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FEDERAL STATE AUTONOMOUS EDUCATIONAL INSTITUTION

OF HIGHER EDUCATION

«NATIONAL RESEARCH UNIVERSITY

«HIGHER SCHOOL OF ECONOMICS»

Faculty of Business and Management

Department of Project Management

Final qualifying work - BACHELOR THESIS

Educational program “Management”

Experience of managing infrastructure megaprojects

Larina Varvara

Scientific adviser Professor of Faculty of Business

and Management, Department of Project Management

Anshin Valery Mikhailovich

MOSCOW, 2020



Index

• Introduction
• 1. Historical lessons of managing infrastructure megaprojects
• 1.1 How big are megaprojects
• 1.2 The role of infrastructure megaprojects for the world
• 1.3 The history of overspendings and bad budgets
• 1.3.1 The iron law of megaprojects
• 1.3.2 History of megaproject management
• 1.3.3 Statistics and problems
• 1.4 Lessons learned: big is fragile
• 1.5 Summary
• 2. Case studies: metro systems around the world
• 2.1 The history of metro construction and management
• 2.2 Mobility trends
• 2.3 The London underground, also known as the tube
• 2.3.1 The history of Tube
• 2.2.2 Scope and objectives
• 2.2.3 Organization
• 2.2.4 Funding and financial risk management
• 2.2.5 Stakeholder risks and management
• 2.2.6 Risks and opportunities
• 2.3 The New York City subway
• 2.3.1 The history of the subway
• 2.3.2 Scope and objectives
• 2.3.3 Organization
• 2.3.4 Funding and financial risk management
• 2.3.5 Stakeholder management
• 2.3.6 Risks and opportunities
• 2.4 Best practices and lessons learned
• 3. The Moscow metro
• 3.1 History of Moscow metro
• 3.2 Scope and objectives
• 3.3 Organisation
• 3.4 Funding and financial risks
• 3.5 Stakeholder management
• 3.6 Risks and opportunities
• 3.7 SWOT analysis and recommendations
• 3.8 Summary
• Conclusion
• List of references
• Appendix
• Appendix 1 Ridership evolution 2012 - 2017, million passengers
• Appendix 2 Metro systems topologies
• Appendix 3 Map of London Underground
• Appendix 4 TfL's risk structure
• Appendix 5 Passenger journeys (millions), TfL
• Appendix 6 The scorecard of TfL for measuring success
• Appendix 7 Map of New York subway
• Appendix 8 NYCT future contracts
• Appendix 9 The principles supporting the components of internal controls
• Appendix 10 Enterprise risk management principles
• Appendix 11 Stakeholder assessment
• Appendix 12 The map of Moscow Metro


Introduction

management megaproject infrastructure risk

Nowadays megaprojects are on the rise. They range within different industries and among different people - from construction of roads to IT-systems and from consultants to scientists. Megaprojects are crucial to the future of cities as they create wealth, employment and mobility. They form a global multi-million-dollar business that affects all aspects of people's lives [17, p.1].

When it is said “infrastructure”, most people imagine transport systems, as they are core of the cities and, moreover, they are links between them. The future of transport sector is predicted to change rapidly. In addition, transportation systems will transform the way businesses and communities function [15]. Even now the governments around the world become more flexible and open to innovations [14]. They strive to use new technologies and big data to analyse transport systems' performance.

Infrastructure megaprojects are an emerging economy sector. Over the past decade, more megaprojects with greater scale and complexity have appeared. As they get bigger, they become riskier and their management becomes more difficult. In addition, according to the previous scholars' research, megaproject management has always been challenging and usually has gone over time and over budget.

Scholars addressed many questions on improving megaproject management approaches, and the key question was: how to manage them more successfully?

While answering it, scholars proposed different methods. Flyvbjerg (2003, 2017) and Hertogh et al. described approaches aimed at improving the early stages and overcoming major weaknesses. Greiman (2013) studied a real case of the Big Dig Tunnel and provided specific tools that could save the project from many failures. Lenfle (2018) and Ansar (2018) made attempts to theorize megaproject management and develop theoretic recommendations on its improvement. Practical research of KPMG (2019) and Roland Berger (2019) have shown that in the future, to manage megaprojects more efficiently, project owners and managers need to benchmark, analyse performance and learn lessons from other projects worldwide.

The goal of this research is to develop general recommendations based on different approaches for a transport project.

The object of the research is infrastructure megaprojects.

The subject is their management systems.

To achieve the goal, it was necessary to complete the following tasks:

(1) To study the existing approaches of megaproject management and create a theoretical framework.

(2) To study three real cases on infrastructure megaproject management using the theoretical framework.

