‘Managing innovation in megaprojects’ – by Andrew Davies, UCL and Visiting Professor LUISS
November 2, 2017
A decade ago anyone suggesting that the UK construction industry was a world-beater at bringing major projects in on time and within budget would have found themselves ridiculed. In 2007, the national embarrassment that was the new Wembley Stadium finally opened a year late, and more than £300m over its fixed-price budget of £458m.
Fast forward 10 years and the UK, and in particular London, is seen as an exemplar of best practice when it comes to managing major projects – defined as any construction project costing more than US$1bn. Governments from around the world are sending people to the British capital to find out how megaprojects such as the London 2012 Olympics and Crossrail were successfully delivered.
Professor Andrew Davies, Professor of the Management of Projects, at the Bartlett Faculty of the Built Environment, University College London and Visiting Professor at LUISS is researching the success of London’s megaprojects. ‘Megaprojects’ — defined as projects with budgets exceeding $1 billion — are important contributors to numerous sectors, including health care, defense, mining, telecommunications, transport, energy and water infrastructure, sporting events, science, and manufacturing.
It is easy to see why understanding how megaprojects can be brought in on time and within budget is of global significance. According to a 2016 McKinsey Global Institute Report, the world needs to spend US$49 trn on infrastructure between 2016 and 2030. And yet, according to one estimate, 90% of megaprojects end up delayed and over budget.
Indeed, the problems major projects faced in the UK 10 years ago were also experienced at construction sites across the globe. Anything that can reverse the trend of bloated and delayed megaprojects could have a huge effect not only from a fiscal perspective, but also a political one.
In ‘Five rules for managing large, complex projects’ recently published in MIT Sloan Management Review, Professor Davies and his co-authors asks why are megaprojects so difficult to manage? The reasons include technical challenges, changes in design and operational requirements, increases in costs, disputes over responsibility, and new regulations. Complexity usually increases with project scale, and complexity can give rise to uncertainty and an inability to foresee the difficulties, changing conditions, and unanticipated opportunities that will be encountered once the project is underway.
Professor Davies and his co-authors argue that one way to manage the uncertainties is to innovate throughout the course of the project. What’s more, they believe that their suggestions are applicable to all large-scale, long-term projects — not just projects with billon-dollar budgets. Working on and studying London’s megaprojects, Davies and his co-authors idenfiy five rules for managing such projects (see Table).
T5 TURNING POINT
So why is London the focus of so much attention? The story of London’s success begins with a project that opened just a year after the disastrous Wembley Stadium – Heathrow Terminal 5 (T5). Its construction was a success, delivered on time and on budget. Today when you look at megaprojects, you look at life on time and before T5 and life after T5. As a delivery model, T5 is a breakthrough project. This success was achieved thanks to the client, BAA, eschewing the long-held belief in engineering and project management that “change is the enemy”. T5 was a success because it defied conventional thinking.
‘Conventional project logic seeks to predefine all requirements and banish change once the project has started,’ says the paper, called Five Rules For Innovation In Large, Complex Projects. ‘Such an approach, we believe, is the cause of many of the problems managers confront in megaprojects.’
Following a review of international airports opened in the previous 15 years and UK con- struction projects worth more than £1bn in the past 10 years, plus fact-finding exercises from other sectors such as oil and gas, BAA came at things differently. It ditched the traditional approach of a fixed-price contract that takes all the risk away from the client and puts it on the construction supply chain. Why? It found such an approach would have meant the terminal being £1bn over budget, a year late, and cost six lives through industrial accidents.
Instead, Professor Davies argues that T5 created a radically new megaproject delivery model based on a collaborative, innovative and flexible process that avoided these potential failures. Allowing the construction supply chain the flexibility to deal with challenges in innovative ways was key to the project’s success. Also key was the client’s involvement in the scheme, with integrated project teams of both BAA staff and contractors working side by side. The close working between the client and supply chain has been a key trend on major projects in London since T5.
It is not only the concepts of an intelligent client, delivery partner and integrated project teams that have transferred across London’s megaprojects. The steady pipeline of schemes has meant that many of the people working on the various projects are the same. For example, the leader of T5 became CEO of Crossrail; a London 2012 construction director became programme director of Crossrail; the director they replaced became CEO of London’s new super sewer, the Thames Tideway Tunnel.
London has benefitted from a project ecology, argues Davies in his book, Projects: A Very Short Introduction. There is an ecology of firms, people and ties that is increasingly much more dense and interesting in London. We have seen programme directors on one project move to become chief executives on another. You are seeing organisations like the same contractors continually reappearing. The ties between people and companies are getting closer and closer. Traditionally, we have treated projects as islands, but you have to move beyond that and see the connections.
What is significant about London is that the ideas that work on one project are not treated in isolation and forgotten on completion – they are applied and improved on every new project. An example of this is the innovation management system developed for Crossrail that is now being used on Thames Tideway. Called ‘Innovate18’, this online platform is designed to pro- vide a mechanism for the supply chain to submit ideas for innovative solutions, and then track and report on their progress. The programme attracted more than 800 ideas by mid-2015, and supported innovations ranging from the use of high definition drone-mounted cameras for site inspections through to the repurposing of grout shafts to cool the train tunnels via geothermal heat production. When Crossrail programme director Andy Mitchell became Thames Tideway CEO in 2018, he brought the Innovate18 platform with him.
It is this focus on innovation that marks the next frontier in megaprojects. ‘The Five Rules For Innovation In Large, Complex Projects’ paper makes calls for this focus on innovation to extend beyond the construction phase to an asset’s entire life cycle.
Davies, A. (2017) Projects: A Very Short Introduction, Oxford University Press, Oxford.
Davies, A., Dodgson, M., Gann., D. and MacAulay, S. ‘Five Rules for Innovation in Large, Complex Projects’, (2017), MIT Sloan Management Review, Fall 2017, Vol. 59, No. 1, 73-78.