Aacei -asme - why large projects fail final

Why Large Projects Fail More Often
Megaproject Failures: Understanding the Effects of Size Edward W. Merrow, President & CEO Independent Project Analysis, Inc.

Joint Meeting of the AACEI National Capital Section and American Society of Mechanical Engineers Section Wednesday, April 20, 2011

Framing the Issues
• Large projects in the Process Industries (oil, chemicals, minerals, power, pharmaceuticals) have substantially poorer outcomes than smaller projects • By the time a project achieves megaproject status, over about $1 billion, the failure rate is two-thirds! • Many more large projects are being developed than ever before in every industrial sector • Our market forecast for this decade is for more rapid growth in megaprojects in history • These projects represent a major source of financial risk to companies
CONFIDENTIAL 2 INDEPENDENT PROJECT ANALYSIS

The Key Questions
• Large projects are more difficult on almost every dimension of project management • Do large projects fail more often simply because they are more difficult—or… – Do we alter our practices? – Do the projects not respond to what are good practices for smaller projects? – Are practices not appropriate for the problems at hand?
CONFIDENTIAL 3 INDEPENDENT PROJECT ANALYSIS

Outline

• Databases
• Outcomes Change with Size • Larger Projects Are More Sensitive to Practices • Practices Vary with Project Size • Implications and Recommendations

CONFIDENTIAL

4

INDEPENDENT PROJECT ANALYSIS

IPA’s Vantage Point on the Industry

• IPA evaluates capital projects for the process industries around the world • In a typical year, we evaluate 700-800 projects • Our evaluations usually occur twice on the front-end and twice at the end of the project, at the end of startup and after one year of operation • As a result, we have developed very large global databases of capital projects

CONFIDENTIAL

5

INDEPENDENT PROJECT ANALYSIS

Depth and Quantitative Nature of Practice