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Integrated Project Controls for
Todays Mega-Projects

Mark C. Sanders, PE CCE PSP and Ronald P. Pacitti

ABSTRACT The first decade of the 21st century has brought the engineering and construction
industry into a new era of mega-projects. In the US, much of the post-WWII infrastructure has reached
the end of its life. We are replacing major highway interchanges, upgrading power distribution systems
with modern smart-grid technology, and breaking ground on the first new nuclear plants in 30 years. At
the same time, the developing world is leaping into the modern era with an unprecedented investment
in infrastructure, particularly in China.

The lessons of the past should not be forgotten. Schedule delays, budget overruns, and technical
hurdles will be encountered. Project controls systems will help us overcome these issues, but only if
they are designed with the end in mindproviding the right information to the right people at the
right time. This paper presents the key steps to getting there, from two generations of mega-project
managers.



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Table of Contents

Abstract .............................................................................................................................................. 1
Table of Contents ................................................................................................................................ 2
Introduction ........................................................................................................................................ 3
Mega-Projects: Past Experience and Current Outlook ........................................................................ 4
Power ..................................................................................................................................... 4
Transportation ........................................................................................................................ 6
Water Resources .................................................................................................................... 8
Land use and Commercial/Industrial Development ................................................................ 9
Environmental Risk Mitigation and Remediation .................................................................... 10
Integrated Project Controls and the Role of the Cost Engineer ........................................................... 11
Trends .................................................................................................................................... 11
Vision ..................................................................................................................................... 12
Shaping the Path .................................................................................................................... 12
Conclusion .......................................................................................................................................... 15
References .......................................................................................................................................... 16

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Introduction

The first decade of the 21
st
century has brought the engineering and construction industry into a new
era of mega-projects. In the US, much of the post-WWII infrastructure has reached the end of its
economic life. We are replacing major highway interchanges and bridges, upgrading power
transmission and distribution systems with modern smart-grid technology, and breaking ground on the
first new nuclear plants in 30 years. At the same time, the developing world is leaping into the modern
era with an unprecedented investment in infrastructure, particularly in China.

The mega-projects of the previous generation provided todays infrastructure: power, transportation,
water resources, and centrally planned commercial and industrial land developments. Governments
were the primary project sponsors, except in the case of US nuclear projects, where monopoly utility
companies were the primary sponsors. The projects sought to add utility to the environment, and they
did, providing electricity, mobility, sustenance, and shelter to the populations they serve.

The types of mega-projects currently underway are similar to those of the previous generation, and the
goal of providing utility is the same. Examples include the Three Gorges Dam in China, the South Valley
Development in Egypt, and Vogtle Units 3 and 4 in the US. In addition, there is a new class of mega-
projectsenvironmental risk mitigation and remediation. These projects do not seek to add utility to
the environment; rather, they seek to protect what is there or restore what was. Examples include the
Venice flood gates, New Orleans levees, and Sellafield and Hanford nuclear reservation clean-ups.

Unfortunately, a review of past mega-projects provides a troubling history of unrealistically optimistic
budget and schedule estimates and frequent overruns of 100 percent or more. A study of 258 large
transportation projects found a shocking nine out of ten experienced serious cost overruns, averaging
28 percent [14]. Even worse, a USDOE study of 75 nuclear plants found construction cost overruns that
averaged 207 percent [32]. The record is clearmost mega-projects overrun cost and schedule targets.
Management concepts such as the critical path method and earned value management were
introduced more than 50 years ago, especially at the mega-project level, where large budgets provided
both the justification and funding for their use. Yet the cost and schedule performance of mega-
projects has not improved since the introduction of those concepts.

While new concepts are always being proposed and existing concepts are always being revised, the
most popular project controls concepts remain very similar to those that were popular 40 years ago, if
not 50. In comparison, the tools used to implement those concepts have developed exponentially. Far
more tools and computing power are available on todays hand-held devices than on the mainframes
of the previous generation. Computer processing capability has been advancing at a geometric rate
since its introduction, but the cost and schedule performance of mega-projects have yet to
demonstrate the benefit. Other than software vendor marketing materials, there is little to suggest
that the technologies of the last few years represent a major breakthrough, any more than those
introduced five or ten years ago.

The relevant questions are these: Will todays cost engineers successfully implement the lessons
learned from the last generation of mega-projects? Will todays tools help us to rid the world of
project failure,

or will the budget and schedule overruns of the past be repeated [27]? This paper
presents a review of five major classes of mega-projects, with discussion of projects from the past and
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projects currently underway. Then, the role of project controls is discussed, highlighting current trends
in integrated project controls. Finally, the authors present a vision of how cost engineers can help to
make todays mega-projects successful.

Mega-Projects: Past Experience and Current Outlook

Power
There are 104 operating nuclear power plants in the US, but until 2009, it had been 32 years since
construction had started on a new unit [33]. Conventional wisdom has it that the main reason for this
32-year drought was the partial meltdown of Three Mile Islands Unit 2 and the subsequent release of
radioactivity, which occurred in 1979. While it is true that the accident cast a long shadow over the
nuclear industry in the U.S., existing plants continued to operate, and additional plants that were
under construction at the time were completed and began operation years later. The TMI-2 accident
did not result in a single fatality, according to the NRC [35]. Yet, new nuclear construction in the US
ground to a halt. Why? Was the TMI-2 accident the main reason?

Certainly, economic forces have contributed to the absence of nuclear power construction, as other
generation technologies have been constructed more economically and with less risk. Construction
costs for the US reactors built in the 60s and 70s were two to four times as much as their estimates
[32]. Moreover, the percent overrun and cost per megawatt of the reactors that started construction in
the mid-70s were roughly triple compared to those that started construction in the mid-60s. The initial
budgets got bigger, and the cost overruns went from bad to worse. In one of the worst examples, the
construction of the Seabrook Nuclear Power Plant ultimately bankrupted Public Service Company of
New Hampshire [16]. Considering the experience of the utilities that funded these projects and the
rate-payers that ultimately absorbed the costs, the US nuclear construction drought may have
occurred even if the TMI accident had not.

