Taking the Megaproject from Money Pit to Cash Cow

Written by: Lisha Hannafin and Shalva Marjanishvili |

Next week we will join other industry leaders at the 11th North American Infrastructure Leadership Forum in Washington, D.C. put on by CG/LA Infrastructure. This gathering of infrastructure thought leaders convene once a year to talk about public-private collaboration on projects, policies, and issues.

Hinman’s very own Shalva Marjanishvili will be speaking on Tuesday, October 22nd during a session titled Megaprojects – Building the Next Great U.S. Projects.

We had the pleasure of submitting an interview for the CG/LA Newsletter, you can check it out below.

What are the most common disruptors or risk factors for megaprojects and how can we improve project delivery?

The risks associated with megaprojects are well documented. These projects have a high degree of uncertainty. They require expert planning, engineering and construction techniques. Often, teams of 40 people or more need to work together and coordinate effort and timing. Schedule delays, faulty material and build quality, and contract loopholes and disputes often derail projects and send costs skyrocketing. It can cost you your reputation, your career and even your company. Getting ahead of the curve early with good front-end project management is a worthwhile exercise. It will highlight the risks early so you can proactively manage your way around those challenges and get to project completion and revenue.

The decisions made in the early project development stage are the most important decisions and they are made with a high degree of uncertainty.  There are significant benefits to be realized by adopting a framework to make those early decisions in order to manage the risk continuously throughout the project. Projects that do this well have safer work sites, lower costs and finish on time. And those are not the only benefits to be realized when you effectively manage risks at the start. The greatest benefits are the opportunities you discover to cut cost and build more efficiently. Benefits like a safer work site, the optimum use of materials, and a high performing asset that is built to last and that can adapt to the changing landscape of performance demands and achieves faster cash flow from concessions.

What are the challenges of having multiple stakeholders where more than one organization shares control over the decision making?

Often stakeholders have different goals and agenda’s and the projects themselves are high profile and public.  Political agendas and projects that can cross multiple governing jurisdictions, further complicate the decision-making process.  The project can become a target for political debate and public scrutiny in the press, and their outcomes are important to elected officials.  You need to maintain stakeholder and public support for the project through-out the project’s life cycle. 

Risk allocation can be highly complex when there are multiple stakeholders.  Human behavior is not easily predicted. Often the contract itself is an unwieldy document, written with sophisticated lawyering and difficult to understand. This becomes problematic as contractors and subs create their own unique understanding on the building’s performance and design criteria. Another problem is that the contract can fall short on making sure that all stakeholders are economically incented to produce the desired outcome for the project’s delivery. If the contract does not have enough incentives it can put the project at risk. Tight collaboration is needed and interdependencies need to be managed so that all groups can work closely, exchange information in a structured format and communicate transparently. The challenges are to find a new approach to identify conflicts, and to consider a set of alternatives that work in the highly connected environment of these interdependencies.

 How will technology impact the growth in infrastructure and the built environment?

We live in a world where we are generating a massive amount of data and it’s common for computers and algorithms to make choices for us. From recommendation engines that offer us movies that we will love, to algorithms that tell us which job candidates will perform the best, algorithms are increasingly trusted to make human decisions and they do a better job. In the contest of human decisions vs. algorithms, algorithms win. research shows that in complex environments, human decision making can be all over the map. The logic of algorithms can be applied in many domains but is especially applicable in the built environment where complexity is high. Our expertise in dealing with the complexity of massive infrastructure projects as well as an in depth understanding of data analytics helps us to guide decisions at every stage of the project but is especially effective when employed early on setting the foundation for success.

Advances in machine learning and the structured data formats of Building Information Modeling (BIM) has tremendous promise to support the human decision-making process. Given the human factor and the tendency to hide or cover-up key information from decision makers to protect individual interests, mathematical constructs that incorporate domain expertise with human psychology and the economics of good decisions can positively impact the built environment. Economic theories such as complexity theory and game theory coupled with an understanding of the desired end state or objective for the structure are powerful starting points that can guide your project towards the decisions that matter and the decisions that will just work. At Hinman we have created some pretty sophisticated algorithmic processes that are able to optimize a structure. It’s akin to rapid prototyping that can analyze thousands of options. 

