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Cost Overruns in Large Infrastructure Projects – An Overview of International and Croatian Experiences

SECOND EDITION                                                            

Goran Legaca, Mladen Radujkovićb, Marko Šimacc

aPM Proffesional, Banjavčićeva 1, 10000 Zagreb, Croatia

bPh.D., Kačićeva 26, 10000 Zagreb, Croatia

cPM Consultant, Tratinska 1, 10000 Zagreb, Croatia
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Abstract

Large infrastructure projects, privately or public funded, have always been under public review in order to determine the cause of the costs overruns or failure to achieve the intended projects benefits. Once when the project implementation is finished, it is often revealed that the costs of the project exceeded the planned budget. However, with all these large traffic infrastructure projects complications arise involving the aforementioned anticipated costs exceeding the initial predictions and shortfalls in project benefits.  The latest researches, except for usual technical risk analysis, go in the direction of the nature of the behavioral defects in project planning. This paper gives an overview of recent international experiences and researches in this field compare to latest Croatian experience with an implementation of the national traffic strategy.

Keywords: large infrastructure project; cost overrun; time delay; optimism bias

1. Introduction

Construction projects, both funded privately or public, have always been under public criticism and professional review in order to determine the cause of the costs overruns or failure to achieve the intended project benefits. The history of large transport infrastructure project reveals that it is common that costs are underestimated in the early phases, and after commissioning it was revealed that the cost of the project exceeded the planned budget.

Let us remind to some of Europe’s major construction projects from the recent history: the project of building the 50 kilometers long tunnel link between France and Britain beneath the English Channel, 17 km long suspension bridge “Vasco da Gama” in Lisbon, 57 km long Gotthard railway tunnel in the Swiss Alps, submerged tunnels in Denmark or the vast investments of German government in road connections after the unification. In practice, many large scale projects bordering megalomaniac like competition to build the tallest buildings in the world where the buildings heights already exceeds 800 meters, construction of stadiums for big sporting events and the Olympics. In terms of the Olympic motto, in construction is a long time ago not important only to take a part. To build faster, higher and more, is the essence how to obey the need of the world economy for constant growth.

In Croatia, after implementation of a part of the national traffic strategy – program of road traffic connection with a network of modern motorways led public debate and media campaign, according to media reports, the excessive cost of implementation of these projects. There is still an ongoing controversy about the economic viability and the total costs for construction of road links all over the state, such as building a fixed link between the mainland and the peninsula of Peljesac, or intention to connect the far south with the modern motorway or just to upgrade the state road. These public debates on doubts are not new, if we recall the debates in time before making a decision on the road connecting the north and south of Croatian land, which begins at the end of the sixties of the 20th centuries, until 2001, when the government brought the decision that the project of motorway linking Zagreb and Split, has to start without delay and to finish in a certain period of three years.

But with all these massive construction projects come complications that include cost overruns in compare to early cost estimations and shortfalls in the project benefits. There is a name for this phenomenon found in literature, so called “megaprojects paradox” and “performance paradox” (Flyvbjerg, 2003).

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To read entire paper (click here)

Editor’s note:  Second Editions are previously published papers that have continued relevance in today’s project management world, or which were originally published in conference proceedings or in a language other than English. This paper was originally presented at the 27th IPMA World Congress in Dubrovnik, Croatia and included in the Congress Proceedings, October 2013. It is republished here with permission or the authors and congress organizers.


About the Authors

flag-zagreb-croatiapmwj19-feb2014-legac-AUTHOR1 LEGACGoran Legac

Zagreb, Croatia

Goran Legac, B.Sc.C.E. graduated from the Faculty of Civil Engineering at the University of Zagreb, Croatia and during his professional career as a civil engineer and a professional project manager, has supervised and managed large infrastructure construction projects as well as privately funded projects. As a former chief engineer and a later director of the construction sector in Croatian Motorways Agency, Goran was in charge for the implementation of the Croatian motorway network programme during two four-year (2001-2009) periods. After 10 years of experience in a role of project and programme manager for large infrastructure projects within the public sector, last few years Goran is working as a project manager and a technical director on a side of privately owned construction companies. Goran is authorised civil engineer, IPMA licensed projects manager, specialized in cost management, procurement, project management and with experience in executive management. He regularly attends seminars and conferences, constantly improving skills and expanding knowledge in management on training courses, and on MBA postgraduate study. Goran can be contacted at [email protected]

flag-zagreb-croatiapmwj16-nov2013-bai-mladen-IMAGE 1 RADUJKOVICMladen Radujković, Ph.D.

University of Zagreb

Croatia

Prof. Dr. Mladen Radujkovic is Professor of Project Management and Construction Management at the FCE, University of Zagreb, Croatia. Simultaneously he is a part time consultant for complex local and regional projects and advisor for organization design. He also holds the President position at the International Project Management Association (IPMA) after being Vice President Education and training / Research during the period from 2007 to 2012.  His past experience includes various positions such as site engineer, supervisor, designer, project manager, consultant and professor, over the past 30 years, of which he spent more than 10 years in industry. He held leading positions in companies, NGOs and at the university. From 2002 to 2006 he was Vice Dean for research and from 2006 to 2010 Dean of the FCE, University of Zagreb. From 2009 to 2011 he was a member of the Zagreb University Management Board. He is one of the founders and is currently President of the Croatian Association for Project Management (CAPM). In the past he was one of the initiators of the establishment of regional project management associations in south east Europe (SENET). Currently he is Editor-in-Chief of the OTMC Journal, a regional central and south-east Europe journal focused on construction project management topics.

His international experience includes participation in projects owned by Ilbau Austria, Strabag Germany, Booz Allen Hamilton USA, Importanne Canada and USAID. He has published more than 150 papers, mostly at an international level, dealing with project management and construction management topics. His special interests include project management, construction management and organization, risk management, cost and time management and performance management. He has given presentations at many international events organized by OTMC, CIB, IPMA, TECHSTA, ICEC, and ECI across the world. He has given lectures or presentations at many events held in Dundee, Glasgow, Hong Kong, Helsinki, Berlin, Paris, Bratislava, Ljubljana, Cape Town , Prague,  Budapest, Bucharest, New Delhi, Rome, Krakow, Belo Horizonte, Curitiba, Dubai, Seoul, Panama City, Vilnius and other. He was a visitor at UK academic institutions for five terms. His research and education references include twenty years lecturing, the design and implementation of ten curriculum, more than 50 seminars, reviewer position for more than 30 events, and participation and principal researcher position in more than 10 research projects. Over the past 30 years he has been continuously engaged in professional activity, providing supervision and consultancy for many local or regional projects related to research, tourism, water, transport, investment and education. He is a first assessor for IPMA project management certification in Croatia and Bosnia and Herzegovina. Prof Radujkovic can be contacted at [email protected].

flag-zagreb-croatiaOLYMPUS DIGITAL CAMERAMarko Šimac

Zagreb, Croatia

Marko Šimac, B.sc.C.E. graduated from the Faculty of Civil Engineering at the University of Zagreb, Croatia and throughout his professional career and as an IPMA certified project manager, he was involved in majority of large infrastructure projects in Croatia and the region. His specialty is project planning and control using Primavera and other solutions, cost management and risk management. He regularly attends seminars and conferences, constantly improving skills and expanding knowledge in management on training courses, and on MBA postgraduate study.