While the nuclear build-out in Europe was not halted as it was in the US, in some other ways, Europes
nuclear experience has been similar. In a study of cost overruns, consulting firm Arthur D. Little found
key problem factors including: insufficient schedule integration and communication between suppliers
and owners; lack of strategic and operational planning by the owner; insufficient controls related to
time, cost, and quality; poor interface and collaboration; and lack of countermeasures for identified
risks and constraints [3]. With that list of problems, it would be surprising if any project came in on
schedule and under budget. The lack of countermeasures for identified risks and constraints still needs
to be addressed. For example, we know that there are an extremely limited number of suppliers with
the heavy forging capacity to produce nuclear pressure vessels [3, 30].

The US is entering into a potential renaissance period for nuclear construction. This time, the public
has an interest not only as rate-payers, but as loan guarantors. Southern Company and its partners are
constructing two new units at the Alvin Vogtle Plant in Burke County, GA, backed by $8 billion in loan
guarantees by the federal government [28]. While these loan guarantees have been widely reported, it
is less well known that the same law that provided them also allows for coverage of up to $1 billion of
delay costs on the project [11].

Public loan guarantees and coverage of delay costs raise some interesting questions in the area of risk
management. Common advice in that area holds that risks should be assigned to the party most
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capable of mitigating them. In this case, private investors, such as a consortium of major banks, might
be better capable of overseeing the use of their money than the general public would be. Banks that
engage in these types of loans typically retain attorneys to review contracts, accountants to review
financial transactions, risk consultants to review insurances, and experts to review proposed project
management plans. These reviews take place at the outset of a project and during its execution, to
enable the banks to assess the probability of default on their loans. The general public is in a less
favorable position to oversee the project, considering the amount of the publics attention it will
command and the fact that public representatives are subject to political pressure and lobbying by the
companies the public would wish to oversee. If private investors are not willing to put their capital at
risk without some secondary guarantee of repayment, why should the public?

Considering the loan guarantees and delay cost coverage that have already been provided, the public
has an even more significant interest in cost and schedule control than in the previous era of nuclear
plant construction. Project controls did not save nuclear projects from budget and schedule overruns
then. Do we believe they will save the projects of today? What will we do better?

Todays projects are implementing the current state-of-the-art project management techniques and
project management information systems. These techniques and systems call for management of cost
and schedule via centralized databases. Along with these systems, integration of cost and schedule
information and the application of modern risk management techniques are recommended. However,
many projects are experiencing significant cost and schedule overruns, despite the application of
modern management tools. Cost projections for the Olkiluoto 3 plant in Finland have increased 50
percent since construction began, and cost projections for two reactors at South Texas have increased
from $5.4 billion to $18.2 billion since the licensing application was filed in 2007 [5]. The reactors at
South Texas were the first new reactors submitted for licensing in the US since 1978. At the time the
license application was submitted, the reactors were projected to go on-line in 2014 and 2015 [26]. As
of January 2011, construction is scheduled to begin in 2012, and the units are scheduled to go on line
in 2016 and 2017a delay of two years since the COL application was made [22].

These recent experiences suggest that the industry has not adequately addressed the principal
problems experienced in the last generation of nuclear construction. Once again, we are
underestimating the probability of major cost and schedule surprises at the outset. One group of
experts have noted: New nuclear reactors represent novel and complex technology that will retain a
risk of high costs. A critical planning question, then, is how to model or account for this risk. One factor
that will likely remain unchanged for the next generation is the reliance on large-scale site-built
technology constructed within a rapidly changing technology and market environment, subject to local
variability in supplies, labor, technology, and public opinion, all of which add uncertainty to total costs
*20+.

Numerous government, utility, and private stakeholders are attempting to address these issues
through increased standardization and modularization and better management. However, state-of-
the-art project controls tools can do little to mitigate overruns due to the high-level risks that have
caused past nuclear projects to overrun by an average of 207 percent [32]. Today, there are additional
exogenous factors that have the potential to impact a project with design and construction activity that
spans many years. Shortages and high escalation for commodities, limited qualified suppliers, and
shortages in specialty and skilled labor can greatly impact the ability to control costs, and these risks
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will be compounded by any delays. Identifying and controlling these risks are key to success. While
high-level risk analysis might better address them, analysis results that indicate that actual costs on a
multi-billion-dollar project could be triple the budget can prevent the projects from proceeding in the
first place.

Outside of nuclear construction, the power industry can anticipate significant continued construction
on back-end systems for SOx and NOx mitigation, andin the not-too-distant futurecarbon capture
and sequestration. In addition, the industry anticipates tremendous construction on transmission and
distribution systems to replace aging facilities and apply upgrades associated with conversion to smart-
grid technology. For many independent power producers and utilities, these programs will be executed
on a mega-project scale. They will be executed on tight schedules stemming from regulatory
requirements at the state or federal level, and they will be mission-critical for the owners of the assets.
The provision of high-quality project controls that are immediately useful to decision-making will be
key to the success of all mega-projects in the power industry. Recent experience and commentary
suggests that the project controls industry needs to improve to meet to meet the challenges that it will
face in the power industry in the immediate future.

Transportation
Transportation mega-projects receive a high level of public attention compared to mega-projects in
other industries. This is because the public are the direct end users of the projects and, historically,
have been the primary funding source. That paradigm is shifting as more mega-projects are developed
through public-private partnerships (PPP) or through fully private concessions to design, build, finance,
operate, and maintain the projects.

No discussion of mega-projects in transportation would be complete without a discussion of Bostons
Central Artery/Tunnel Project (The Big Dig). That project received intense public scrutiny as its
budget ballooned from $2.6 billion in 1982 to $14.6 billion by 2003 [7]. Project completion, originally
planned for 1998, had slipped nine years by the time construction was widely reported as finished at
the end of 2007, for a final cost of $14.8 billion [2]. Scope expansion and significant technical issues
were primary forces behind much of the cost overrun. However, these issues were largely
characteristic of systematic and intentional under-estimation of costs and risks, based on the premise
that everything would go according to plan (EGAP) [14]. It is notable that design and construction
management were performed using modern management tools and techniques. While there were
cases where delays and cost overruns were mitigated, modern management tools could not hope to
bring the project back to anything near its original cost and schedule targets. The best efforts of
modern project controls were too little, too late.

