Where did it go ‘wrong’?

Jeremy Harrison

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The journey – directions

• The story

• Accounting for humans

• You know more than you think you do!

• Long term planning

• What can we do differently?

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The birth and growth of an airport

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The story…

• …opened 25 November 1999 by the Queen…..

18 months late!

… there by hangs a tale…

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The station

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Summary

• Lack of clarity of project objectives, critical success factors and definition

• Allowed ‘key stakeholders’ to dictate terms; failed to understand their vested interests

• Lack of appreciation of the complexity of aspects of the deal – eg. land purchase

• Conventional risk management was applied, however it did not highlight the significant risks or stop the problems

• Fixed end date – ie fixed Queen opening date, before completed all necessary deals

• Be realistic not optimistic!

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Project Costs..

• Original budget and business case - £12M– Inherited from the airport operator

– Railways persuaded to take on and advised it was a well developed scheme

– Land and access deals optimistically explained to be further on than actually the case

• Outcome– final cost £29M

– Gold plated car park

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So what happened?

• Risks not identified?

• Problem not understood or project scope not clear?

• Identify risks but don’t understand them and fail to react appropriately?

• Distracted by too many risks – inability to prioritise?

Answer – one, some or all of the above

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Not the only one!

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Optimism Bias

67% on average

Underestimation of the costof Enhancement projects

Or 40% of the Final Cost was ‘unexpected’ at the beginning

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Optimism Bias – what is it?

• Defined as

– the measure of the extent to which actual project costs (capital and operating) and duration (time from business case to benefit delivery and time from contract award to benefit delivery) exceed those estimated ( for a defined functional output). It is also a measure of the degree by which the benefits delivery by the project fall short of the benefits estimated.

• In short - a way of adding an ‘amount’ for all those things not thought of or analysed early on in the project life.

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OB - What is happening?Cost as finally determinedCost

Time – GRIP stages

4/51/2

Optimism Bias

7/8

Predicted AFC (during life cycle)

Initial Cost Estimate

Authority Value

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DfT present values

GRIP Stage 1 3 5Uplift OB value 66% 40% 6%

Department for TransportTransport Analysis Guidance (TAG)Unit 3.5.9The Estimation and Treatment of Scheme Costs

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Conclusion• Despite improving project management processes – the average

underestimation of project costs continues to be between 50- 60%.

• This is an empirically derived ‘average’ value therefore direct application to a single project will be ‘wrong’

• The appropriate application is to portfolios when looking at overall funding

• This is an ‘allowance’ for unidentified risks in the early stage of project development – therefore improving earlier project risk work reduces the uplift required

• Optimism Bias uplift covers all risks relating to a desired functional output where as estimating uncertainty is around the identified construction deliverable

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A principles approach

1 2 3 4 5 6 7 8

Output Definition Pre-Feasibility Option SelectionSingle Option Development Detailed Design

Construction, Test and

CommissionScheme

Handback Project Close Out

TrackRisks Risks Risks Risks Risks Risks Risks Risks

Signalling & Telecoms

Risks Risks Risks Risks Risks Risks Risks Risks

CivilsRisks Risks Risks Risks Risks Risks Risks Risks

Electrification & Plant

Risks Risks Risks Risks Risks Risks Risks Risks

EnhancementsRisks Risks Risks Risks Risks Risks Risks Risks

EstatesRisks Risks Risks Risks Risks Risks Risks Risks

Major ProjectsRisks Risks Risks Risks Risks Risks Risks Risks

Engineering Risks Risks Risks Risks Risks Risks Risks Risks

GRIP Lifecycle Stage

Ass

et

Impact – Cost, Schedule, Outputs, Safety

1 Define objectives

2 Identify risks

3 Analyse risks

4 Evaluate risks

5 Risk treatment

6 Monitor, review,

communicate and manage

Risk Regis ter

Impact

Uncertainty

Exposure

Contingency

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Stakeholders

Risk Management Principles

Threats/OpportunitiesRISK

Stakeholders

Objectives

© Jeremy Harrison

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The building blocksUncertainty

that matters – the FUTURE

VISION : RISK

CreativityKnowledge

sharing/Lessons Learned

Value add

© Jeremy Harrison

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Risk Management Approach

GRIP Stage

Risk Approach

0 and 1 60% uplift applied to the Point Estimate to cover Optimism Bias, Estimating Uncertainty and Risk Exposure

2 3 point estimate is made of Estimating Uncertainty and Risk Exposure

3 Quantitative risk register of threats and opportunities assessed for probability and impact, covering both Estimating Uncertainty and Risk Exposure

Min ML Max

Date 00.00.00 Presentation title to go here 2020

Portfolio Effect Savings

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1

Individual Projects

CP5 Portfolio

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England & Wales

Scotland

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Correlation

Programme Risks

Portfolio Impacts Funding Route Totals

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What questions should we be asking?

• What question, if asked to day, would have the most impact on the situation?

• What is most important to you here and now? And what makes it so?

• What are the priorities? What are the criteria for deciding this?

• What are you not thinking of?

• What are you pretending not to know?

Art of Powerful Questions – open and penetrating to the issues

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Personal reflections

• Never too early to think ‘risk’ – uncertainties that matter!

• You know more than you think you do. What are you doing to tap into that?

• You are as good as your weakest link – where is it?

• The time line is always longer than you think

• We are what we ‘need’ to be – optimistic or pessimistic