Case Study : Cost Management Issues of World’s Mega Projects

Cost planning is not a simply method for PRE-TENDER ESTIMATING but a controlling mechanism  during the design stage and construction stage. The budgets for costs and earnings must be realistic, being based on an achievable programme and a correct appreciation of the required resources based on practical experience. You are required to conduct research on cost issues involving the following projects:

Sydney Opera House, Australia

KLIA 2, Sepang Malaysia

London Olympic Stadium, UK

Scottish Parliament House, UK

You discussion should include the following

  1. Project team, contract duration and organisation structure
  2. Construction cost issues
  3. Total initial cost and total final cost
  4. Proposed action plan to resolve construction cost issues

Instruction

  •  In undertaking the above exercise, students are required to search information using Google
  • Students can refer to the previous government report and reference books.
  • The exercise should be undertaken during the time period in the Class/Tutorial.

Submission

  •  Submission should be in Week 5 of the semester.
  • Please clearly write your name and matrix number in the fórum discussion

Comments

  1. Testing…1..2…3

  2. NG KHAI YI A17BE0069
    SCOTTISH PARLIAMENT HOUSE, UK
    During the early stage, there were just three sites has been considered as possible locations for the building, which were St Andrew’s House/New Parliament House, Victoria Quay and Haymarket. The Holyrood site has been included before the last consideration. The brewing company Scottish and Newcastle, who owned the land, was willing to vacate the site in early 1999. In the end, the Secretary of State of Scotland agreed with that the Holyrood has been shortlisted as the proposed locations and being selected as the final decision after some feasibility studies being committed.
    An international competition has been held by the Scottish Office to find a designer for a new building to house the Parliament. The chairmanship of Dewar has appointed a design committee and giving task that choosing from a shortlist of designs. Proposals were submitted by the internationally renowned architects such as Rafael Viñoly, Michael Wilford and Richard Meier. The five final designs selected has been put on public to display throughout Scotland in June 1998. Through the feedback from the public displays, it has showed that the designs of the Spanish architect Enric Miralles were amongst the most popular. All the five shortlisted entrants has been invited to make presentations on their proposed designs before announcing a winner. Finally, the design of Enric Miralles has been chosen and his work being awarded to EMBT/RMJM (Scotland) Ltd, a Spanish-Scottish joint venture design company, specifically created for the project.
    This project has been estimated to be completed in £40m but finished at about £414m. The greatly differ between the total initial cost and total final cost is due to several reasons. One of the reason that led to delay and cost overrun is the selection of Holyrood to be the seat of parliament. The area of Holyrood was difficult to work as it is located in populated area. Around £4.5m has been added as the cost of site acquisition and clearing. Not only that, the production of detailed design variations and the late supply of information during the construction process has been contributed to the delay of work by three years. The construction has started in June 1999 but stage D design was approved a year later. The project was densely populated, unusual and complex and was pitted against tight deadline. During the design development process, it was added another £80m to the total cost of project. Basically, this is the process of bringing approved design to detailed design. Apart from that, increasing in area also contributed to the increasing of total cost of the whole project. The area increased due to several revisions and new requirement were incorporated.
    To resolve the construction cost issues, a full analysis of the compatibility of different working cultures and practices needs to be made. Not only that, the risk of such a contract should be evaluate before carrying out the work and also set out the advantages and disadvantages of embarking upon such a route before their political superiors. The ability to communicate with the people in charge is one of the problem resolution because it is very important to communicate within each other. A clear guideline should be provided in order to ensure that the project is completed on time.

  3. Tay Jie Ying A17BE0131 says

    The cost of London Olympic Stadium was estimated at £2.75 billion, jacked up to £4.25 billion, ended at £8.92 billion. It was established on 22nd May 2008 and estimated to be finished on 29th March 2011 but delayed until 6th May 2012.