After Congressional hearings and public outcry, it is clear that some lessons were learned in the
transportation industry. One of the most significant reforms following the Big Dig was the requirement
for states constructing mega-projects to submit financial plans for FHWAs approval. With the passage
of TEA-21 in 1998, FHWA began requiring states to submit financial plans showing an annual forecast
of expenditures for all projects with budgets over $1 billion [34]. Subsequent state and federal
regulations required annual financial plans to be submitted for projects with budgets of $500 million or
even less, in some cases. However, requirements for project management planning and project
controls still vary widely on a state-by-state basis.
The public has retained the perception that large transportation infrastructure projects are likely to be
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underestimated and mismanaged. In light of the struggling economy and revenue challenges faced,
several states have rejected federal funds for large transportation infrastructure projects in an
unprecedented trend. In 2010, the governor of New Jersey worked to cancel the planned Access to the
Regions Core (ARC) project, which would have linked New York and New Jersey with a new $8.7-billion
transit tunnel under the Hudson River [9]. Costs for the entire project ranged from $10 billion to $14
billion, and several experts pointed to the likelihood of costs increasing even further. One referenced
AACE International, in describing the accuracy range of estimates produced in the concept phase [4].
Considering the risk involved and the budget challenges already faced by the state, the Governor
canceled the project, along with billions in federal funds.

Meanwhile, the governors of Wisconsin and Ohio rejected federal funds ear-marked for high-speed rail
projects in their states [12]. Proposed high-speed rail projects in the US are among the most
contentious mega-projects currently proposed. Projects in California and Florida have accelerated due
to the availability of economic stimulus funds from the American Recovery and Reinvestment Act,
while many observers have questioned whether these projects will create even a small portion of the
economic benefits their supporters champion.

Passenger rail projects have one of the worst records of under-estimating costs and over-estimating
benefits [14]. Certainly, this history has contributed to the debate over the California High-Speed Rail
(CAHSR) Project. During 2010, President Obama, Vice President Biden, Transportation Secretary Ray
LaHood, and House Transportation and Infrastructure Committee Chair Jim Oberstar all expressed
support for the project, but some of the most interesting support came from Treasury Secretary Tim
Geithner. CAHSR reported Geithners comments as follows: It has the benefit of getting some of the
people hardest hit by the recession, people manufacturing autos and construction, back to
employment. . . . The cost has been estimated at more than $40 billion, but Geithner said that will
likely be money well spent. Investment in public infrastructure, in transportation, is a very good
investment *10+.

While the project will certainly put people to work, the public should remember that projects are
temporary by their nature, and so are most of the jobs that they create. The projected cost of $43
billion, may be too high in a state with an annual budget deficit on the order of $20 billion, especially if
the projected benefits are overstated. Several experts have argued the benefits are certainly
overstated, and some have argued they are intentionally overstated through strategic
misrepresentation *17+.

The $43 billion investment in CAHSR will provide rail service from San Francisco to Los Angeles in two
hours and 40 minutes per the CAHSR Authority. This 380-mile (610-kilometer) trip could be completed
in 6.5 hours by car. Alternatively, a flight from SFO to LAX takes one hour and 15 minutes. Round-trip
tickets for a flight are currently priced around $120. CAHSR has not yet released proposed pricing for
rail tickets from San Francisco to Los Angeles. However, a ticket on Amtraks Acela from Washington,
D.C. to Boston using the same purchase and travel dates as the flight from SFO to LAX is currently
priced at $380. Meanwhile, a flight from IAD to BOS is $110less than one-third the cost of rail. The
flight time is one hour 40 minutesone quarter the time of rail [13].

Some have argued that CAHSR cannot be compared to Amtraks northeast corridor due to the
technical differences of the two, and that CAHSR should be compared to HSRs elsewhere in the world.
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While that may be the case, it is clear that the fastest rail system currently in the US has difficulty
competing with air travel over distances greater than 300 miles (480 kilometers). In addition,
numerous low-cost, high-quality bus services have become available that have put significant
downward pressure on transportation costs for distances less than 300 miles. Considering the available
alternatives, it would be difficult to paint a positive economic picture for HSR if all cost and benefit
risks were considered.

If a projects costs and benefits are based on biased estimates at the outset, project controls can do
little to make the project successful. The recent history of transportation projects has provided
numerous instances where the application of modern project management and control techniques
could not prevent extreme cost and schedule overruns. The pressures on those seeking approval for
todays transportation mega-projects are extreme. More objective input from project controls
professionals in the early stages of project development is needed to direct the publics funds to the
best projects.

Water Resources
Some of the largest mega-projects currently underway around the world are in the water resources
sector. These include Chinas Three Gorges Dam and South-North Water Transfer projects, Egypts
South Valley Development, and Panamas Canal Expansion. Panama conducted a national referendum
prior to embarking on the $5.25-billion addition of a third lane to its canal, and the expansion was
overwhelmingly approved [25]. With the backing of the general public and annual revenues of over $1
billion, the Autoridad de Canal Panam has at least two major advantages that owners of other mega-
projects covet. On the other hand, Panamas eight-month rainy season, which brings 100 inches (2,500
centimeters) of rainfall from May through December, presents one of many tremendous challenges for
the project. As noted by the project team, on the Atlantic side, the soils are clays, there is little rock to
provide footing to keep heavy equipmentincluding Caterpiller D9s and Terex RH120E excavators that
can lift 35 tons per shovelfrom sinking into the mud.

Despite these challenges, the owner took on significant production risk by self-performing portions of
the project. In order to meet project management challenges, over 300 owner personnel received
training in the selected project management information systems, including Oracle-Primavera P6 and
P6 Analytics from the program management consultant, CH2M/Hill. The project team has stated that
the project was on schedule and on budget as of December 2010. While credit could be given to
modern management tools, the project has also benefited from the global recession, and base bids on
all major contracts through 2010 have been less than pre-bid estimates. The competitive global market
has set the stage for the cost and schedule success that has followed so far.