What have you learned from previous work on megaprojects?

They are complex! There are always uncertainties with execution and the more you know about which parts of the project are at risk the better. There are some stakeholders that understand this dynamic and what it means in terms of strategic negotiation for the project and then there are those that are unaware of the uncertainty and do not know how to efficiently identify or address the risk and they get taken advantage of. Many will hire consultants and owner’s representatives to help which can produce varied results depending on their approach.

Construction contingencies are sometimes set aside to hedge against unforeseen changes due to errors and to buffer against the risk of uncertainty. The purpose of the contingency is to build those extra costs into the initial plan. The problem here is when you put aside more money than you need you end up spending all of it. Not surprisingly there are some project managers that assume that they are entitled to use it all up and few projects return leftover contingency funds.

There can also be inherent problems for the owners in the way in which you ask for tasks. Some owners do not always ask for technical requirements in the right way. This can result in either bids that are too high or bids that are too low and both of those scenario’s can be problematic in delivering your project on time and on budget. Developing a competitive bidding pool and asking for building performance and design criteria in a way that align with the goals of the project is critical. A sign that there may be issues with the way in which you have asked for the requirements for the project is when there is a big gap between the high and low bidders.

We also see project owners experimenting with different delivery models and exploring the use of private sector capital to bridge the gap in costs and to manage their risk. Models such as Public Private partnerships, design-build or design-build-operate-maintain are being put in play to reduce costs and spread the risks. We would not see such a broad range of delivery options if there was a “one size fits all” method that worked across project types. Project owners are really asking the question “which delivery method will work best for this unique project”.

What are some of the hands on, real life scenarios that you can overcome on a construction site if you use this type of “data driven” decision support?

We see a lot of contracts with the phrase “including but not limited to”.  This can be a risky agreement if you are a builder. On one recent project, our client came to us with concerns about bidding the project. They were apprehensive since the terms of the contract were vague and they needed to quantify the structural requirements to understand how to bid the contract accurately so that they don’t end up losing money on the deal. We used algorithmic thinking to understand the possible variations of tasks and activities that would be required to meet the performance criteria in the contract. We discovered that there were only 3 sets of options and together we were able to help quantify the costs and therefore allowed the builder to accurately bid the scope of work. 

Scope Creep

De-scoping and de-risking at the start of a project reduces complexity and increases the bidding pool since poorly written RFPs can ask for requirements that don’t make sense. We use our algorithms to guide us in reducing the requirements on projects without giving up performance. Less requirements to achieve the same performance objectives result in cost savings instead of over-runs and keep the project elegant and simple. 

Optimal Use of Materials

We have worked with clients that have pre-bought materials before the final designs are produced. This can save money but not if you don’t use those materials. We were able to achieve a positive outcome by making sure that the pre-purchased materials were used while at the same time meeting stringent performance requirements.

Design Constraints

We have worked with clients that thought that they had to compromise good architectural design in order to achieve resiliency. Often our projects have significant structural hardening built into the performance requirements. Using the algorithmic framework, we were able to demonstrate that two very different designs had comparable performance and resiliency. This enabled the project to deliver tremendous value to the public served since the overall architectural design was impressive and without sacrificing quality or increasing costs. An exercise like this would typically take months and require a team of 4 and we were able to do it so it did not impact the overall schedule.

Value Engineering vs. Bargaining

The best value that can be gained from the project happens when you plan early and then continuously though-out the project. We often see “Value Engineering” being conducted at a mid-point in a project with a goal to cut costs. To do value engineering right, you need to work it into your pre-planning. With our expertise in structural engineering and resiliency, we work at the early phases to identify areas to cut costs and expedite delivery so you can get the most financial benefit for the entire life of the asset. From selecting the best materials and designing them into the best locations to deliver the optimal performance level possible, the best way to save money is with smart front-end planning.

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