Megaprojects - easy to begin and expensive to stop Slide 1€¦ · Introduction- Vahagn Voskanyan. Nicaragua Presidential Cabinet Meeting | Infrastructure Illuminati, Oxford, UK |

Megaprojects - easy to begin and expensive to stop │ Slide 1

Nicaragua Presidential Cabinet Meeting | Infrastructure Illuminati, Oxford, UK | Slide 2

I am an entrepreneur and major programme manager with 20 years of experience in project finance, corporate

lending, business and investment consulting.

I am the founder of Shirakamut Management Consulting company (a member of the International Finexpertiza network

), Zara Wines brand, A4B Algorithms for Business Healthy Choice (Winner of Luys Start Armenia Funb Award 2017)

startups.

I am teaching Entrepreneurship in ICARE & Texas AM University Master of Agribusiness Program.

I am certified International Expert in SME Finance of Frankfurt School of Finance & Management, hold a Masters of

Economy from the Armenian State University of Economics and MSc in Major Programme Management at the

University of Oxford, Said Business School.

[email protected]

+37493400959

A4Balgorithms for business


Introduction- Vahagn Voskanyan

mailto:[email protected]

Nicaragua Presidential Cabinet Meeting | Infrastructure Illuminati, Oxford, UK | Slide 3Megaprojects - easy to begin and expensive to stop │ Slide 3

Major Programme Management

1. Designing and managing successful programmes2. Major programme risk3. Systems engineering4. Financial management5. Contract management6. Research methods7. Managing performance8. Globalisation and major programmes

Dissertation


2015-2017

• University of Oxford, Said Business School

• Executive MSc in Major Program Management

2015-2016

• Frankfurt School of Finance & Management

• Certified Expert in SME Finance

1993-1998

• Armenian State University of Economics

• Economical Cybernetics

Education


Professional Experience

How to define Megaprojects?

DEFINITION 1:

"Megaprojects are large-scale, complex ventures that typically cost $1 billion or more, take many years to develop and build, involve multiple public and private stakeholders, are transformational, and impact millions of people”*.

DEFINITION 2:

"Megaprojects are temporary endeavours (i.e. projects) characterized by: large investment commitment, vast complexity (especially in organizational terms), and long-lasting impact on the economy, the environment, and society".


Mega, Giga, Tera: How Big Are Megaprojects?


Types of Megaprojects

HARD SOFT

• Tansport Infrastructure• Olympic Games • Nuclear Plants• Public Buildings• Smart Cities • Dams• Aerospace Projects• Weapons Systems

• It Systems• Gov-tech • Urban Regeneration • Pension Reforms• Soft Management Systems• Payment Systmes• Biotechnology• Economic and Political Reforms


Mega, Giga,Tera: How Big Are Megaprojects?

USD 6-9 trillion

annually,or

8 percent of

total global.

GDP


Mega, Giga, Tera: How Big Are Megaprojects?

North South

Corridor

20-30% of

GDP Armenia


Type of project Number of Cases Average cost overrun in %

Standard Deviation

Rails 58 44, 7 38,4

Bridges and tunnels

33 33,8 62,4

Roads 167 20,4 29,9

GLOBAL STUDY ON TRANSPORTATION

PROJECT COSTS

258 transportation infrastructure projects

20 nations and 5 continents

70 year period of study

Global Study on Megaprojects

9 out of 10 projects found to have a cost overruns

9 10


Megaprojects - easy to start and expensive to stop │ Slide 12

ICT projects performance

• Evidence from developed world

Megaprojects-easy to start and difficult to stop Slide 1

REALITY:

The project cost $12 billion

Construction took six years

(1988-1994)

Actual benefits = 1/2 x forecast

Actual NPV = $-17.8 billion

Actual IRR = -14.45%

EXPECTATIONS:

Project cost $6 billion

The first construction plan was

developed in 1802

Facts on Cost Overruns


COST OVERRUN 1700 %

Facts about Megaprojects


Evidence from Armenia


North-South Road Corridor is 556

km long highway with

implementation period from 2009-

2019.