    One of the factors influencing cost is design. The stadium was decided to turn into a multi-sports venue which will host five matched during the Rugby World Cup in 2015 and be home to West Ham United Football Club from 2016. However, due to strengthening work required to the main roof truss, it is required to afford the soaring costs of the world’s largest single -span cantilever roof, with the value of contract has been increased to £189.9 million (Daniel, 2014).

    Ownership of the contract was a challenge to the cost as well. In 2011, the stadium was awarded to West Ham. It was then faced some legal issues in courts by Spurs and Leyton Orient where causes the whole plan had to be scrapped.

    From the aspect of construction, resulting from the cantilevered rood and challenging weather condition, the cost of the retractable seats was pushed from £3 million to £8 million (Paul, 2007). Same goes with the cost of the wrap and huge digital screen.

    Therefore, this lesson should be learnt where each department has to be consistently worked to ensure the project is on the track in order to construct a building within the estimated time and cost.

    https://www.insidethegames.biz/articles/1023410/problems-with-roof-forces-36-million-london-2012-olympic-stadium-conversion-cost-hike

    https://www.theguardian.com/sport/2007/oct/11/Olympics2012.politics

  4. EILEEN KHIU XIN YING says

    SCOTTISH PARLIAMENT HOUSE, UK

    Comprising an area of 1.6 ha (4 acres), with a perimeter of 480m (1570ft), the Scottish Parliament building is located 1km east of Edinburg city centre on the edge of the Old Town.
    The combined venture between the Spanish firm EMBT, led by the late Enric Miralles and Scottish firm RMJM has created this project for the client, Scottish Parliament Corporate Body (SPCB), with their structural engineers, Ove Arup & Partners, planning supervisor and project managers, Turner & Townsend, Quantity Surveyor & Cost Consultants, DLE, and construction manager, Bovis Lend Lease.

    However, this project costs approximately ₤414 million against the initial cost of only ₤50 million when it was completed in August 2004 after 42 months delay. The architect and the political champion (client), are dead; two project managers have resigned in frustration; life for the construction team has been tough over the past couple of years during and even after the completion of this project.

    This project failed greatly in terms of cost, time and stakeholders’ expectations. The main reasons for cost increment focus on prolongation due to delays, variation in design development and the selection of unusual project procurement route.

    At the very beginning, the selection of Holyrood as the site has contributed to the time delay and cost overrun. Due to the existing structures on site and its location in the populated area, Holyrood was not economically attractive. The main causes of the project delay were the difficulty of completing the detailed design variations against the unrealistic deadlines, using an unusual construction management route, with the interrupted supply of information and miscommunication throughout the construction process. The delays in this project cost a large sum of additional money to be spent on site general requirement to catch up with the work progress.

    The addition of variations for complex design development incurred cost too. The increase in the scale of the building, increase in construction and other dependent costs, increase fees to advisors and site organisation costs, remaining fit out works, additional landscaping works, and programme contingency costs contribute to the overall cost overruns once a variation is issued. In this project, the extended design required caused the Architect to issue almost 2,000 design changes for the originally incomplete design.

    Construction Management was not a suitable procurement route for this project since it does not take full responsibility of huge risks involved and the complexity of this project with management of 10 subcontractors. Even worse, the key stakeholders were not involved in the procurement selection, and approval of revise budget and scope changes. This directly leads to lack of monitoring and controlling of the complete construction process as the clients who are lacking of construction experience have to bear the complete risks.

    In my opinion, strategic project management actions could have been applied to minimise or avoid completely the disaster. Firstly, the project objectives set by the project team should align with the goals of client’s organization. The project management culture within the team and with external parties should be cultivated by creating single point of responsibility, understanding within various teams and accountability for their performance. Besides, tracking and measuring system that was relatively weak in the above-mentioned-project due to enormous amount of variations should be enhanced and milestones should be introduced throughout the project from time to time so immediate corrective actions can be taken. Project scope must be defined before any cost estimate so design to costing should be adopted. Most importantly, all the teams must communicate effectively to control progress and eliminate any undesired outcomes. In addition, it is advisable to avoid any politician involvement in the construction process from all aspects, especially in terms of decision making and project funding.

