cost overruns in terms of Project Management
FEATURED PAPER
By Thibaut Vincent
SKEMA Business School
Paris, France
INTRODUCTION
“On September 13, 2017 Paris was selected to host the 2024 Summer Olympics that is schedule to take place from 26 July to 11 August 2024”[1]. One of the arguments of the Paris’s campaign was that “most of the Olympic events will be held in and around Paris in venues that already exist”[2]. In fact, if the candidature of Paris for this international event was obviously a real opportunity for Paris to develop the city and its image around the world. For those opposed to this project, “it was a real danger for the economy as all the previous Olympic Games were underestimated and caused a lot of money to the host cities”[3]. Indeed, the main problem of the Olympic Games is that cost overrun has become a routine from 2% in 2008 for Beijing to 720% in Montreal in 1976.[4] The average cost overruns for Olympic Games to be a whopping 156% from 1966 to 2016. It means that Rio’s Games were a budgeting success by only running 51% overbudget.[5]
But before going further, few terms have to be defined for the well-understanding of the following paper: Program, Assets, Project, Portfolio of Projects, Portfolio of Assets and the application to the Olympic Games.
Keywords: Olympic Games, cost overrun, cost estimate, megaproject, risk
| Definition | Application for Olympic Games | |
| Program |
There are 4 types of program: strategic program, operational program, multi-project program and mega project program.
The general purpose of an operational program is to deliver assets and benefits that are critical to the sponsoring organizations day to day operations.
Strategic program delivers assets and benefits that are directly linked to attaining the sponsoring organization’s future state.
Multi-project program achieves synergies from project with common traits such as shared ressources, similar clients or product technology.
Mega-project program delivers a specific asset to the sponsoring organization.
|
Here we can consider Olympic Games as a program conducting by the International Olympic Comitee. Each Olympic game is a project aiming at the same goal (deliver benefits). · Operational program: logistic projects (ticketing…). · Strategic program: building the olympic and paralympic village as a model of sustainable developement in order to meet the new resolution of IOC. · Multi-project program: sponsorship/brand communication projects. · Mega-project program: building projects (stadium, olympic pools..) |
| Asset | A tangible or intangible resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. | · Financial assets: money (sponsors, government and IOC contribution).
· Human assets: IOC commitee, athlets, employees, project team member… · Physical assets: the infrastructures that already exist. · Knowledge assets: all information and feebacks from previous Olympic Games. · Intangible assets: copyrights of the Olympics, reputation…
|
| Project | A project is defined to be “an investment that requires a set of logically linked and coordinated activities performed over a finite period of time in order to accomplish a unique result in support of a desired outcome”. “A project may be simple or complexe. As an investment each project requires a commitment of financial resources, non-financial resources, or both. Coordinated means that the work of the project is done in an organized way to ensure effective an efficient use of committed resources. The finite period of time may be defined in advance as a constraint, determined by planning. Unique means that the characteristics of the result are different in some indentifiable way. The disired outcome is expected to benefit the entity or entities that have invested in the project. The activities, the period of time, the result and the outcome are typically described in general terms at the start of the project, then in more detail as the project progresses.”[6] | Concerning Olympic Games, we can take the example of the organization of the opening ceremony. The project needs a commitment of financial resources such as sponsors. There is a final period of time which is the date of the ceremony. The results and outcomes of the ceremony are different depending on the sponsor of the event (a sport brande for instance) and clearly defined in general terms at the start of the project. |
| Portfolio of Projects | A “portfolio of projects” is no different that any investment portfolio, the objective being to minimize the risk and maximize the return. Any organization, be it Owner or Contractor has a portfolio of assets (resources) available to dedicate to projects, with the objective being to develop the best “mix” of projects which will generate the most favourable return on those assets. | Here the portfolio includes the event but also the team member and employees recruited, the supplier choosen, infrastructures are selected… That’s why, each city choosen to organize the olympic games will have to manage some portfolios of projects. |
| Portfolio of assets | The definition of portfolio of assets is the same as any investment portfolio as expressed in the definition of portfolio of project. Only, instead of regrouping different projects, the portfolio of assets, as follow: Human assets, Information assets, Financial assets, Intangible assets. | The portfolio of assests is the mix of assets that the project manager uses: the money, the infrastructures, the employees… |
Table 1: assets, program, project and portfolio definitions[7]
The budget estimate, formulated fairly early in the project’s planning stage, is “most often based on analogous estimating, taking budget lessons learned from a similar project and applying them to the current project.”[8]. According to this definition, it’s difficult to understand cost overruns for such a kind of megaproject that has been occured every 4 years since 1896. However, going deeper on the complexity of Olympic project allows us to understand more where the problem is. Indeed, Olympic budgets are complex: “In addition to the costs of actually putting on the games, there are all those other factors—infrastructure and land prep, other construction costs, security. And the money to pay for all of that can come from a number of different places, which will surely differ depending on the country and its form of government.”[9]
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Editor’s note: This paper was prepared for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development. http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director paul.gardiner@skema.edu.