While the Panama Canal Expansion certainly meets the threshold for a mega-project, Egypts South
Valley Development has a budget 17 times the size. The $90 billion reclamation and development
project was the biggest mega-project on one list, compiled by Engineering News Record in July 2010
[23]. The 6,000-square-kilometer project in the Sahara Desert includes the worlds largest pumping
station, capable of moving 25 million cubic meters of water daily, in an effort to provide farmland and
infrastructure for six million residents. Meanwhile, the Three Gorges Dam and South-North Water
Transfer projects are reshaping the landscape in China with a combined investment similar to the $90
billion in Egypt. While the Three Gorges Dam is better known in the West, the South-North Water
Transfer project is a more massive undertaking. The project is an effort to move 44.8 billion cubic
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meters of water annually by linking the Yangtze, Yellow, Huaihe, and Haihe Rivers to provide water to
the population in the north. It is planned for completion in 2050 [23].

The scale of these projects in terms of geography, cost, and schedule, presents tremendous challenges
in the control of long-term risks. Changes in the global economy over the past three years have put the
credit of entire nations at risk. These projects were underway before the latest crisis, and they will
continue for many years after it. These projects seek to alter the natural environment and effect
changes to the population distributions of these countries on a massive scale. The most significant risks
include political changes that might derail the long-term government planning considerations that are
driving the projects. Due to political considerations, those risks are often underestimated in
comparison to technical and environmental risks.

Land Use and Commercial/Industrial Development
Massive water infrastructure projects like those underway in China and India intend to stimulate
development in parts of those countries with little or no development to date. When massive
development like that is centrally planned, funded, and managed, it can be considered a mega-project.
There are numerous examples that fit this model of centrally planned development on land that was
previously desert, or land that is reclaimed from the sea. These examples include Jubail Industrial City
in Saudi Arabia; the World, Palm, Yas, and Saadiyat Islands off the coasts of Dubai and Abu Dhabi; and
City Center in Las Vegas. Other mega-project developments have been driven by competition for the
worlds premier events. The preparations for the 2012 Olympics in London fit that model.

In fact, Olympic preparations provide great case studies for mega-projects, because the cost/benefit
analyses associated with these investments are hotly debated. The London 2012 Olympics provide
some good examples of what the public will perceive in that regard. The U.K. Department for Culture,
Media, and Sport (DCMS) and its Olympic Delivery Authority (ODA) are responsible for providing the
required infrastructure for the games. ODAs original baseline budget (without contingency) was 6.1
billion. That baseline was published in March 2007. In November 2007, ODA published a baseline
budget (with contingency) of 7.1 billion, and in November 2010, ODA reported an Anticipated Final
Cost of 7.2 billion [31].

Those figures provide for some interesting comparisons. Costs increased by more than 16 percent from
the original budget to the revised budget, but this was based on an assessment of risks, and the
increase was well within the $2 billion in contingency reserve that had been set aside by DCMS
(although not all contingency was reserved for design and construction). Since the November 2007
baseline, the anticipated final cost has increased less than two percent, remaining well within the
overall contingency available. The ODA has noted that most of the contingency usage was related to
projects affected by the economic downturn; i.e. those projects that had expected to be supported by
substantial private, commercial investments that never materialized. At this point, the overall program
is forecast to be completed on budget and on schedule, but there is always a more interesting story in
the details. At the same time the ODA was painting a positive picture for the overall program, much of
the local press was focused on the well publicized technical issues and budget overruns on the
Olympics Aquatic Center. In November 2010, one headline reported, 2012 London Olympic Aquatics
Centre 11M Over Budget, focusing on the one major venue that had an anticipated final cost that
increased between July and October 2010 [8]. This type of headline demonstrates how difficult it can
be to overcome public pessimism with mega-projects, even when the project under scrutiny is
performing well.
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Another project, almost entirely supported by private funding, was underway at the same time as the
preparations for the 2012 Olympics. Las Vegas City Center has been described as the largest private
project ever undertaken in the U.S, with a budget quoted at anywhere from $8.5 to $11 billion,
depending on what is included. While the majority of the planned construction was completed by the
end of 2010, it was not without significant financial strain on the project owners. They reported a loss
of nearly $1 billion in the first nine months of 2010, followed by an announcement that one of the
centerpiece hotels would be demolished. The Harmon Hotel was reduced from 47 to 27 floors,
constructed and enclosed, but never fitted out *21+. The Harmons failure was brought about by
economic risks well beyond the considerable risks undertaken by the projects developers.

Similarly, it does not appear that the developers of many mega-projects in the U.A.E. adequately
prepared for the potential of a major global recession. By November 2010, $350 billion in projects
were on hold as a result of the economic slowdown and $14 billion had been officially canceled [29]. In
some cases, developers appear to have closed shop entirely, leaving no forwarding address and slim
recourse for international investors. These projects were hugely dependent on the continued influx of
international commercial investment, which dried up suddenly and unexpectedly as the depth of the
banking crisis took shape. Unfortunately, the risks that led to that crisis had been severely
underestimated by the banking industry and governments around the world. The construction
industryriding the wave of the boomhad little incentive and less experience with which to foresee
the approaching collapse. While risk analyses were performed on these projects, they were largely
inadequate, because they underestimated or ignored the single greatest risk event.

Environmental Risk Mitigation and Remediation
Certain types of mega-projects in the first decade of the 21st century do not fit into any of the previous
groups, but have a commonality of cause that suggests the need for a fifth major grouping. These types
of projects are often the result of environmental risks that have been realized or are brought about by
changes in the environment or the progression of environmental regulation. Environmental risk
mitigation projects include the multi-billion-dollar levees in New Orleans, LA, and the Venice Tide
Barrier Project. Environmental risk remediation projects include the clean-up and spent-fuel-storage
projects now underway more than six decades into the nuclear age. For example, mega-projects are
underway at Hanford, WA and Yucca Mountain, NV in the US, and at Sellafield in the UK.

