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
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