What Makes Public Sector Projects More Challenging?
Dr. M. Ramachandran, Former Secretary, Ministry of Urban Development, Government of India
Managing projects is always a challenge, especially when projects involve multiple stakeholders, new or unproven technology, shifting or unclear project requirements, and constrained resources. While the private sector seems to be better off as far as project management practices are concerned, in the public sector there is a shortage of good project managers.
The importance of a systematic and comprehensive approach towards project planning is crucial while structuring a project. The more detailed the approach the better planned would be the project, and therefore more likely is the project to succeed. The nature of the proposed project activity, feasibility planning, designing its specifics, and setting up the apparatus for implementing it—all form part of project planning. I have discussed this process in detail in my book, An Alternative Approach to Project Planning in Public Works—The Indian Context.
Are public sector projects more difficult than private sector projects? David N. Wirick in his book Public Sector Project Management gives various reasons why public sector projects are more difficult. Some of these reasons are many layers of stakeholders with varied interests, political interests, having to operate under media scrutiny, performing under constraints imposed by administrative rules and requiring the cooperation and performance of agencies outside the project team for purchasing, hiring, and other functions.
Recently released statistics by the Ministry of Program Implementation, Government of India, says that project delays would cost an additional Rs. 124,000 crore to the exchequer. This amounts to one-third of India’s planned budget for 2011–12. One positive news is that 8 projects are ahead of schedule and 125 are on schedule out of a total of 567 projects, each costing more than Rs. 150 crore. As many as 295 reported delays in the range of one month to 72 months. These projects are in key infrastructure areas, such as coal, steel, petroleum, power, railways, highways, and telecommunications. And what are the reasons for delay? Land acquisition, environment clearance, protest by local people, incomplete revenue records, and lack of coordination between different agencies.
Problems arise most frequently when initiation gets separated from the execution of a project. To secure a project, bidders often make overly optimistic assumptions about costs and revenues. Max Bazerman of the Harvard Business School calls this practice a ‘self-serving bias’ that turns good project managers into bad forecasters, particularly in the public sector, where after-the-event accountability to a project’s paymaster, the tax payer, is less rigorous.
A study published in the Journal of the American Planning Association in 2002—after examining 210 big rail and road projects in 14 different countries—found its forecasts of future passengers to be wildly optimistic. For the rail projects, they were on an average an astounding 106 percent higher than eventual turnout, and the miscalculation of road projects were by over 20 percent in more than half the cases. There is a similar point raised about the Delhi Metro that ridership forecasts made when the project was justified for being taken up have not materialized even now. Some other spectacular examples of cost under estimation they have listed are the Sydney Opera House with actual costs approximately 15 times higher than those projected. Once again if we go back into history when the Suez Canal was completed in 1869, actual construction costs were 20 times higher than the earliest estimated costs and 3 times higher than the cost estimate for the year before construction began.
The Panama Canal which was completed in 1914 had cost escalations in the range of 70 to 200 percent. The current Eleventh Five-Year Plan had estimated an investment requirement for this sector to the tune of Rs. 20.56 lakh crore, out of which 30 percent had to come from the private sector. Whether we will be able to achieve this or not is a big question with indications that the shortfall could be 25 to 30 percent. Why is it so? Key issues facing private participation in India’s infrastructure development have been listed as lack of a meaningful supply of bankable projects, lack of transparency in the bidding and awarding processes of Public Private Partnership projects, delays in regulatory and land clearances, lack of availability of the right kind of long-term debt, taxation issues and lack of independent regulators to take a dispassionate view of the conflicting priorities of the developers, the government, and the public.
A study by the National Council of Applied Economic Research last year highlighted that India’s impressive economic growth could be marshalled as the new engine for infrastructure development. International experience could be replicated, both as a source of financial resource and a paradigm of operational efficiency. Private sector participation if combined with independent regulation could provide the framework for supplementing the public sector’s resources in developing infrastructure. Issues in project implementation have been identified as one among the areas of concern. A number of factors have been identified as being responsible for delays in project implementation. Design of good contracts and contracting procedures, streamlining approval and clearance processes, and building necessary human resources are required components of a strategy for improving project implementation.
While you may feel that some of these are issues beyond the realm of project managers, it is important to be sensitive about these and play a role in effecting the changes required. Infrastructure investment and action become even more important during the forthcoming Twelfth Five-Year Plan starting next year, because we are talking of a US$ 1.2 trillion investment in five years in infrastructure, 50 percent of which has to come from the private sector. According to a research by the financial daily Mint, land acquisition could take up to five years and 70 percent of all civil court cases are disputes over land. One estimate says that delays due to land problems have pushed up costs of public projects by almost Rs. 1 lakh crore.
We already have huge deficits in the key infrastructure sectors. In the power sector, there is more than 10 percent peak load shortage, 40 percent energy losses during transmission and distribution, and absence of competition leading to both efficiency losses and poor customer service. National highways constitute only 2 percent of the road network, but it carries 40 percent of the country’s total traffic. Only 12 percent of highways are four-laned and 50 percent are two-laned. Rail transport is characterized by slow speed, low payload ratios, old technology, and saturated routes. Inadequate berths and rail/road connectivity continue to be an issue with Indian ports. In the telecom sector, though we have been able to expand the telephone network, there have been challenges in penetrating rural areas and moving the value services higher up.
Mr. Wirick writes about the role of chaos and complexity in public sector projects and identifies some tools that can help manage uncertainty. Project managers can use modern project management tools, including tools for recognizing and dealing with uncertainty, which he lists as progressive elaboration, identification of issues, project life cycles, stochastic versus deterministic estimating methods, ongoing risk identification and analysis, and change control processes. He also refers to three tools that can be used to supplement and not replace existing project management methods for managing complex projects. These are social network analysis, contextual and relational management, and the identification and management of bifurcation points at which project outcomes are especially sensitive to subtle influences.
Dr. E. Sreedharan, writing in Ideas That Have Worked, calls the Konkan Railway project a classic case of an idea given to the right person at the right time and the right place where a dynamic and transparent style of project management was introduced. He points out that everybody should know what he is expected to do, what the deadlines are, and how much time is available for each milestone. Learnings like these enrich our journey and help you perform differently and make you stand out as a project manager.
(Dr. Ramachandran, IAS, retired as Secretary, Ministry of Urban Development, Government of India. This is an excerpt from a speech he had given during a Project Management Development Program in May in coordination with PMI India.)