One of the great challenges of environmental risk mitigation projects is determining what level of
event to mitigate. Should cities by protected from a flood with a 100-, 200-, or 500-year return period?
What level of death and destruction should be considered acceptable at even a 500-year return
period? How much should a government owner spend to mitigate these events when funding for
healthcare and other budgetary needs is already under strain? There are no easy answers to these
questions, and issues including moral hazard must be faced in any effort to mitigate risks on a massive
scale. This forces governments to ask whether it is better to protect populations from flooding through
the use of levees and seawalls, or to protect them by discouraging development in flood-prone areas.
Those types of questions are affected by political considerations, and project controls concerns
typically do not arise early enough in the process to be considered when these major decisions are
made.
Similarly, the eventual need for clean-up at some of the worlds first nuclear sites was not the driving
issue in the 1940s, when research at these sites led to the development of both nuclear arms and
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commercial nuclear power. Certainly the cost of the eventual clean-ups could not have been known.
Now, Calder Hall at Sellafield, the worlds first commercial nuclear powerplant, is being
decommissioned as part of the site clean-up process. Estimating costs in this area presents a huge
challenge from an escalation standpoint, considering that the UKs Nuclear Decommissioning Authority
estimates that the process will take more than a century. With a budget of $30 billion, the site is
expected to achieve brownfield status by 2120 [23]. While it is certain that we will have more
advanced computerized project controls systems by then, it is less certain that we will be able to
honestly assess and adequately manage risks on projects of this magnitude.


Integrated Project Controls and the Role of the Cost Engineer

Trends
Integrated project controls; integrated risk management; real-time data in a centralized database
these are the current trends in project controls, and proponents say that they present the solution to
the problems of the past. Some have gone so far as to herald the end of project failure [27]. So what
were the problems of the past, and how and why do we expect these tools to solve them? The first
part of this question has been explored. Problems significant enough to cause multi-billion budget
overruns can be traced to the earliest stages of project selection and initiation.
Estimates of costs and benefits are influenced by the desire to convince potential stakeholders
to select the project, obtain funding, and get the project initiated.
High-level risks are minimized or ignored as few budgets would be approved with contingencies
of 100 or 200 percent.
Scope is reduced, with the intention of expanding at a later date, once stakeholders have
already committed billions of dollars.

The current trend toward integrated project controls facilitates more detailed management, but it
does not address the root causes of these problems. Integrated project controls systems are
implemented after initial cost/benefit analyses have been completed. The baseline cost and schedule
estimates that are published should be the same as those that were used to justify initiating the
project in the first place. Better management and control are hardly solutions for low estimates, high
risks, and scope growth because the ability to influence these high-level issues declines quickly once
the project has started. The Total Cost Management Framework includes investment decision making
within the purview of the cost engineering profession, and we must involve ourselves in that process
[1].

We can offer integrated risk management, both before and after project initiation, as a potential
solution to mega-project problems, but that has been done. High-level risks continue to be subject to
political pressures that hinder objectivity. Certainly proponents and detractors commenting on todays
nuclear and high-speed rail projects have extremely different points of view. As much as todays tools
seek to quantify risk, certain elements of risk analysis will always be partly subjective, as can be seen by
the vastly different positions in those debates.

Beyond the challenge of bias when identifying and quantifying risks, there are challenges to the
management and control of risk. A logical and oft-repeated truism of risk management is that risks
should be allocated to the party best able to control them. However, a review of actual project
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execution strategies reveals that parties in control of risk allocation often allocate risks to parties with
the greatest appetite for risk or to those in the weakest negotiating position. In the case of the nuclear
industry in the US, the general public has been allocated billions of dollars in risks that the global
investment community has refused to bear. It is difficult to argue that this is because the public is in a
better position to control that risk; they are only in a position to absorb it.

Vision
Because mega-project problems arise at the earliest stages of the project life cycle, they must be
solved in those stagesduring project selection, planning, and initiation. Goals for the success of the
project must also be set during this time frame and understood by all stakeholders. We cannot assume
that success means the same thing to everyone. For example, budget overruns on projects that are
mostly federally funded have different effects on state agencies than budget overruns on projects that
are mostly state-funded. When economic stimulus is a major goal, schedule and budget overruns allow
for the continuation of jobs that are temporary by their nature. We must recognize these self-serving
influences.

The cost of failure to meet a project goal must be borne in some portion by all major stakeholders, and
controls systems must be designed to meet the needs of those stakeholders. The design of integrated
project controls systems should flow from the goals for project success. Project controls personnel
must work at a high-level with project managers and stakeholders to establish clear metrics and
measure trends toward meeting those goals. As controls systems evolve into centralized databases
with a tremendous range of functionality, we must keep in mind that complexity is an enemy of
transparency.

Risk management practices must also be steered toward the goal of objectively identifying and more
effectively minimizing high-level risks. As noted by Bent Flyvberg in Megaprojects and Risk, the biggest
problem is the lack of accountability to manage risk [14]. Flyvbjerg notes that governments will
promote high-risk projects due to influences in the decision-making process, and private entities will
promote them when they can allocate risks to others. In fact, considering the mathematical basis for
modern risk analysis, it is surprising that there is little to demonstrate that current methods are
effective. As of 2004, a study by the RAND Corporation found no quantitative analysis to support the
effect of risk management [24]. Therefore, risk management at the project level may serve to provide a
false sense of security regarding project risks. It is unlikely that risk management will allow for
requisition of sufficient funds to cover the true potential for overrun because of risks that were
deliberately ignored or underestimated in order to secure project authorization.

Ultimately, those that stand to benefit from a project must share in its risks. With their interest
secured, project controls professionals can help them control and manage those risks. This will require
some presence of cost engineers at the top level of stakeholder organizations. In parallel, an
independent third-party role can be created, especially when the interests of the general public are to
be protected. That role will only be effective with high-level support from the sponsoring entities. All
stakeholders must agree on the goals for project success and remain committed to achieving those
goals.

Shaping the Path
Chip Heath of Stanford University has researched ways to positively influence an organization or even
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an entire industry [18]. Applying some of his concepts to mega-projects, we note that the problems of
the past can be overcome by building on the bright spots that have led to mega-project successes.
Small changes in the management environment on a mega-project can align personal and
organizational goals to establish goals for the success of the entire project. This is shaping the path.
With this inspiration, we considered the history of mega-project successes and failures and integrated
our own experiences. We then summarized key concepts to be implemented in the management and
control of mega-projects, as follow:

Design With the End in Mind. The latest software wont help you if you dont know what you want it to
do and why. Computers dont manage projects; people do. Set appropriate baseline targets, plan how
to achieve them, and implement controls systems with an eye toward the decisions that will be needed
along the way. Project managers must have clear and realistic goals and a sense for what they will
need to know during execution in order to manage to their goals. Only then can project management
information systems be implemented to collect and analyze information appropriately. When risks
become reality, project management should be able to clearly present data and facts to support the
release of contingency or the implementation of alternatives. Contingencies and alternatives must be
made available when the project is initiated, and perceptions must be managed such that their use is
seen not as a failure, but as consistent with the agreed-upon plan to overcome risk events and achieve
project goals. Maximize project performance by setting difficult but achievable targets with
appropriate levels of contingency.

