Saturday, April 8, 2017

Reasons for project failure

65% of mega projects fail:

A study carried out on large-scale projects in the oil and gas sector, where the biggest projects are related to LNG, gas pipeline, refining and upstream, found that 65% are facing cost overruns and 73% of projects have schedule delays.

This trend is very similar in all regions of the world, although it may vary somewhat depending on local regulations.
This cost overruns and the delays in the delivery time combined with the low oil costs and the uncertainty of the market, have generated a tendency for the stakeholders not to continue with the development of new projects and even detention of projects already initiated.

Most of the issues are related first, to people, organizations and governance, second, to management processes and procurement strategies, and third, external factors like government interventions and environmental regulations.

Main factors that affect the projects are:

The commercial context of the project, which presents risks such as access to funds, complex agreements between companies and a poor portfolio of projects with little clarity of project selection and management.
Project development, where inadequate planning is presented. Bad choice of contractors and materials for the error of focusing only on costs and not quality.
In the delivery of projects, failures in understanding the critical activities of the project affect delivery times. Also, the delivery times are affected by the poor contractor management with inadequate capacity of the equipment provided and a poor service without the knowledge and the experience required.
Regulatory challenges, currently there is a high regulation of keeping a safe and healthy environment, this is a good thing, but with the improper administration this can raise the costs of the project. Another challenge are the regulations of multiple government entities that cause delays to obtain the appropriate permits.
Geopolitical challenges such as diplomatic and security problems, unsafe financial environments, and trade unions and organizations that demand certain agreements that generate delays.
Some of the external factors such as regulations and geopolitics are more difficult to control, but we can also mitigate some of the internal factors such as the commercial context, development and delivery of the project.

Part of the solutions:

Stakeholders demand better project management and more efficient use of resources, so the project can be sustainable. Hence contracted companies are focused on improving their work system, developing new tools to improve the life cycle of the project, initially seeking the understanding of the project by both the contractor and stakeholders, planning realistically based on the requirements and limitations, and execution focused on simplicity without neglecting quality. In this manner, the contractors seek to guarantee the stakeholders the fulfillment of budget and schedule to motivate them to invest in projects.
Part of the solutions proposed are to develop new project management tools, consider the lessons learned, develop a structure that provides real-time information on the progress of critical activities. These solutions can improve project performance by reducing costs and eliminating delays in delivery times.