Beyond the Iron Law

How to Successfully Execute Megaprojects

[Reading Time: About 8 Minutes]

In this edition of Beyond the Status Quo, we’ll delve into the concept of the Iron Law of Megaprojects, a theory proposed by Bent Flyvbjerg, a Danish academic and expert in project management. The Iron Law highlights the harsh realities of large-scale initiatives, stating that they almost always cost more, take longer to complete, and deliver fewer benefits than initially promised. Despite the significant public investment and massive budgets, these megaprojects often fall short of expectations.

I explore the root causes of the Iron Law, the impact it can have on public trust and project management, and I give seven practical steps to improve outcomes.

The Iron Law of Megaprojects

The Iron Law of Megaprojects is a theory proposed by Bent Flyvbjerg, a Danish academic and expert in project management. It states,

"Over budget, over time, under benefits, over and over again."

The Iron Law is a grim reminder of the harsh realities of large-scale initiatives. It's the trait that despite massive budgets, long timelines, and significant public investment, these megaprojects almost always cost more, take longer to complete, and deliver fewer benefits than initially promised.

Let's face it, public-sector transformations are megaprojects particularly susceptible to the Iron Law: they are complex, and the rapid pace of technological change and political pressures make them even more difficult to execute.

On top of it, we add optimism bias: the tendency to overestimate the likelihood of positive outcomes and underestimate the likelihood of negative outcomes. In the context of the Iron Law, optimism bias can lead stakeholders to have overly optimistic expectations about costs, timelines, and benefits, which can contribute to unrealistic planning and a lack of accountability. For example, project sponsors or government officials may be overly optimistic about the expected benefits, leading to an inadequate assessment of the costs and risks.

In the public sphere, optimism bias can also contribute to a culture of complacency, where stakeholders may believe that the initiative is "too big to fail" and negate taking proactive steps to manage risks or control costs. This can lead to a lack of accountability and transparency, as stakeholders may avoid reporting negative information or taking responsibility for failures.

Some examples

The Iron Law is based on empirical evidence gathered from a wide range of megaprojects worldwide, including IT, airports, highways, bridges, and dams. Flyvbjerg suggests that the root cause of the Iron Law is a combination of unrealistic planning, political and economic pressures, and a lack of accountability for project outcomes.

Using Flyvbjerg’s database, which contains more than 16 000 projects from 20-plus different fields in 136 countries, we see a very bleak picture (Flyvbjerg, 2023):

99.5% of big project do at least one these: go over time, go over budget, or under-deliver benefits.

Saying it another way: only 0.5% of big projects are on time, on budget, and deliver their expected outcomes and benefits.

We need not look further than our own backyard to find a sample of digital transformation megaprojects that fit into the 99.5%. Here are a few examples from across the federation. By no means is this list exhaustive:

Phoenix Pay System: The Canadian federal government launched the Phoenix pay system in 2016 to replace the existing payroll system for federal employees. The system was intended to save time and money, but it ended up causing significant problems such as incorrect pay, overpayments, and underpayments. The project was initially budgeted at $310 million. The government expected the initiative to save about $70 million a year, starting in the 2016–17 fiscal year. In 2018, the Auditor General of Canada called the project “an incomprehensible failure of project management and oversight.” (Auditor General of Canada, 2018) As of 2022, the project is ongoing and has cost more than $2.4 billion. (Ki, 2022)

Ontario Electronic Health Record: The Ontario government launched the eHealth program in 2002 to create a digital health record system for patients. The project was plagued by several issues, including vendor disputes, poor project management, and inadequate oversight. In 2009, the Auditor General of Ontario produced a report that said, “Ontario taxpayers have not received value for money for this $1 billion investment." (Auditor General of Ontario, 2009) In 2016, 14 years after the start of the project, the Auditor General noted that significant components were still not operational, deadlines were missed, and “it is still not possible to say if it is on budget because the government never set an overall budget for it. In effect, we cannot say if $8 billion is a reasonable figure.” (Auditor General of Ontario, 2016)

Project Nova: Manitoba Public Insurance (MPI) is undergoing a large technology modernization project called Project Nova that aims to streamline processes, introduce new online service options, and improve customer experience. However, there have been delays and cost overruns, with the project's cost jumping from the initial projection of $86 million to as much as $224 million plus contingencies. The project's completion time is also expected to jump by about two years. MPI has attributed the delays and cost overruns to incomplete advice from its hired consultants, its unrealistic goals at the project's onset, and the complexity of replacing a 20-year-old system. (Auditor General of Manitoba, 2018)

SuperNet: The Alberta SuperNet project, started in 2001, aims to provide high-speed internet access to public sector entities like hospitals, schools, libraries, and government offices across the province. In 2018, the Auditor General of Alberta criticized the province's management of the SuperNet contracts. He stated that they had not been monitored effectively, leading to disruptions in service and contractual issues. He criticized the government for failing to ensure Albertans got value for money spent on the $ 1 billion infrastructure. He further recommended that the province improve its processes to measure, monitor, and report on the performance of its large and complex contracts. (Auditor General of Alberta, 2018)

Integrated Case Management System: The British Columbia Integrated Case Management (ICM) System was developed to replace outdated systems for delivering social programs, including child protection, child-care subsidies, income assistance, and employment services. The system stores sensitive personal information for more than 200,000 clients and was intended to provide a single integrated system across the social services sector. However, according to an audit by the Auditor General of British Columbia, the ICM system cost $182 million, only replaced a third of legacy systems, and personal information was not fully safeguarded. (Auditor General of British Columbia, 2015)

If we’re doomed to fail, why not give up?