Make Decisions. Project controls personnel can acquire, report, and centralize reams of data, but you
are never going to have all of the information. Making no decision is almost always disastrous. Money
is being spent every day, whether you make a decision or not. You may take months to determine the
best option, but you will usually be better off choosing a good option and choosing it sooner. Mega-
projects in engineering and construction call for managers that can assess what they need to know and
when they know enough to move forward. Calling for more and more data can reduce the quality of
the data that you receive. Project managers need to work closely with project controls managers to
understand what data is necessary to manage the project and how it should be organized and
interpreted to guide project decision-making. Calling for more and more data and analysis while
decisions backlog is a recipe for failure.

Achieve a Critical Mass of Competence. Just because of the sheer size of the team involved on a mega-
project, youre going to have a wide range of abilities. Errors are guaranteed. You need to make sure
that you have a critical mass of competence so that the errors dont snowball. Dont rely on software
to manage problems. For example, building information modeling (BIM) software offers clash
detection features, but an experienced design reviewer can guide the team to a more efficient overall
design approach and show them how to minimize conflicts before they occur. As one reviewer of
integrated project delivery (IPD) concepts noted, While most commentators and proponents of IPD
seem to think the problems associated with design will be discovered through the use of BIM, the
sleeping dragon may very well be the overreliance on computer models and not enough human input
*19+. The project controls field is no different. We have grown too reliant on software to solve our
problems. Software is a tool, not the answer. Primavera P6 doesnt make great schedules any more
than Microsoft Word writes great books. Teams that have successfully executed mega-projects know
that their success is due to the efforts of a dedicated group of people that worked together to
overcome the problems that arose.
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Manage Risk With Accountability. Despite the proliferation of risk management, significant risks
continue to be underestimated or ignored on mega-projects. In particular, risks associated with
regulatory changes and technological innovations receive insufficient treatment. In 1988, the RAND
Corporation noted, Doing something differenteven slightly differentincreases cost growth and
schedule slippage and dramatically increases the probability of operational problems *24+. Yet
instances of 100-percent budget overruns on projects implementing untested processes without
appropriate contingency continue *6+. By 2004, RAND reported, The universal statement about the
general utility of quantitative project risk analysis was that it is clearly useful, because it is so widely
used and so widely recommended. However, this was always followed by comments that project risk
analysis is not well understood by project management. There was also agreement, confirmed by a
literature search that virtually all of the evidence for its utility was anecdotal *15+.

Numerous commentators and public advocates have questioned the honesty of those engaged in
mega-project estimating and risk analysis to justify project initiation [14]. Considering the history of
cost overruns, these questions must be answered, and integrity must be restored. Cost/benefit
analyses and risk analyses of mega-projects in the engineering and construction industry are within the
scope of the cost engineering profession, and we are well positioned to promote ethics and objectivity
in these fields. If risk management is to be our answer, we must first answer how the very application
of a procedure of rigorous mathematical simulation can be based on anecdotal evidence of its
effectiveness. This oversight must be corrected. Finally, logic dictates that in order to maximize the
chances of project success, risks should be allocated to the parties best equipped to avoid or mitigate
them. In fact, risks are often transferred to the party in the weakest negotiating position, regardless of
that partys ability to avoid or mitigate those risks. If risk management is to lead to mega-project
success, then stakeholders that stand to benefit from project success must be made to bear an
appropriate portion of the risk of project failure. Know the players, and recognize that incentives
matter.

Promote Planning At All Levels; Especially At The Top. Project controls professionals have long
lamented the decline of planning that has accompanied the rise of scheduling. This trend is
especially dangerous for mega-projects. While there is an increase in the use of sophisticated project
controls systems, there is less effective top-down planning. More details are communicated, but the
big picture is increasingly blurred. The solutions offered by the software industry emphasize the
integration of data from the bottom up. However, the lack of direction and standardization in the
principles that guide the preparation of this data has not been addressed. Inconsistency in the
application of planning concepts can result in mass confusion when increasingly common terms like
critical path have different meanings to each party. Effective mega-project management requires
central guidance of planning activities. You can integrate information from the bottom-up, but
ultimately, there needs to be one path forward. Modern techniques such as crowd-sourcing and agile
design can be incorporated, but even those systems are really implemented from the top-down when
they work well. They still rely on central implementation and central integration of the results. The key
is that everyone is working to the same plan. In order to achieve that, planning must be promoted at
the highest level. If upper management understands the overall plan and communicates it well, then
all parties will be able to ask themselves how their piece of the project fits into the overall plan and
plan their own work accordingly. The top level of management must communicate the big picture,
emphasize their commitment to it, and ensure that the pieces fit together.
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Simplify. There is some tendency among project controls personnel to over-complicate management
processes. Seek to simplify wherever possible without sacrificing quality. Dont over-design systems
that will only work well if they are used perfectly. Mega-projects can be burdened by electronic filing
systems and cost-coding systems that could provide good data, but few of the users code the data
properly. If files cannot be easily retrieved, then the filing system has little value. If costs are
improperly coded, then cost reports have little value. One of the greatest challenges to integrated
project controls systems is that they tend to become too complex and more burdensome than helpful.
A good system should be able to produce key performance indicators easily, and they should be readily
understandable to management. Anyone that has spent significant time in the engineering and
construction industry has seen examples of nonsensical productivity and cost v. budget reports that
have been produced with the click of a button, without anyone validating the data. Decision-making is
then slowed while data is reviewed and re-coded. In the worst cases, this cycle repeats many times
over the course of the project. Systems should provide plan, commitment, and actual data for cost and
schedule quickly, easily, and reliably. Systems that try to provide all desired features to all users often
dont perform well for key management tasks. Prioritize management needs and simplify systems to
meet the top priorities effectively.

