Decision-Making on Mega-Projects

Decision-Making on Mega-Projects

Cost–benefit Analysis, Planning and Innovation

Transport Economics, Management and Policy series

Edited by Hugo Priemus, Bent Flyvbjerg and Bert van Wee

This book enlarges the understanding of decision-making on mega-projects and suggest recommendations for a more effective, efficient and democratic approach. Authors from different scientific disciplines address various aspects of the decision-making process, such as management characteristics and cost–benefit analysis, planning and innovation and competition and institutions. The subject matter is highly diverse, but certain questions remain at the forefront. For example, how do we deal with protracted preparation processes, how do we tackle risks and uncertainties, and how can we best divide the risks and responsibilities among the private and public players throughout the different phases of the project?

Chapter 8: Evolving Strategy: Risk Management and the Shaping of Mega-Projects

Roger Miller and Donald R. Lessard

Subjects: business and management, operations management, development studies, development economics, economics and finance, development economics, public sector economics, regional economics, transport, environment, transport, urban and regional studies, transport


1 Roger Miller and Donald R. Lessard 8.1 INTRODUCTION AND OVERVIEW Project management is often equated with methods that decompose a project into discrete elements, determine their sequencing, and track their completion. Our review of large-scale engineering projects reveals a different reality. In the early stages in particular, project management consists of a series of shaping episodes, first to explore if there is a project, then to recruit participants and explore potential bases of collaboration among them, then to flesh out a holistic proposal – a script for the project if you will – then to advocate and negotiate more precisely the shape of the project and the roles of the various parties, and finally to reach closure and a final agreement. It is at this point that traditional ‘decomposing’ project management begins. Along the way, projects are often abandoned, or the process returns to an earlier stage because of obstacles encountered or new insight or interests that develop. Rather than a ‘Microsoft Project’, the more apt metaphor is a sequence of real options, each of which is shaped and then either exercised or abandoned. In fact, as is often the case with cutting-edge practice, managers have been successful at creating value through the development and exercise of sequential options without explicitly framing the process in options terms, and without explicitly valuing these options since the emphasis is on whether there is a positive value option that justified going forward rather than determining an exact price. The real-options framework is...

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