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When we talk about mega projects the main factor which plays a vital role to end them with more cost is the time taken by these projects to get them finished.
The duration between the project announcing, planning, budgeting, bidding, and completion is usually3 to10 years. During this period the cost of material and Labor increases a lot more than what was budgeting in the beginning. The main factor of this increase is rapidly changing economic situation of the world.
The other factor which I believe also important for this cost increase is poor project management. As we know all the activities of the projects are internally linked with each other and also depend on each other. If one activity is delayed it will caused the other activity also to be delayed even if the other activity was properly planned. But this delay caused the project increase in the cost in the shape of material and labor.
That happens when a company wants to get the contract and the execution of civil works in mega-projects. During the tendering process, companies move mountains for getting the contract, offering low budgets for being chosen. That’s why most of them “make” reckless offers with super adjusted costs.
One example is the Spanish case in Panama Canal works, as you know. We woke up on1st January,2014 with the news “Sacyr ( one of the most important construction&civil engineering companies in Spain) stops the Panama Canal works”. Sacyr offered an attractive and low budget for getting the works; in this way an american consortium was out without any possibility because its budget was high. Finally, when the costs increased a lot, Sacyr has told the “truth”, i.e, the company said that its “attractive” offer was for getting the contract. Nowadays the Spanish minister of Public Works is negotiating in Panama to solve the mess!!
I like very much your question Muhammad. It’s a great question to discuss!! =)
Because they harder to manage and because most of the available project management systems do not effectively support mega projects as good as they do for supporting smaller (in the range of3 to4 months) projects.
Another reason is that the practical number any manager can mange are not more than10 people. In mega projects a project manager will end up by having assistant project managers to help him/her in managing the project. This issue degrades the communication flow and accordingly the projects exceed budget and completion time.
Assumptions - umanaged, not properly and persistently communicated with the client.
Standard team tendency to keep it safe rather than accurate.
Poor understanding of client's envorment or budgets - normally it turns out that client is actually looking for different scope but it just wasn't recognized or understood properly. No client is a stupid client therefore budgets do match their exact needs.
Poor Risk Management
During the project span many changes to currecy exchange rate affecting the equipment price
inflation and /or governmental decrees affect man power salaries fuel electricity and water customs tariff
The assumptions of the total project duration may add another part
the assumption may no accurately forecast
There will be a deviation
Poor Planning or Poor CO-ordination can be the factor
due to lack of planning is one major cause.
if its stuck due to any environmental factors and/or governamental factors then inflation is also one cause
The main factors of end up costing more than budget are material cost, labor cost & required extra time for project finished. We can’t calculate the material cost & labor cost in a time frame which increase day by day. Other vital factor is far difference between project finishing estimated time & actual finishing time.
2 main factors are usually involed.... time and mismanagment
That's a negative result of a poor due diligence during the tendering procedure, combined with low budget offers in the general contractors endeavour to get the hands on the contract. On design&build contracts, in many cases general contractors aren't closely assisted by designers professionals and they find out details that increase costs only after they receive the letter of award. Also, during the execution stage a bad selection and lack of coordination of the subcontractors and suppliers ends up with total costs over the expected budget. Sometimes mistakes or lack of information from Employer/Tender documents pave the way for general contractor claims. Another factor is the way how employer handle general contractors claims.
Bottom line, there is no general answer or magic cure against the risks related to increase of project cost over the budget, every single situation shall be determined accordingly with specific facts.