    Reference:
    Auditor General (September, 2000). The new Scottish Parliament Building: An examination of the management of the Holyrood Project. Retrieved from https://www.parliament.scot/visitandlearn/40858.aspx
    Essays, UK. (November 2018). Issues in the Construction of the Scottish Parliament. Retrieved from https://www.ukessays.com/essays/management/scottish-parliament-at-holyrood.php
    Lebbe, Mufeez. (2013). PROJECT MANAGEMENT STRATEGIC ISSUES THE SCOTTISH PARLIAMENT BUILDING- PROJECT FAILURE.

  5. LIM LEE PENG says

    NAME: LIM LEE PENG MATRIC NO: A17BE0043

    a) Project team, contract duration and organisation structure

    For Sydney Opera House project, the client of the project is the Australian Government (State of New South Wales). The Architect is Danish Architect, namely Jorn Utzon. In the project, Utzon collaborated with Ove Arup who in charge of structure and engineering and other subcontractors. The project was scheduled for 4 years originally.

    b) Construction cost issues

    As for construction cost issues, the project started in 1959, ended in 1973, which takes 14 years to be completed. However, originally, it was scheduled for 4 years only. The budget of project is AUS $7 million but the real cost for construction is AUS $102 million. It is totally over budget.

    There are several problems in management plan that lead to these construction cost issues. Firstly, the goal of the project is unrestricted and not clearly defined at the beginning of the project. There is no indication regarding time or cost limits provided in the competition of designing the opera house. Thus, architect were allowed total freedom in their designs.

    Secondly, there is no real project manager in this project. In the project, it is lack of management towards the execution of the project. Architect, Utzon is only concerned on his design rather than time and costs objective.

    Thirdly, there is also the problem caused by client, the Australia government. A part time executive committee was created by client to provide project supervision but members had no real technical skills. The government also inhibit the changes during progress of operation, thus lead to cost overrun and delays.

    c) Total initial cost and total final cost

    Total initial cost: AUS $7 million

    Total final cost: AUS $102 million

  6. LONDON OLYMPIC STADIUM

    London Olympic stadium was established in 22 May 2008 until 29 March 2011. Then, the project is delayed until 6 May 2012. After that, it undergoes renovation to change to the permanent world-class multi-use West Ham United. In the construction process, this project had face some cost issues. London Olympic Stadium Originally, the Olympic stadium was priced at £280m in the London 2012 before it rises to £429m. Then, the price rose to £701m after the contract had been signed.

    Firstly, the dramatic increase in construction cost of London Olympic Stadium are due to the design problems. The cost rose as a result of difficulties that the constructor Balfour Beatty experienced building the cantilevered roof and in the face of challenging weather conditions. To shift from football mode to athletics mode, it’ll take longer time.

    Besides, the increase in cost are due to the installation of retractable seats. To install the retractable seats that would bring the lower tiers closer over the running track when in football mode, the cost increase from £300,000 to an extraordinary £8m. To remove the lower tiers, it would take minimum of 15 days to complete and need to put it back. Permanent toilets, catering facilities, executive boxes and so on also had to be built which cause the cost to increase by £36million.

    Another factor is the cost of the ambitious wrap and huge digital screen that will greet fans when they arrive at the stadium.

    Besides, the increase in cost are due to the replacement of fabric roof with larger solid roof, new cantilever roof which is the largest spanning tensile stadium roof structure in the world with the size is 45,000m2, 84 metres. This is because the original canopy covered only two-third of the seats. The new roof has been designed to improve acoustics and increase the audience’s attraction, reflect the noise of the terraces. The sound was focused and projected it towards the pitch.

    To resolve these construction issues, it is proposed that the cost planning must be carried out in detailed from different perspective before starting. The stadium should improve in term of management.