Be Present and be Visible. The founders of Hewlett-Packard are credited with coining the term
Management by Walking Around (MBWA) to emphasize that top-level managers should be present
and have direct contact with the personnel that they manage. With more and more management done
by computers and e-mail, this concept is waning. In engineering and construction, we should not
underestimate the effect of seeing top managers, especially in the field, and especially first-thing in the
morning. Talk to team members to find out what they do and how they do it. Dont get all of your
information from prepared reports that have been filtered, and dont assume information that you are
presented is 100 percent accurate. Trust but verify. You know that your data has errors in it; find
examples of them and decide whether the overall picture is reliable. Verify first dollar costs on the
overall program and on any new sub-project to give yourself a good feeling that the scope of what is
estimated is the same as the scope of what is being charged. Computer models generate a lot of
information. It has varying levels of accuracy. Show a strong preference for affirmative reporting from
real people. Plan for communications. There is a huge amount of information changing hands every
day. Your people will be overwhelmed at times. Being present and visible will allow you to direct
project management resources where they are most needed more effectively than by simply looking at
a CPM schedule.


Conclusion

Todays owners, designers, and constructors have a wide array of modern project management tools at
their disposal to manage multi-billion-dollar mega-projects. Systems can provide an integrated, real-
time view of cost and schedule status, and software vendors herald the end of project failure. But
veterans of mega-projects know that success is never guaranteed and that software does not manage
projects; people do. Integrated project controls systems can play a significant part in mega-project
success, but only if the systems are designed with management goals in mind and implemented by
competent personnel. The lessons of the past should not be forgotten. Major schedule delays, budget
overruns, and technical hurdles will be encountered. Project controls systems will help us to overcome
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these issues, but only if they are designed with the end in mindproviding the right information to the
right people at the right time.

As cost engineers, we need to continue to pursue a higher-level role in the early phases of project
selection and initiation. We must exert a positive influence not only on the management and control
systems selected, but on the projects selected and on the scope of those projects. To many, that role
does not fall obviously within the realm of project controls. They view monitoring and controlling as
activities to be performed after project selection and initiation. However, investment decision making
is within the purview of the cost engineering profession. In order to overcome the mega-project
problems of the past and make Total Cost Management a reality, cost engineers must pursue the
positions that will allow us to influence project selection, funding, and planning at the highest level. It
is not enough to simply manage well and control well once the project begins. We must be involved at
the outset to influence scope, budget, and stakeholder expectations, define the goals for project
success, and design the systems that will allow us to meet those goals.


