results: delay construction (3/3)
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)…
12
Results: over budget
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
13
Results
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 cultural
o Mono cultural are expected to perform better, because of cultural
barriers (Anbari et al., 2004).
o Analysed sample does not show relevant correlations
14
Results
Common sense independent variable not correlated (continued)
3. The project is modular
o 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 project
o 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 project
o Not found any relevant correlation
15
Times
…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
…underestimate the effort environmentalist groups are ready to invest through creative public-attractive actions in order to stop the project
II
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
… underestimate the importance of local public acceptability (NIMBY SYNDROM
…build power plants to close to a residential area (less than 500 meters), even if a permission is given
I
I
I
3. Project Management
…run the project with people inexperienced in power plant projects
…have a plentiful, centralized and too powerful project management staff for the megaproject
I
I
…start the construction without a great deal of legislation understanding
…ignore similar projects, instead, gain more reliable forecasts from looking at similar projects and thus, aviod biased forecast
I
II
…rely on old or over-sophisticated new technologies
II
…start the construction if the design is not developed to the detail level
…put in place, long before actual project start, a real time systematic information system
…consider that each project or sub-project is unique
…consider risk management as important, while simplifying and streamlining is in fact more important
I
I
I
I
…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
1.Authorities
Don’t…
4.
Business
Strategy
Results – Don‘t do‘s
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Content
1.
Introduction
2.
Literature & Methodology
3.
Results
4.
Conclusions
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
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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.
19
References
Anbari, 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
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END