  7. LIM WEN TING says

    Project Sydney Opera House in Australia was proposed by New South Wales government in 1957 and designed by Danish architect Jørn Utzon, who won the architecture competition set out by the government. In the planning, the construction project will be started in 1957 and scheduled for 4 years which is 1959 with a budget of AUS $7 million. Since there had no project manager, the project architect, Utzon collaborate with the structure engineer, Arup. They worker as project manager to guide the team in charge of mechanics, electrics, heating and ventilating, lighting and acoustics.
    This project originally scheduled for 4 years, however it took 14 years to complete Sydney Opera House. Definitely, the project cost increased from AUS $7 million to AUS $102 million, which is about 15 times than the initial budget. The first factor the cause estimated cost was far lower than final project cost was because the initial budget was estimated base on the uncompleted design. The client (New South Wales government) insisted to start the construction even Utzon had reported that the structure design haven’t completed. Moreover, the government change the design to move two theaters to four after construction was started. This requirement had slow down the construction progress. In 1963, the Sydney Opera House already cost AUS $5.2 million and 47 weeks over schedule for the whole project
    After Utzon submitted the updated estimation of AUS$12.5 million for Opera House, government started to withhold payments to him due to additional payment and invisible progress. The construction progress slow down and Utzon had resigned from the project. Utzon did not leave any designs or sketches to work after his resignation therefore the new project team had to create base on the current structure of Opera House. A huge increase in the estimate of the total cost of the project, which came to AUS$85 million since many unforeseen complications were found. Finally, Sydney Opera House was completed in a cost of AUS $102 million.
    When we found that the cost is overrun, we have to understand the real reason why the budget is overrunning then create an action plan to solve this problem. The project team need to regain the additional budget and project schedule. The construction work may force to be stop if the problem which make the project overrun is design error to avoid lost more. If the project suffer cost overrun is due to poor cost management, the project manager may set up cost control system to avoid more lost or simplified the complicate design to reduce the probably additional cost.

  8. Lim Zhi Qing A17BE0045 says

    LONDON OLYMPIC STADIUM

    London Olympic stadium was established in 22 May 2008 until 29 March 2011. Then, the project is delayed until 6 May 2012. After that, it undergoes renovation to change to the permanent world-class multi-use West Ham United. In the construction process, this project had face some cost issues. London Olympic Stadium Originally, the Olympic stadium was priced at £280m in the London 2012 before it rises to £429m. Then, the price rose to £701m after the contract had been signed.

    Firstly, the dramatic increase in construction cost of London Olympic Stadium are due to the design problems. The cost rose as a result of difficulties that the constructor Balfour Beatty experienced building the cantilevered roof and in the face of challenging weather conditions. To shift from football mode to athletics mode, it’ll take longer time.

    Besides, the increase in cost are due to the installation of retractable seats. To install the retractable seats that would bring the lower tiers closer over the running track when in football mode, the cost increase from £300,000 to an extraordinary £8m. To remove the lower tiers, it would take minimum of 15 days to complete and need to put it back. Permanent toilets, catering facilities, executive boxes and so on also had to be built which cause the cost to increase by £36million.

    Another factor is the cost of the ambitious wrap and huge digital screen that will greet fans when they arrive at the stadium.

    Besides, the increase in cost are due to the replacement of fabric roof with larger solid roof, new cantilever roof which is the largest spanning tensile stadium roof structure in the world with the size is 45,000m2, 84 metres. This is because the original canopy covered only two-third of the seats. The new roof has been designed to improve acoustics and increase the audience’s attraction, reflect the noise of the terraces. The sound was focused and projected it towards the pitch.

    To resolve these construction issues, it is proposed that the cost planning must be carried out in detailed from different perspective before starting. The stadium should improve in term of management.