The Iron Law does give a bleak picture.

Firstly, repeated failures and underperformance can erode public trust in the ability of governments to deliver large-scale projects effectively. This can lead to cynicism and disillusionment among stakeholders, who may believe that megaprojects are inherently doomed to fail.

Secondly, the Iron Law can lead to a "learned helplessness" among managers and stakeholders, who may feel that the challenges and risks associated with large transformations are insurmountable. This can lead to a reluctance to take on new megaprojects or to invest in the resources and expertise necessary to ensure their success.

Thirdly, the Iron Law can lead to a culture of blame and finger-pointing when things fail. Rather than acknowledging the risks and challenges associated with these initiatives and taking a proactive approach to risk management, stakeholders may engage in a "blame game" to avoid accountability for the project's failure.

Overall, the Iron Law may create a sense of hopelessness and despair, leading to a belief that large public-sector transformations are inherently flawed and that there is little that can be done to improve their outcomes. This sense of nihilism can be detrimental to the public sector's ability to deliver critical infrastructure and services, as it can lead to a lack of innovation, investment, and accountability in project management.

But, I believe that the Iron Law should not be seen as a fatalistic prediction of failure but rather as a call to action to approach megaprojects with greater vigilance and strategic planning - but not be scared to do so!

What CAN we do?

I’ve assembled seven practical tips based on my experiences and insights from Flyvbjerg’s new book, How Big Things Get Done—a wonderful read; go out and get it. Each tip certainly deserves a future post of its own.

1. Conduct a thorough feasibility study: Before embarking on a large transformation, it is essential to conduct a detailed feasibility study to assess its viability and identify potential risks and challenges. This will help ensure that it is realistically scoped and adequately resourced. Always start with, “why are we doing this?” and use lessons from the past in your assessments.

2. Engage stakeholders early and often: Engaging stakeholders, including community members, government officials, and private sector partners, early and often can help to build support for the project and identify potential issues before they become major obstacles.

3. Develop a realistic timeline and budget using reference class data: Megaprojects are notorious for exceeding their timelines and budgets. To avoid this, develop a realistic timeline and budget using historical data of similar initiatives. Adjust from there based on the particulars of your project. No project is truly unique. It’s critical to think more about how your initiative IS like others and find data to support your forecasting. No snowflakes!

4. Use data-driven decision-making: Using data to inform decision-making can help reduce optimism bias's impact and ensure that outcomes are based on sound evidence. Go out and find that data. (There’s a theme building here, can you see it?)

5. Implement strong project/programme management practices: Effective management is essential for megaprojects. It requires people with experience. It includes developing clear goals, identifying and mitigating risks, and ensuring effective communication and collaboration among team members.

6. Foster a culture of transparency and accountability: Being transparent and accountable about progress can help build trust among stakeholders and ensure that issues are addressed promptly and effectively.

7. Learn from past failures: Learning from past failures can help to avoid making the same mistakes. This includes conducting post-project evaluations and implementing changes based on lessons learned.

The Iron Law of Megaprojects is a sobering reminder that large-scale public initiatives often fall short of expectations. However, rather than accepting this as an inevitable reality, it should serve as a call to action to approach megaprojects with greater caution and strategic planning. By conducting feasibility studies, engaging stakeholders, developing realistic timelines and budgets, using data-driven decision-making, implementing strong project management practices, fostering transparency and accountability, and learning from past failures, the public sector can improve the outcomes of its critical infrastructure and services.

While the challenges are significant, we must remember that megaprojects have the potential to transform society and improve the lives of millions of people. With careful planning and effective management, we can work to ensure that these projects deliver the benefits they promise.

References:

Auditor General of British Columbia. (2015, March 31). Integrated Case Management System. Retrieved from the Office of the Auditor General of British Columbia website: https://www.bcauditor.com/pubs/2015/integrated-case-management-system

Auditor General of Canada. (2018, March 9). Building and Implementing the Phoenix Pay System. Retrieved from the Office of the Auditor General of Canada website: https://www.oag-bvg.gc.ca/internet/English/att__e_43045.html

Auditor General of Manitoba. (2018, November). Service Alberta: Contract Management Processes. Retrieved from the Office of the Auditor General of Manitoba website: https://www.oag.ab.ca/reports/service-alberta-pa-nov-2018/

Auditor General of Ontario. (2009, October 7). Ontario’s Electronic Health Records Initiative. Retrieved from the Office of the Auditor General of Ontario website: https://www.auditor.on.ca/en/content/specialreports/specialreports/ehealth_en.pdf

Auditor General of Ontario. (2016, November 30). eHealth Still Unfinished After 14 Years and $8 Billion: Auditor General. Retrieved from the Office of the Auditor General of Ontario website: https://www.auditor.on.ca/en/content/news/16_newsreleases/2016news_3.03.pdf

Flyvbjerg, B., & Gardner, D. (2023). How Big Things Get Done: The Surprising Factors that Determine the Fate of Every Project, from home Renovations to Space Exploration and Everything in Between. Signal.

Ki, P. (2022, May 24). Phoenix “nightmare” still haunting public servants, more than 6 years on. CBC. https://www.cbc.ca/news/canada/ottawa/phoenix-pay-system-issues-impact-public-servants-six-years-later-1.6457840