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European Energy Megaprojects Report Results from a Multi-Case Study by Dr. Giorgio Locatelli Dipl.-Ing. Paul Littau.

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Presentation on theme: "European Energy Megaprojects Report Results from a Multi-Case Study by Dr. Giorgio Locatelli Dipl.-Ing. Paul Littau."— Presentation transcript:

1 European Energy Megaprojects Report Results from a Multi-Case Study by Dr. Giorgio Locatelli Dipl.-Ing. Paul Littau

2 Content Introduction Results Conclusions 1. 3. 4. Research Questions & Methodology2.

3 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 Introduction

4 Content Results Conclusions 1. 3. 4. Literature & Methodology2.

5 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

6 Cross case analysis (REF) Protocol 1.Definition of a common template for all the researchers involved 2.For each project data collection according to the template 3.Competition of the template areas with enough data 4.General overview at project level and lesson learned 5.Data organisation in an excel spread sheet 6.Statistical analysis (Fisher exact test) 7.Result analysis 8.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 Literature & Methodology

7 Content Introduction Results Conclusions 1. 3. 4. Literature & Methodology2.

8 8 Results CategoryIndependent VariablesCorrelating withp-value 1. Stakeholder There is a presence of one major stakeholder delay construction 5% More than 50% share of the client is under government control not delay planning17% 2. Project Environment Project has been delayed by the authority over budget 20% 3. Project Management Client and Owner are differentnot delay planning20% 3. Not classified Financial Support from the European Union not delay construction 7% Tough physical or environmental conditions not delay construction 18% The project is nuclearover budget17%

9 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 planning

10 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 (1/3)

11 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 (2/3)

12 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: delay construction (3/3)

13 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: over budget

14 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

15 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 Results

16 16 Results – Dont dos Dont…Times 1. Authorities …underestimate the power, duties and influence of local authoritiesIIII …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 powerI …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 involvedII …underestimate the effort environmentalist groups are ready to invest through creative public-attractive actions in order to stop the projectII …underestimate suppliers whose economic viability is poor and cannot guarantee the companys survival for the duration of the projectI …involve local populations and their representatives early on, and on a continuous basisI … underestimate the importance of local public acceptability (NIMBY SYNDROMI …build power plants to close to a residential area (less than 500 meters), even if a permission is givenI 3. Project Management …run the project with people inexperienced in power plant projectsI …have a plentiful, centralized and too powerful project management staff for the megaprojectI …start the construction without a great deal of legislation understandingI …ignore similar projects, instead, gain more reliable forecasts from looking at similar projects and thus, aviod biased forecastII …rely on old or over-sophisticated new technologiesII …start the construction if the design is not developed to the detail levelI …put in place, long before actual project start, a real time systematic information systemI …consider that each project or sub-project is uniqueI …consider risk management as important, while simplifying and streamlining is in fact more importantI 4. Business Strategy …get into the trade-offs with subsidized buy-in tariffs that you do not understandI …sell licenses too cheap so that some interim entrepreneur makes lots of moneyI …clutch at straws when trying to make your 'renewable' energy provision targetsI

17 Content Introduction Results Conclusions 1. 3. 4. Literature & Methodology2.

18 18 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

19 19 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.

20 20 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

21 END

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