  9. EILEEN KHIU XIN YING says

    SCOTTISH PARLIAMENT HOUSE, UK
    Comprising an area of 1.6 ha (4 acres), with a perimeter of 480m (1570ft), the Scottish Parliament building is located 1km east of Edinburg city centre on the edge of the Old Town.
    The combined venture between the Spanish firm EMBT, led by the late Enric Miralles and Scottish firm RMJM has created this project for the client, Scottish Parliament Corporate Body (SPCB), with their structural engineers, Ove Arup & Partners, planning supervisor and project managers, Turner & Townsend, Quantity Surveyor & Cost Consultants, DLE, and construction manager, Bovis Lend Lease.
    However, this project costs approximately ₤414 million against the initial cost of only ₤50 million when it was completed in August 2004 after 42 months delay. The architect and the political champion (client), are dead; two project managers have resigned in frustration; life for the construction team has been tough over the past couple of years during and even after the completion of this project.
    This project failed greatly in terms of cost, time and stakeholders’ expectations. The main reasons for cost increment focus on prolongation due to delays, variation in design development and the selection of unusual project procurement route.
    At the very beginning, the selection of Holyrood as the site has contributed to the time delay and cost overrun. Due to the existing structures on site and its location in the populated area, Holyrood was not economically attractive. The main causes of the project delay were the difficulty of completing the detailed design variations against the unrealistic deadlines, using an unusual construction management route, with the interrupted supply of information and miscommunication throughout the construction process. The delays in this project cost a large sum of additional money to be spent on site general requirement to catch up with the work progress.
    The addition of variations for complex design development incurred cost too. The increase in the scale of the building, increase in construction and other dependent costs, increase fees to advisors and site organisation costs, remaining fit out works, additional landscaping works, and programme contingency costs contribute to the overall cost overruns once a variation is issued. In this project, the extended design required caused the Architect to issue almost 2,000 design changes for the originally incomplete design.
    Construction Management was not a suitable procurement route for this project since it does not take full responsibility of huge risks involved and the complexity of this project with management of 10 subcontractors. Even worse, the key stakeholders were not involved in the procurement selection, and approval of revise budget and scope changes. This directly leads to lack of monitoring and controlling of the complete construction process as the clients who are lacking of construction experience have to bear the complete risks.
    In my opinion, strategic project management actions could have been applied to minimise or avoid completely the disaster. Firstly, the project objectives set by the project team should align with the goals of client’s organization. The project management culture within the team and with external parties should be cultivated by creating single point of responsibility, understanding within various teams and accountability for their performance. Besides, tracking and measuring system that was relatively weak in the above-mentioned-project due to enormous amount of variations should be enhanced and milestones should be introduced throughout the project from time to time so immediate corrective actions can be taken. Project scope must be defined before any cost estimate so design to costing should be adopted. Most importantly, all the teams must communicate effectively to control progress and eliminate any undesired outcomes. In addition, it is advisable to avoid any politician involvement in the construction process from all aspects, especially in terms of decision making and project funding.

    Reference:
    Auditor General (September, 2000). The new Scottish Parliament Building: An examination of the management of the Holyrood Project. Retrieved from https://www.parliament.scot/visitandlearn/40858.aspx
    Essays, UK. (November 2018). Issues in the Construction of the Scottish Parliament. Retrieved from https://www.ukessays.com/essays/management/scottish-parliament-at-holyrood.php
    Lebbe, Mufeez. (2013). PROJECT MANAGEMENT STRATEGIC ISSUES THE SCOTTISH PARLIAMENT BUILDING- PROJECT FAILURE.

  10. ANGELINA WONG SHI YAN A17BE0012 says

    KLIA2 , SEPANG SELANGOR
    Kuala Lumpur International Airport 2 (KLIA2) is one of the largest construction projects in Malaysia. The project team consists of these role player, Developer- Malaysia Airports Holdings Berhad (MAHB), Contractor- UEM Construction- Bina Puri JV, Design Architect- LKMD Architecture Sdn.Bhd, Architects- A.Hanapiah Architect and Arkitek ICB Sdn. Bhd. This project was leaded by CEO & Managing Director of Malaysia Airports Holdings Berhad (MAHB) Tan Sri Bashir Ahmad.

    The initial cost of this project is RM1.9 billion. However, due to various causative factors which raises the construction cost issues, wherein the cost overrun was from RM1.9 Billion to final cost of RM 4.0 Billion which is three times its original cost estimate. The contract started of from August 2010 and the scheduled completion date was on June 2013 but eventually the KLIA2 was launch on May 2014 after several delays in its completion.

