Exam (elaborations)
Delivering Successful Projects dec 2020
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- Heriot-Watt University, Edinburgh (HW)
Delivering Successful Projects dec 2020
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Student IDDelivering Successful Projects for December 2020
Section I
Case Study
1.
Financing a project is of critical importance to getting a project up and running. A project can
be financed using:
- External sources: often a client or a bank
- Internal sources:
▪ Joint ventures (PPP) public-private partnership: as in this case, the
government chose to finance the project through PPP (i.e. partnership with
Transurban company) to finance the project in exchange for toll revenue for a
defined period (13 years 2022-2035) which wouldn’t tie up the government’s
reserves and free them for other projects.
▪ Expenditure: either Capital or operational which indicates using previously
allocated reserves for
This Funding is used to finance the costs of the project which are usually applied through cost
estimation processes like:
▪ Project manager: If he is familiar and has experience with these types of projects and
can assign an estimated cost but with large projects as in this case, this might not be
enough
▪ Project team: Working their way up using work packages and assigning costs to each
work package
▪ Professional estimator: an external consultant hired to estimate costs, usually
experienced in similar large projects. Usually external to the organisation.
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▪ Subject-matter expert (SME): Can be internal or external and is considered to be an
expert in his field.
Costs can be classified as follows:
▪ Fixed: costs that are paid no matter what (e.g. machinery and equipment used for
drilling and building operations)
▪ Variable: costs that vary along with changes in project scope and performance (e.g.
salaries, wages of workers, etc.)
▪ Direct: costs that are directly relevant to the project (e.g. paying for construction
resources directly involved in the tunnel drilling, excavating toxic contaminated sand
off through landfill operators.).
▪ Indirect: shared costs across different activities (e.g. managerial overheads, market
research costs).
▪ Non-recurring: one-off costs (e.g. training the team, design, )
▪ Recurring: costs incurred throughout the project’s cycle (e.g. raw material, software
subscriptions – autocad, etc.).
And these costs fall under different headings depending on the field, you can find different
terminologies. Examples of relevant headings:
▪ Preliminary costs: fancy expression for ‘overheads’. Fixed costs that apply regardless
of the state of the project’s progress.
▪ Prime cost sums: sums set aside to pay subcontractors and suppliers. In this case,
money set aside by Transurban to pay the ‘builders’ who are responsible for drilling.
▪ Provisional sums: sums set aside for unforeseen amount of work. In this case, sums
set aside due to uncertainty about the kind of soil that ‘builders’ might encounter
when drilling. These are used to cover extra costs that might come up.
▪ Dayworks: sums set aside when there is suspicion that new work might come up. For
example, pumping out water after raining.
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▪ Insurance: sums paid in exchange for protection accidents, insolvency of contracts or
even ‘acts of God’
Risk: I like to define as the chance that the project might go pear shaped. Therefore, risk
management is important to identify possible risks and ways to deal with them.
Risk can be made clearer using the following equation:
Risk = ƒ(Event, probability, consequence)
It is the function of the event, the probability of it happening and impact if it happens.
Risk Management therefore involves:
a. Risk Identification
b. Analysis of probability and consequences
c. Risk mitigation strategies
d. Control and documentation
How this translates to this case study would be as follows:
▪ The Government:
a. Risk identification: using historical data or brainstorming sessions
▪ Political and Reputation: The political image of the government if the
project is delayed or terminated. Opportunity: providing jobs and lowering
unemployment by carrying out the project and enhancing political
reputation.
▪ Technical: Does Transurban company have the technical knowledge and
experience to tackle the project.
▪ Health and Safety: Can Transurban manage the cost of health and safety of
its workers and staff and the community surrounding the project area.
▪ Facilities and Logistics: How likely will the project affect the traffic from and
to the port, around the city till construction is finished.
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