Australia has a poor track record when it comes to managing large and complex projects, our relative advantages in undertaking such projects have largely disappeared, and we need new ways to assessing projects and assets.
Just as importantly, Australia needs better training for senior project managers and better management skills for project teams.
We need a new approach for tackling large and complex projects
They were some of the points raised by Colin Cropley, of Risk Integration Management, at the recent Engineers Australia Convention in Melbourne.
Cropley was speaking on Australian Lessons for Developing and Delivering Large and Complex Projects, as part of the Mastering Complex Projects conference.
In his address, he painted a grim picture of Australia’s track record in managing large and complex projects – and proposed a better way of managing such projects.
He quoted a 2009 Independent Project Analysis report that found 74 per cent of completed large projects in Australia had been assessed as failures; as well as a 2014 PwC report that showed only 2.5 per cent of Australian companies delivered their projects to time and cost targets.
He also quoted an Ernst & Young report done in 2014 that showed such results are part of a global problem, and that many countries performed worse than Australia.
“I think we can say Australia is not the worst but we are a long way from the best,” he said.
He cited three large projects in Australia that failed to meet their time and cost targets:
BHP’s $2.4 billion hot briquetted iron plant near Port Hedland, which was eventually demolished;
Two failed BHP nickel projects, the Ravensthorpe nickel mine in WA and the 30-year-old Yabulu Nickel Refinery in Queensland; and
Woodside’s Pluto Project on WA’s Burrup Peninsula.
He said some of the causes of such poor performance include the loss of project personnel in the 1990s; the impatience of project owners wanting to get into rising markets; and their poor grasp of owners of the need to define and deliver projects.
He said one lesson from such failures was clear: the front end planning of such projects needs to be better managed.
He suggested one solution would be to extend the Monte Carlo Integrated Cost and Schedule Risk Analysis (IRA) already used on some mega projects.
He said it would be a better to approach it so that it became an Integrated Costs, Schedule and Revenue Risk Analysis (IRRA) approach which integrated all time, cost and revenue uncertainties over the life of the asset.
He demonstrated how such an analysis might work by applying it to a floating LNG project.
"The modelling must be capable of representing all the uncertainties including the discounted cashflow rate, the cost of borrowing and other things that bear on the operating life of the asset," he said.
Cropley pointed out that with large and complex projects it was also important to have balanced industrial relations laws and to be able to reduce risk to attract more funding.
“We need to reduce risk in order to tap into a large amount of money which is available in Australia, which is the super funds, with over a trillion dollars," Cropley said.
“But to do that they have to appear less risky.”
Training is also a key factor for success.
“We need training for senior project managers," he said.
“But we need more broadly better management skills throughout the whole project team.”