    One of the major factors which may have contributed to the cost overrun and delayed completion is the inability to manage change. As we all know, managing the changes in a project is a part of project management life cycle. Based on the report, given by CEO & Managing Director of Malaysia Airports Holdings Berhad (MAHB) Tan Sri Bashir Ahmad, the new terminal was delayed three times from its original completion date of September 2011, is because of the new requirements. If only the additional or new requirements was well managed, these cost overrun and delay would not had occurred. Therefore, we can see that being lack of anticipation to the project plan changes will causes failure of delivering the project as per cost and schedule.

    In my opinion, the project team should prepare for the change and prepare a change management team. They should have anticipated such changes in the beginning of the project itself and have an allocation of cost if such changes would have occurred. Good poject planning and risk management should be done by clearly outline the possible risks, and management of the risk so that when a change or new requirements arises, we could manage it without interrupting original work and plan.

    References:

    https://www.theedgemarkets.com/article/lad-klia2-delay-be-finalised-next-2-months-%E2%80%94-mahb

    https://www.klia2.info/klia2/klia2-frequently-asked-questions/

  11. LAU SIE ZING A17BE0038 says

    The Sydney Opera House is an iconic landmark which have been recognized by the world. In 1957, the Danish architect, Jorn Utzon won the architecture design competition which launched by the New South Wales government as a client for the Sydney Opera House. During the project of Sydney Opera House, Jorn Utzon is in collaboration with Ove Arup, who was in charge of the structure and the engineering and also with other subcontractors who was in charge of mechanics, electrics, heating and ventilating, lighting and acoustics. Since there was no real project manager, there are rather collaboration between Jorn Utzon and Ove Arup.

    The contract duration for this project is about 4 years which the construction project will be started in 1959 and supposed to be completed at 26 January 1963. However, it is formal inaugurated in 1973. Unfortunately, there are a lot of delays and cost overruns. The project was originally with a budget of AUS $7 million but it ended up taking 14 years to be completed and cost AUS $102 million.

    There are some factors which caused construction cost issues for the project. The first factor is no clearly defined project plan. The government (client) insisted the construction had to being start although Jorn Utzon (architect) protested that he had not completed the designs for the structure of the project. Furthermore, the client had changed the requirements of the design after the construction was started which moving from two theatres to four theatres. Therefore, the plans and designs had to be modified which caused the delays of construction.

    The second factor is not defined project budget. Due to there was not having a finalized design which meant there was not knowing how much the project would cost. This caused the budget went uphill from there. Other factor causes the construction cost issue is not set time frame. Seven years from the time had started and four years after the proposed completion date, the project not yet completed in phase two by 1966. Due to payment holding by government, Jorn Utzon left in frustration by taking all his designs and plans. Then, the three Australian engineers taken the project and complete phase two in 1967. With the new plans for next phase, the budget then soared to AU $85 million. An additional AU $17 million went by another four years before the Opera House was finally completed in 1973.

    The propose action plan to resolve construction cost issues is the goals and objectives should be clearly defined by the client to provide a guideline for what the project must contain at the beginning of any project. Besides, a project manager is absolutely essential and important for mostly construction projects. This is because the project manager is responsible for the overall success of the project.

  12. The construction started in 1959 and ended in 1973. The project was scheduled for 4 years but taking 14 year to complete. The budget of the project is AUS $7 million but the total cost is $102 million.

    The first problem in this project was there was unrestricted goal in this project. The project goal and objective are not clearly defined at the beginning. There are no indication regarding time and cost limit provided for competition. Hence, the architects were allowed total freedom i their design. Second, the project do not have real project manager. The architect as a main stakeholder concerned more design rather than time and cost objective. The client which New South Wales (Australian Government) which inhibit changes during progress of operation thus lead to cost overrun and delays. A part time executive committee was created to provide project supervision but members had no real technical skills. Since the design had not completed but the government insisted to start construction.

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