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(CSC-4102) Why Large Capital Projects Are Too Often Over Budget and What to Do About It?

Level: Intermediate
TCM Section(s):
7.6. Risk Management
7.3. Cost Estimating and Budgeting
Venue: 2023 AACE International Conference & Expo

Abstract: The average cost of large capital projects in North America and Western Europe continues to grow faster than inflation. This includes large infrastructure projects, power plants, pipelines, refineries, mines, terminals, etc. Moreover, a significant number of such projects are over budget and behind schedule. Data analysis from hundreds of large projects over the last ten years and other statistical data from multiple sources was performed.

There are many reasons for these projects being over budget, including resource issues, supply chain issues, understated estimates of costs to get projects approved, and poor project planning, all of which led to increased labor and material costs. Political interference, ineffective bidding practices, and mismanagement can also play a significant role in projects being over budget.

The paper proposes a process designed to mitigate some of these problems. It is focused on integrated project risk management, risk analysis, and project controls.Probabilistic cost analysis is performed on each phase of the project and determines the forecasted project cost. Detailed mitigation and response activities are planned in advance. The paper demonstrates this process based on real-time examples.