(3) To analyse strengths and weaknesses of a local case and to develop recommendations for its successful management.

The methodology of the research is based on analysis of professional literature and real cases' comparison. The cases were chosen according to a few criteria. First, they belong to the transport sector. Second, they operate within a city and are the most popular transport vehicles. Third, the cases are almost similar in terms of management systems and time of construction. Finally, one of the cases should be local in order to have an access to more information resources. Based on these limitations, the London Underground, the New York subway and the Moscow Metro were chosen. The recommendations for the Moscow Metro are developed with the help of SWOT-analysis and the theoretical framework, elaborated on a basis of professional literature.

Turning to the research structure, in the first chapter, theoretical approaches are considered. They include a definition of infrastructure megaprojects, a role that they play in the modern world, their main strengths and weaknesses, and lessons learned from the long history of megaprojects management. The second chapter studies two cases of the London Underground and the New York subway and shows their best practices and lessons that can be learned and used by other metro systems. The third chapter is aimed at the Moscow Metro study, its SWOT-analysis and development of recommendations, based on the first two chapters.



1. Historical lessons of managing infrastructure megaprojects

1.1 How big are megaprojects

“Megaprojects are large-scale, complex ventures that typically cost a billion dollars or more, take many years to develop and build, involve multiple public and private stakeholders, are transformational, and impact millions of people” [14, p.1]. This definition is crucial to start with. It separates the concept of megaproject from the general term “a project”. The PMBOK Guide describes a “project” as “a temporary endeavor undertaken to create a unique product, service, or result” [2]. Thus, it fulfills objectives by producing deliverables; it has temporary nature, which means a project has a definite beginning and end; and it drives changes within the organization, moving it from one state to another in order to achieve a specific objective. The definition of a “project” is suitable for megaprojects, but the last has a few additional attributes.

1. Megaprojects are often of long duration. Long projects require very large amounts of resources such as labour, financing, supplies, and equipment. The length creates great uncertainty and risk that do not exist in smaller projects [19]. For example, the project of London Heathrow Terminal 5 started from planning in 1985 and was finally opened in 2008. 23 years has passed, but only 6 years were dedicated to the construction.

2. Megaprojects cost more than $1 billion and usually are compared with the GDP of the country where they are built. One of the most expensive projects in the world is Al Maktoum International Airport in Dubai, United Arab Emirates. The total cost was estimated to be $82 billion in 2010. Since then, the airport has been expanded. Comparing to the GDP of the UAE in 2010, which was $290 billion, the project of the airport was 28% of it.

3. Because of the long duration and enormous costs, megaprojects have a big scope, which includes the need for the great amount of resources, complex design and construction, many partners and stakeholders involved in a project, and a difficult continuous management process.

4. While resources are inanimate things that can be counted and managed efficiently, people are less predictive features. In megaprojects there are many stakeholders that are involved in a project to varying degrees. Megaprojects often use both public and private financial sources, which implies communication with both parties; the government, the media, public and private audits observe them; third parties, such as local communities, may create conflict and disputes that can damage the reputation of the project.

5. Megaprojects have transformational nature and impact millions of people. Moreover, infrastructure megaprojects are vital for complex development of regions. While normal projects impact a few parties such as a few organizations or even a few departments within one organization, megaprojects engage almost everyone in its life cycle.

1.2 The role of infrastructure megaprojects for the world

Nowadays megaprojects are the preferred delivery model for large investment projects across different businesses and sectors. They range from roads, rail lines, pipelines to IT systems and complex international events such as the Olympic games and the World Football Championship [16; 23]. In emerging economies, their number is growing due to the high demand for infrastructure, telecommunications and energy.

Infrastructure networks are crucial for creating wealth, employment and mobility. They have an important impact on the environment and numerous stakeholders. Flyvbjerg [17] distinguishes the “four sublimes” that drive megaproject development and explain their role:

1. The political sublime is a desire of politicians to build monuments to themselves, to become a part of history and, after all, to be re-elected.

There are many such projects: Kerchenskiy bridge as a sign of Crimea annexation in 2014; the Urengoy - Pomary - Uzhgorod pipeline as a friendship between the Soviet Union and Eastern European countries; the Nord Stream 1 and 2 and the South Stream as a political symbol of cooperation for both Russia and European Union.

Another interesting example is Baikonur - a cosmodrome founded in 1955 by the Soviet Union government. It is situated on a territory of contemporary Kazakhstan but rented and administrated by the Russian government. Russia pays $115 million rent every year and additional cost to keep the facilities functioning, which in sum is 5% of the Roskosmos annual budget. The question becomes whether it is reasonable for the economics. The answer is definitely no, but it is reasonable for political status of Russia. Having Baikonur, Russia is included in a list of space power countries and regularly launches vehicles into space. Therefore, basically, Baikonur is more a political symbol rather than an economic driver.