Baseline cost – $900m

Baseline project cost - $1.59m /km

Reality*

Average cost per km = $2.68m

Ashtarak to Talin was extended by

27 months

Talin to Gyumri was prolonged by

21 months

%Completion = 13 % (@$2.8m/km)

*OX case study

Source: WB Data baseSource: OX group research

Evidence from Armenia

Shanxi Nairit


Iron Law of Megaprojects


✓ Cost overruns

✓ Time delays

✓ Benefit shortfalls

Over budget, over time, over and over again (Flyvbjerg,2011)

Causes of Megaprojects


Causes of Megaprojects


Machiavelli`s Formula or Survival of unfittest


- Underestimate cost

+ Overestimate benefits

- Undervalue negative impacts

= Funding

Planning Fallacy


Results in not only time overruns, but also cost overruns and benefit shortfalls

Reference Class Forecasting


Identification of a relevant reference class of past, similar projects. 1

2

3

Establishing a probability distribution for the selected reference class.

Comparing the specific project with the reference class distribution, in

order to establish the most likely outcome for the specific project

Dissertation

Why developing countries are struggling to attract more private

capital into major programmes? Evidence from Armenia.


Dissertation Questionairee

• Which of already implemented major programmes(s) in Armenia do you think was

successful? Could you mention the main factors that contributed to this success?

• Which of implemented or current major programmes in Armenia you think were/are less

successful? Could you mention the main factors that affected the mentioned

programme(s)?

• How would you explain the difficulties in securing investment in major programmes in

Armenia?

• What kinds of investments are more suitable to successfully finance major programmes in

Armenia?

• What factors or risks affect private investments in the major programmes of Armenia?

• What kind of benefits can private investors bring to major programmes?

• What kind of risks can private investors bring to major programmes?

• Which are the main risks which can arise during the initiation, implementation and

operational periods in major programmes in developing countries?

• Do investors get the same attitude and support during mentioned stages from

government?

• Do you consider strategic misrepresentation and over-optimism as the

main risks for time delays, cost overruns and benefit shortfalls in major

programmes? How these risks can be mitigated?• What should be done by the government to attract more private investments?

Megaprojects - easy to begin and expensive to stop │ Slide25

Disseratation-Findings

Over optimism and strategic misrepresentation are Risks related to over-optimism and strategic

misrepresentation were mainly associated with the government functions among respondents.

Government can misrepresent the potential benefits or hide possible risks during the initiation stage

to run the project. This can bring to overoptimistic expectations of investors and public and decrease the

quality of upfront planning:

“For me it is a question of expectation management. Companies usually have an optimistic view of how

things will go and they show that plan to the government. The government wants to get reelected so they

show that optimistic scenario to the people.”(INV02)

“Legitimate expectation of the investor should be met independently from misrepresentations or over

optimism of the government, and this right is protected by the Law in Armenia.” (CON02)

“So, in certain areas where the sector is not regulated, there is a risk that the business can capture the

market and consumers can suffer.”(INV 01)

“Therefore, there is a social risk meaning that the tariffs or prices of those services may sharply go up and

the public may not be able to afford them.”

(IFI 01)

“They may have very optimistic attitude toward high solar power resources, but the reality may turn to be

different. That may come from lack of appropriate data.”(IFI01)


Disseratation- Conclusions

Taking into account small scale of Armenia as a developing country, it is possible to

show flexibility in adjustments of investment attraction strategies reflecting external

socioeconomic and geopolitical changes. In addition, the government has to fill the

gap of internal professional capacity to negotiate balanced deals in sake of both

private investors and public benefits to avoid risk of unaffordable service delivery.

On the other hand, involvement of the government in execution and operations was

mentioned as the most risky and ineffective. Moreover, government should be

aware that frequent changes in government and/or their approaches and

preferences can negatively affect the decisions of the investors which want to avoid

risks of renegotiation and delays. The government and investors should share risks

and responsibilities in a way to deliver major projects in time, within the budget and

provide expected outcomes. This could be done only through collaborative

communication and application of innovative risk mitigation frameworks.


Vietnam Projects

What we need to be a part of the Silk Road?

Thank you!!!

Documents

Megaprojects - easy to begin and expensive to stop Slide 1€¦ · Introduction- Vahagn Voskanyan. Nicaragua Presidential Cabinet Meeting | Infrastructure Illuminati, Oxford, UK |