Efficient capital investment - experience from the Concept

Research Programme

Knut SamsetProfessor, NTNU, Director, the Concept Research Programme

EUREGIO III Project3rd Master Class Programme

22 March 2011

1.Projects – success

and failure

There is no shortcut to a successful project

Governance versus management

Governance processes that define expectations, grant power, and verify performance.

Enabling measures – to help realize expectations Regulatory measures – to avoid adverse effects

Project Governance processes that need to exist for a successful project

Project Management processes to organize and manage resources required to complete a project within defined scope, quality, time and cost constraints.

Successful projects: some strategic and tactical issues

Success

Project

Society

Time

Cost Quality

Sustain- ability

Effect

Rele-vance

Strategic performance

Tactical performance

Tactics vs. strategy and project success

Low High

Strategy

Low

High

Tactics

Wrong type of project

Complete failure

Highly successful

Inefficient/ecpensive

Four controversial projects:

1.Oslo Opera House [no strategic perspective]

2.Oslo airport high-speed shuttle train [not financially viable]

3.Regional aviation control center [redundant]

4.Northern onshore torpedo battery [useless]

Test: Strategic and tactical performance

Tactics(management

> delivery)

+

-

Strategy(design > utility)

+-

Wrong type of project Highly successful project

Complete failure Inefficient/expensive

Hydropower plants

5. Torpedobattery

4. Aviationcontrolcenter

3. AirportShuttle

train

2. Opera

Assessment

Relevance

Sustainability

Effectiveness

Impact

Efficiency

Success

Analyses done ?

Needs analysis

Strategy

Alternatives

5. Torpedo battery

-

-

-

-

-

-

-

-

-

4. Aviation control

-

-

-

-

+

-

+

-

-

3. Airport train

+

-

-/+

+

-

-

+

+

-

2. National opera

-

-

-/+

+

+

-

-

-

sites, only

1. Hydro power plant

+

+

+

+

+

+

+

+

-

Project cases: Up-front test of success

1. Hydro power

project

2.Airport shuttle

train

3. National

opera

4. Aviation

control tower

5. Torpedo battery

Tacticalperformance

Strategicperformance

+

-

+ -

Relevance Sustainability

Efficiency

Effective-ness

Impact

Four hospital projects:

1.National University Hospital, [(in)significant cost overrun]

2.Regional University Hospital [oversized, huge cost overrun]

3.Retro type hospital [inefficient]

4.Future type hospital [Relevant, efficient, effective, sustainable]• Organisational structure• Integration public/private services• Health promotion vs. curative treatment• Degree of specialisation• Etc.

2. Quality Assurance

and decision making

Facts do not cease to exist because they are ignored. (Aldous Huxley)

Purpose(long-termeffect)

Societal process

Front-end phase

ImplementationPhase

Operational-phase

Goal(effect)

Process

OutputsProjectInputs

The project in context

Front-end phaseTime

Implementation phase

Project

Information

Uncertainty

Managing uncertainty

Front-end implementation

Stra

tegi

c un

dere

stim

atio

n

Front-end: Escalation of cost estimates

As it should have been

As it was

Cost overun

Cost savings

Initial estimate

Finalcost

Finalbudget

0

100

200

300

400

1 2 3 5 7 9 10 11

Oslo Operahouse

Cost

esti

mat

e

Shipping tunnel

1 2 3 4 5 6 7 8 90

500

1000

1500

2000

2500 Chart Title

National University Hospital

1 2 3 4 50

50

100

150

200

250

300

350

1 2 3 4 50

50

100

150

200

250Torpedo Battery

1 2 3 4 50

20406080

100120140160180200

Airport shuttle train

0

200

400

600

800

1000

1200

1 3 5 6 9 12 14 17Year

Regional University Hospital

Estimation and cost management

© Knut Samset

Some observations

•There is a strong tendency to choose the initial concept and stick to it

•Incremental improvements of an inferior solution - rather than fundamental change

•There is an overwhelming inertia: once set in motion - always impossible to stop

•The window of opportunities is usually larger than envisioned - and largely unexplored

Analysis and Decision making:

D1 D2 D3 D4

Decision process

Needs EffectThe project process

Planning and implementationProject start

Analytic process

A1 A2 A3

Technocracy

Analysis and Decision making:

Anarchy

Project start

D1 D2 D3 D4

Decision process

Needs EffectThe project process

Analytic process

A1 A2 A3

QA2QA1

Parliamentapproval

Cabinetapproval

QA regime: scope and procedure

QA 1:Review : documentsAnalyze: economic analysis

uncertainty Assess: relevance feasibility sustainability timingRecomm: ranking management strategy

QA 2:Review: documentsAnalyze: management strategy success factors and uncertaintyRecomm.: budget, contract and management strategy

•Needs analysis•Strategy document•Requirement spec.•Alternatives analysis (min. 3 alternatives)

•Overall strategy document•Budget

Decision documentsproduced by responsible ministry/agency

Scope of externalquality assurance

Needs EffectPre-project Project

Parliamentdecision

Cabinetdecision

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Month of presented report

QA-advisors’ estimate as compared with Agency estimate - percentages

Effect of QA scheme on cost estimation

des.. 02 des.. 03 des.. 04 des.. 05 des.. 06 des.. 07 des.. 08 des.. 09 des.. 10-40.0 %

-30.0 %

-20.0 %

-10.0 %

0.0 %

10.0 %

20.0 %

30.0 %

40.0 %

Final cost as compared with final budget (P85) - percentagesN=23

Time of completion

Average 5 %

Effect of QA scheme on budgetary compliance

• 23 projects, total investments EUR 4 Billion• All projects within budget (P85), but one • Final cost 5 per cent below budget on average• Half the projects below expectancy cost (P50) and half of them above

Features of the QA scheme

1.The most critical decisions are anchored at the highest level (Cabinet)

2.The quality assurance is done by external consultants

3.The regime does not require changes in existing procedures for analysis and decision making

4.It merely aims to raise the professional standard of underlying documents

5.The scheme is supported with a high level forum for exchange of experience between all involved parties

Some lessons regarding analysis and decision making

1.Analysis is often weak and the potential for improvement is huge

2.Better analysis is not enough to improve decision making

3.Most decisions are de facto made at the executive level (agency) and central government’s influence is limited

4.Coalitions of stakeholders tend to have an adverse effect on decisions

5.High level anchoring and transparency seems to work by providing a feedback to the executive level

Test: Strategic and tactical performance

Tactics(management

> delivery)

+

-

Strategy(design > utility)

+-

Wrong type of project Highly successful project

Failure Inefficient/expensive

Test: Strategic and tactical performance

Tactics(management

> delivery)

+

-

Strategy(design > utility)

+-

Wrong type of project Highly successful project

Failure Inefficient/expensive

?

B1 Idea Phase

B2 Concept Phase

B3Pre-Project Phase

B4

Model for Front-end Planning and Decision making in Hospital Projects