Friday, February 10, 2012

Big Dig

Edit Submission: Assignment 5.1 - Big Dig and Eurotunnel Case Study (Attempt 1 )

The Central Artery Tunnel Project known as the Big Dig and the English Chunnel are two of the largest projects ever undertaken in their respective countries and, for projects of these types, in the world. Both of these projects were public projects, yet one was financed entirely from public funds, and the other was financed largely by private investors. Because each of these projects consisted of numerous smaller projects, both were managed as programs. Based on your readings and outside research, respond to the questions below.
  • Utilizing the information discussed in the Big Dig case study and the readings for this week's class as well as research available on cost estimation, select one aspect of the management of cost estimation from a program management perspective, and describe in a two-page response how you would improve cost estimation on mega projects through implementation of this procedure or policy.

Cost estimation ( 2 pages)

Aspect of the management of the cost estimation from program management perspective
One aspect of the failure to fail cost estimation is the failure the asses the impact of unknown subsurface conditions, environmental and mitigation costs, required 1500 separate mitigation agreements, inflation adjustments, and expanded scope. [6] One of the major factors in cost escalation was the impact of inflationary pressures on all project elements of more than a decade of design and constructions.     

How to improve cost estimation on mega projects through implementation of this procedure or policy?
First the root cause of under-estimation is due to cost that associated unknown risks.
First we need to understand why the risks are unknown. If we can have a more rigors risks identification plan and policies, evaluation at the beginning of the project, many of costs risks may be identified earlier for particular tasks.
We would need contingency funding for each identified risks in the risk management plan and cost break down structure. [7]. For cost estimation of the identified risks, the easiest way you can do is to calculate the cost of lost and the impact of the lost.
There are more complex models to quantified the risks, such as contour method, experts and historic Data, expected Value, Statistical Sums/ Probability Distribution (PERT), schedule simulation/risk modeling and decision trees. [7]
Another area is the unidentified risks. From the articles about big dig. We know the big dig is one the most pioneer civil engineering projects on its kind. [8]. The are trying to build massive network of tunnels underneath the heart ofBostoncity. There are many engineering challenges that have never been tried out and encountered. This kind of projects generate huge amount of unidentified risks. So how are we going to estimate this kind of projects?

In most projects, there is something called contingency funding/ management reserve. Some of them is to cover costs for unidentified problems that happens during the projects. Usually it is around 10% to 15% percent of the whole cost of the projects.
However with this kind of pioneer and risky projects, they may be able to negotiate a higher percentage of the projects.
From a program management perspective, they consists of many projects. So I think first we need to identify all the projects needed to be completed. There can be projects come up in the middle of the program, but still we need to identify them as much as you can possible.
Of course the program is too risky, you may want to divide thee program in to phases of projects. You may want to start with something that is easier to accomplish with better visibility to the public and so that they can generate a good image to the public for further funding. It is not easy to raise all the funding at the beginning of the projects. Some of them can be pilot projects if they are too technical risky.
For each project they need to identify the risk very rigorously, to get as much potential risks as possible and put them into the cost calculation/estimations. Usually stakeholder would say this cost too much just because you want to allocate money to something that “might” happen. But it would be better to find out earlier than later.
At the end they should reserve fat management reserve funding for projects that is considered as technological risky or pioneering and no one have done it before.

  • What was the root cause of the Big Dig and the Eurotunnel's difficulties? Describe the similarities and the differences. With the benefit of lessons learned, if you represented the investors in the Eurotunnel project and the public citizens in the Big Dig, describe three practices you would have recommended from a program manager's perspective to assure a higher return on investment (ROI) within a reasonable time period.

Root cause Big Dig and Euro TunnelSimilarities and the differences, details, and what we can do
The failure to properly estimate costs from the inception of the project.In Big Dig project, the failure to properly assess the impact of unknown subsurface conditions, environmental and mitigation costs, required 1500 separate mitigation agreements, inflation, adjustments, and expanded scope.
The failure to enforce the contractual provisions once construction commenced
Political Reality: Real cost is far more than initial estimation.Cost initial estimation is low, but cost would dramatically increase later. People would think the project is cheating unless and open and transparent process is essential to accurate and realistic cost estimation and budget forecasting.
Flyvberj underestimation of costs is a rule, not an exception [1]
Political Reality: public want to see immediate return on investmentFlyvbjerg notes that underestimation of costs at the time of the decision to build is the rule rather than the exception for transportation [2].
Also if the estimation is to accurate and to high at the beginning, people may lose interests in investing money at the beginning

3 practices
every megaproject of $1 billion or more receiving Federal funds for construction have a financial plan that is updated annually. [3]
MetropolitanCollegehas commenced a Mega Project Research Enterprise with the Big Dig as a prototype to develop a data bank of lessons learned that will be useful to everyone . Whose interests are at risk due to the lack of available quality information on the development and construction of major infrastructure projects worldwide.
World Bank projects are typically subject to more careful appraisal and control than most other infrastructure projects, but projects undergoing the Bank’s relatively rigorous procedures, also have shown consistent patterns of inflated project viability. [4]To address this problem, the World Bank has called for not only more accuracy in estimates of viability, but also more honesty. allocate more contingency funding and management reserve

[1] Bent Flyvbjerg, (2006) Underestimating Costs in Public Works Projects, Journal of the American Planning Association.  
[2] Bent Flyvbjerg, Nils Bruzelious and Werner Rotherngatter, (2006),  Megaprojects and Risk,CambridgeUniversityPress,
[3] Author, (date), The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) redefined a megaproject to include projects of $500 million or more.  
[4] World Bank, (date) ECON Report, Economic Analysis of Projects, p. 21.  
[5] World Bank, (1994) World Development Report, p. 17.  
[6] The John W. McCormack Institute of Public Affairs,UniversityofMassachusettsBoston(1997), Report to the Legislature on Managing the Central Artery/Tunnel Project: Exploration of Potential Cost Savings
[7] Vijay Kanabar, (2008), Project Risk Management, A Step by Step Guide to Reducing Project Risk

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Eric Tse, Richmond Hill, Toronto
Tse and Tse Consulting -Security, Identity Access Management, Solution Architect, Consulting

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