REFERENCES

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Knowledge of Cost Engineering, 1
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Edition, AACE International, Morgantown, WV, pages 55-63,
2006.
2. Amendola, E., Bostons $14.88 Big Dig Finally Complete, USAToday (from Associated Press),
December 25, 2007.
3. Little, Arthur D. GmbH, Nuclear New Build Procurement, Nuclear Renaissance What Does this
Mean for Plant Procurement? Presentation by Arthur D. Little GmbH, March 1, 2010.
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2011 AACE INTERNATIONAL TRANSACTIONS
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10. Cruickshank, R., Tim Geithner Speaks Out in Support of High Speed Rail, California High Speed Rail
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Plant Delays, August 8, 2005.
Notes: This section of the law provides for government payment of delay costs related to certain
covered delays, which include the failure of the NRC to comply with schedules for review and
approval of inspections, tests, analyses, acceptance criteria, pre-operational hearings, or litigation
that delays the operation of the facility. Vogtle Units 3 and 4 are expected to be the first to
receive Combined Operating Licenses and begin unit construction, which would entitle each to
$500 million in standby support coverage. The next four units to achieve that status would be
entitled to $250 million each under the law, for a potential total of $2 billion in taxpayer funded
delay costs.
12. A Windfall for California, Los Angeles Times, December 11, 2010, retrieved from:
http://articles.latimes.com/2010/dec/11/opion/la-ed-trains-20101211.
13. Based on prices from Expedia.com and Amtrack.com, November 30, 2010.
Notes: Expedia.com for flight pricing and Amtrack.com for rail pricing; flight prices include all
taxes; flight prices do not include any baggage fees; flights purchased two weeks in advance;
purchase on November 30, 2010 for a flight leaving Monday, December 13, 2010 and returning
Friday, December 17, 2010; multiple carriers available for flight pricing.
14. Flyvbert, B., et al, Mega-Projects and Risk: An Anatomy of Ambition, Cambridge University Press,
Cambridge, United Kingdom, pages 5, 15-18, 80, and 137, 2003.
15. Galway, L., Quantitative Risk Analysis for Project Management: A Critical Review, Working Paper,
WR-112-RC, RAND Corporation, February 2004.
16. Gunter, P., Clamshell Alliance: Thirteen Years of Anti-Nuclear Activism at Seabrook, New
Hampshire, U.S.A., Ecologia Newsletter, January 1990.
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Examiner.com, retrieved on August 16, 2010 from: http://www.examiner.com/transportation-
policy-in-san-franscisco/california-high-speed-rail-results-for-hire-mega-project-estimate-failures.
18. Heath, C. and D. Switch, How to Change Things when Change is Hard, Broadway Books, New
York, 2010.
19. Hilger, S., The Legal Worries Raised by IPD, ENR.com, referenced September 1, 2010 from:
http:/enr.construction.com/opinions/viewpoint/2010/0901-LegalWorries-1.asp.
20. Hultman, N., J. Koomey, and D. Kammen, What History Can Teach Us about the Future Costs of
U.S. Nuclear Power, Environmental Science & Technology, pages 2088-2093, April 1, 2007.
21. Illia, T., MGM Could Implode Unopened CityCenter Hotel in Las Vegas, ENR.com, retrieved from:
http://enr.ecnext.com/coms2/article_bubt101115LasVegasCity.
22. Texas Nuclear PLA Brings Millions of Hours of Construction Labor, International Brotherhood of
Electrical Workers, IBEW Press Release, New York, April 8, 2010.
Notes: See also South Texas Project Units 3 and 4 to Drive Soaring Demand for Skilled Craft
Labor in Greater Houston Area, Industrial Info,
http://www.industrialinfo.com/radio/navigating.jsp?industry=news08, accessed on January 8,
2010. These sources, among others, now forecast on-line dates of 2016 and 2017 for Units 3 and
4, as opposed to the 2014 and 2015 dates noted in NRGs press release of 2007. The current
forecasts remain contingent upon securing federal loan guarantees, which have not yet been
secured as of the end of 2010.
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23. Lewis, S., Take a Tour of the Worlds Megaprojects, ENR.com, July 7, 2010, retrieved from:
http://enr.construction.com/business_management/project_delivery/2010/0707-
TopLargestProjects.asp.
24. Merrow, E., Understanding the Outcomes of Megaprojects: A Quantitative Analysis of Very Large
Civilian Projects, R-3560-PSSP, RAND Corporation, March 1988.
25. Nisula, D., Panama Canal Expansion Program, Presentation to the Society of American Military
Engineers Multi-Society Meeting, Philadelphia, December 1, 2010.
Notes: Mr. Nisula provided an overview of the expansion project scope, the current status of the
project, and CH2M/Hills role providing program management consulting to the owner, Autoridad
del Canal de Panam.
26. NRG Energy Submits Application for New 2,700 Megawatt Nuclear Plant in South Texas, NRG
Press Release, NRG, September 24, 2007.
27. Oracle Unveils Primavera P6 Enterprise Project Portfolio Management 8, Oracle Press Release,
Oracle-Primavera, September 21, 2010.
28. Pulizzi, H. and C. Buurma, Obama Unveils Loan Guarantees for Nuclear Plant, The Wall Street
Journal, February 16, 2010.
Notes: Vogtle received roughly $8 billion in guarantees. The 2005 law allowed for up to $18.5
billion in loan guarantees. The Obama administrations 2011 budget proposed to triple that
amount to $54 billion. Subsequent to this article, it is noted that the 2011 budget was not passed
in 2010. In January 2011, the Republicans took control of the House of Representatives on a
platform that highlighted both conservative spending and job creation. The future of loan
guarantees for additional plants remains to be seen, and may hinge on the successful progress of
the Vogtle project
29. Sambidge, A., $364bn of UAE Construction Projects on Hold, Cancelled, AriabianBusiness.com,
April 18, 2010, retrieved from: http://www.arabianbusiness.com/-364bn-of-uae-construction-
projects-on-hold-cancelled-157027.html.
30. Schlissel, D. and B. Biewald, Nuclear Power Plant Construction Costs, Synapse Energy Economics,
Inc., July 2008.
31. London 2012 Olympic and Paralympic Games Quarterly Report, U.K. Department for Culture,
Media, and Sport, November 2010.
32. An Analysis of Nuclear Power Plant Construction Costs, Technical Report DOE/EIA-0485, U.S.
Department of Defense, Energy Information Administration, January 1, 1986.
Notes: Of 75 plants studied, the average cost performance on the 38 nuclear plants initiated after
1970 was worse than the 37 initiated prior to 1970. While there were many complicating factors
that drove budget overruns on plants initiated after 1970, the introduction of modern,
computerized management techniques did not result, on average, in more accurate estimates
and fewer or lesser overruns. In fact, the opposite was true.
33. Nuclear Reactor Characteristics and Operational History, U.S. Department of Defense, Energy
Information Administration, July 2010, retrieved from:
http://www.eai.doe.gov/cneaf/nuclear/page/operation/statoperation.html.
Notes: Reference Table 3, updated July 2010. The last currently operating unit to begin
construction was River Bend Unit 1, operated by Entergy in St. Francisville, LA. Unit 1 is the only
unit constructed on that site to date. Unit 2 was proposed in 1973 and canceled in 1984. Unit 3
was proposed in 2008. It has been 15 years since a new unit has been placed into commercial
operation. The last unit to be placed into commercial operation was Watts Bar Unit 1, operated
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by TVA in Rhea County, TN. Unit 1 is the only unit completed on that site to date. Unit 2
construction was stopped in 1988, but construction resumed in 2007
34. FHWA Financial Plan Guidance, U.S. Department of Transportation, Federal Highway
Administration, May 2000, retrieved from:
http://www.fhwa.dot.gov/programadmin/contracts/gpgatt.cfm.
35. Three Mile Island Accident, U.S. Nuclear Regulatory Commission, Office of Public Affairs, U.S. NRC
Backgrounder Factsheet, August 2009.
Notes: According to the NRC: Detailed studies of the radiological consequences of the accident
have been conducted by the NRC, the Environmental Protection Agency, the Department of
Health, Education and Welfare (now Health and Human Services), the Department of Energy, and
the State of Pennsylvania. Several independent studies have also been conducted. Estimates are
that the average dose to about 2 million people in the area was only about 1 millirem. To put this
into context, exposure from a full set of chest x-rays is about 6 millirem. Compared to the natural
radioactive background dose of about 100-125 millirem per year for the area, the collective dose
to the community from the accident was very small. The maximum dose to a person at the site
boundary would have been less than 100 millirem. In the months following the accident,
although questions were raised about possible adverse effects from radiation on human, animal,
and plant life in the TMI area, none could be directly correlated to the accident. Thousands of
environmental samples of air, water, milk, vegetation, soil, and foodstuffs were collected by
various groups monitoring the area. Very low levels of radionuclides could be attributed to
releases from the accident. However, comprehensive investigations and assessments by several
well-respected organizations have concluded that in spite of serious damage to the reactor, most
of the radiation was contained and that the actual release had negligible effects on the physical
health of individuals or the environment. Considering this conclusion by the NRC, it can be
postulated that the accident was not the primary cause for the 32-year drought of new nuclear
construction in the US. In fact, the US. has experienced numerous more serious environmental
disasters since the TMI-2 accident, which have not shut down industries. The Deepwater Horizon
oil spill is likely the most prominent recent example. Therefore, it is postulated that economic
factors played a greater role than the TMI-2 accident in causing the drought of nuclear
construction activity between the late 1970s and 2009.
















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Mark C. Sanders, PE CCE PSP
Alpha3 Consulting LLC
msanders@alphathree.com


Ronald P. Pacitti
Alpha 3 Consulting, LLC
rpp@alphathree.com