A research on long term projects

The research started in 2005, when the Author was involved in the project controls team for the bridge on the Stretto di Messina. The first paper on that matter has been presented to the ICEC World Congress 2012 in Durban, South Africa.

The bridge to connect continental Italy to Sicily was supposed to be among the major projects in the first decade of the XXI century.

The idea to connect Sicily to continental Italy was first brought forward by the Romans, that were the only ones to build a temporary connection in 251 b.Ch, then further studies of feasibility were ordered by the King of Two Sicilies in 1840, by the Italian Kingdom in 1866, by the Italian Republic in 1952, 1955, 1968 .

In more recent time, a  project  based on a design of a single-span suspension bridge with a central span of 3300 m plus road and railway links was actually awarded (2005) to a consortium led by the Italian company Impregilo SpA and then abandoned (March, 2006).

The budget was about 4 billion euros in 2005, in 2009 the budget was again estimated in about 6 billion euros and the project was finally cancelled for lack of funds. 

The main challenge, at that time, was to estimate life cycle costs and revenues for a time span of 60 years and then keep them under control.

Even projects whose term is more than the span of a human life can be duly kept under control, but we must consider the fact that controlling a short term and a long term project has quite a different meaning.

Sometimes the owners do not really own the time span needed, in some cases the original budget are estimated lower on purpose in order to get a positive project decision. 

Without those falsifications, we would not have St Peter in Roma nor St Paul in London, that were heavily underestimated at the beginning, it is not known whether on purpose. If the total cost were known from the beginning, nobody would make the decision to go on and the World, today, would be poorer. 

We must be aware that the capability of the human being to foresee the future is extremely limited: most of the instruments we have only allow us to project the past data towards the future, sometimes with parametric indexes that allow for variations or sensitivity analysis. The main purpose why this research was done, initially as an addendum to the estimate of life cycle cost and revenues, was to make the owners fully aware about the limitations of the estimate itself.

Planning and scheduling long term projects cannot be performed with the usual methods that we use normally for our projects this is to say that deterministic methods are not enough.

The use of a proper, higher margin for contingencies and work variation can help up to a certain point, however it does not make any more sense if such margin becomes a substantial part of the estimated time and cost. If a project is planned to start 10 years or more, we need to use a fully stochastic planning method that allow the use of probability also on constraints: even those methods would not help in case of a change in the scope of the works, that cannot be neither foreseen nor kept under control. The project framework can be modified due to owner related events or to major political events, as well as to causes normally considered as force majeure. In those cases, also budgeting becomes stochastic.

It the case relevant to the bridge on the Stretto di Messina, the tender documents included for a calculation of life cycle costs and revenues over a time span of 30 years plus an additional 30 years, for a total time span of 60 years.

This is why we have considered the projection of economic indicators from the past by using regression methods and then comparing with the actual data.

In plain words, we have out ourselves in the past, with the data available at that time as well as with the technology and mathematic models available today, in order to understand how the projected data could be different from the real ones.

Several simulations were made, out of them we here show the results of two. To be honest, those simulations are relevant to time spans of high severity due to the presence of the World Wars and other events, but who knows what will happen in the next 60 years?  

The first simulation was made putting ourselves in 1891, based data from 1861 to time and using linear regression, for a hypothetic project due to last until 1921 (30 years) the actual cost was about four times the estimated cost. Not so bad: in reality, during the 30 years considered, the years from 1891 until 1912 were a time of stability, but from 1912 to 1921 we had progressive instability and the First World war, that was a fully unbelievable event in 1891.   

The second simulation, prepared for the World Congress, was made putting ourselves in 1951, based on data from 1861 and using exponential regression, for a hypothetic project due to last until 2011 (60 years). The actual cost was 35 times the estimated cost, this seems a worst result than in the previous case since we had no major wars in the time span considered, only instability and inflationary outbreaks.

The reliability of a life cycle cost calculation for so long time is based on the assumption that no major change happens neither in the world as a whole nor in the structure of the economic system. The same will apply to sensitivity analysis, that makes sense for variations of 10% to 20%, but would be spoiled if we take into consideration 50% or maybe 100% variations.  

A long term project whose scope is quite defined can still be kept under control, with proper methods, by adjusting from time to time the parameters to the actual change of the economic system as well as of the project itself.

An undefined project or programme, whose scope is not fully defined, can be kept under control section by section, if the division into sections makes sense like in the case of the railway or motorway system or of the space exploration like sending man to Mars, namely when every section can be considered as a quite fully independent project. If this does not apply, like in the case of the Sagrada Familia in Barcelona, the very idea of controlling the project makes no sense.

As far as the Sagrada Familia is concerned, in 1882 was impossible to make any assumption about time and cost, the design was quite undefined: in reality there was only the willingness to build a cathedral. Like in medieval cathedrals, design was modified again and over again during construction, parts were added or removed, dimensions modified. Even now, that the cathedral is already consecrated (business-like, we can say that it is in operation), the project continues to be subject to variations. 

(Dr. Ing. Gianluca di Castri, EIE / ICEC.A, DIF – Chair of the International Cost Engineering Council)

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