How to cite this paper: Vincent, T. (2019). How to explain Olympic Games cost overruns in terms of Project Management, PM World Journal, Vol. VIII, Issue IV (May). Available online at https://pmworldlibrary.net/wp-content/uploads/2019/05/pmwj81-May2019-Vincent-how-to-explain-olympics-cost-overruns.pdf
About the Author
Thibaut Vincent
Paris, France
Thibaut Vincent is a master’s student at Skema Business School in France. He expects to receive shortly a master’s degree in Project Management and Business Development. Born in Burgundy, he has taken his university studies as an occasion to travel and discover new cultures. He worked in China for one year which gave him the opportunity to challenge himself in an unfamiliar environment in Project Management. Indeed, he worked as Account Manager assistant in Shanghai with big French companies. He now currently works part-time in a French start-up in Paris as a Business Developer.
Thibaut lives in Paris, France and can be contacted at thibaut.vincent.charleux@gmail.com
[1] Payne, M. (2017, September 13). It’s official: Los Angeles to host the 2028 Olympics, Paris gets 2024 Games. Retrieved from https://www.washingtonpost.com/news/early-lead/wp/2017/09/13/its-official-los-angeles-to-host-the-2028-olympics-paris-gets-2024-games/?noredirect=on&utm_term=.53ddcd5f6862
[2] Gee, O. (2016, February 18). Paris 2024 Olympics: See which events will be where. Retrieved from https://www.thelocal.fr/20160218/paris-olympics-which-events-where
[3] Poirier, V. (2017, September 27). The 10 main challenges of the 2024 Paris Olympics. Retrieved from https://www.institutmontaigne.org/en/blog/10-main-challenges-2024-paris-olympics
[4] Raul. (2016, August 31). The Costs of the Olympic Games. Retrieved from https://howmuch.net/articles/olympic-costs
[5] Raul. (2016, August 31). The Costs of the Olympic Games. Retrieved from https://howmuch.net/articles/olympic-costs
[6] Milsom, P. (2018, April 20). So… What is a Project? Retrieved from http://www.blog.greenprojectmanagement.org/index.php/2018/04/20/what-is-a-project/
[7] Harris, P., Kriel, J., LeServe, M., Riaz, Y., Giammalvo, D. P. D., Illingworth, S., … Weaver, P. (n.d.). 01.1.2.1.05 In Guild of project controls compendium and reference (car). Retrieved from http://www.planningplanet.com/guild/gpccar/introduction-to-managing-project-controls?fbclid=IwAR28qfz7FcD6qA60EI1dtZs03w9m7QRPXKd5q1b1dTVNm98qRvAE-0tf0HA
[8] Phillips, J. (n.d.). Project Cost Management. Retrieved from https://www.projectsmart.co.uk/project-cost-management.php
[9] Vaccaro, A. (2015, February 12). How London’s Olympics Went Way Over Budget. Retrieved from https://www.boston.com/news/business/2015/02/12/how-londons-olympics-went-way-over-budget