2. The economic sublime creates new jobs for many specialists, including engineers, architects, managers, bankers, investors, designers, developers, lawyers etc. It drives businesses and governments to invest in megaprojects and to get lots of money back.

The brightest example is the Oresund Bridge that was built in 2000 between the Danish capital Copenhagen and the Swedish large city Malmo. The goal was to improve communications between Scandinavia and the continent, to develop economic and social sides of relationship between Sweden and Denmark. The Oresund Region covers 4 million people, who account for a quarter of both countries' gross domestic product [51]. 75% of them live in Sweden and 25% live in Denmark, as the housing in Malmo is cheaper than in Copenhagen.

The transport traffic consisted of commuters travelling from home to work on trains and business traffic of cars, delivery vans and lorries. It strongly influences the whole region. First, the Oresund Bridge made travels across Oresund faster and cheaper, 15 minutes compared with 45 minutes by hydrofoil. Second, both Swedes and Danes got access to new labour markets. Third, the Oresund Bridge made it possible to merge the ports of Copenhagen and Malmo into one transport hub. In addition, Copenhagen Airport attracted many companies in the Oresund Region. Fourth, a housing market expanded for both countries. Finally, “the bridge has brought the two countries close together but allowed them to keep their differences” and create cultural cooperation [51]. The last one resulted in the famous TV series “The Bridge”, which has been a hit all over the world.

3. The technological sublime drives technologies to expand its boundaries for what it can do. Among megaprojects it is usual to create the most innovative projects like “the tallest building, the longest bridge, <…> or the first of anything” [17].

One of those “greatest megaprojects” is the hub of Dubai Airports - Dubai International (DXB) and Dubai World Central (DWC) [40]. Although it is not the busiest and not the largest airport in terms of passenger flow and square meters, it intends to be so. In 2013, the DWC opened one terminal with 7 million-passenger capacity. Once completed, the DWC will have the world greatest capacity for more than 160 million passengers per year and it will serve a transport hub for 12 million tones of freight. Additionally, the DXB already serves more than 88 million customers annually. Together, the two airports will have more than 240 million-passengers capacity. Therefore, it can become at the same time the busiest and the largest airport in the world.

4. The aesthetic sublime is the desire of designers and people who like good design to build and use beautiful infrastructure, like San Francisco's Golden Gate Bridge and Sydney Opera House (see pictures 1.1 and 1.2). Sydney Opera House was built with 1400% cost overrun; however, Australians did not regret it as it has placed their country on the world map as an attractive touristic destination with 8,6 million visitors in 2019 (which is approximately 3% of Australia's GDP).



Picture 1.1 and 2.1 San Francisco Golden Gate Bridge (on the left) and Sydney Opera House (on the right)

These four sublimes drive almost every part of the public life; thus, it is difficult to underestimate their value for the society. Many countries and economic organizations base their long-term development plans on infrastructure development. In addition, it is infrastructure that is estimated to be the key to sustainability, which is the main trend for the development now.

To prove the importance of infrastructure megaprojects, we add some numbers. The Global Infrastructure Hub and G20 research estimates global infrastructure investment needs to be $94 trillion in the period of 2016-2040, which is $3.7 trillion per year. This investment aims to achieve the UN Sustainable Development Goals for universal access to drinking water, sanitation and electricity by 2030. Electricity and roads are the two most important sectors for the basis of sustainable development and they account for two-thirds of global investment needs. However, $3.7 trillion per year is not enough for these goals, the GIH estimates the investment need to be $4.6 trillion and predicts the appearance of an “investment gap”.

The “investment gap” will vary by region depending on the investment needs. 59% of global investment needs relate to Asia, a further 17% relate to the Americas and 16% to Europe. It is also important to notice that over half of the forecast investment needs is contributed by just four countries: China, the US, India and Japan. Therefore, Asian countries are more likely to achieve the investment needs by 2040 than other regions.

To meet the investment needs, all regions except Asia will need not only to increase their GDP, but also manage infrastructure megaprojects successfully. But turning to the history of megaprojects management, all forecasts of infrastructure development seem unrealistic.

1.3 The history of overspendings and bad budgets

1.3.1 The iron law of megaprojects

9 out of 10 megaprojects exceed their budgets and timeline, this is what almost all the studies on megaproject management say. Success is rare in megaproject management. Cost overrun does not depend on geography, it appears in both private and public sector projects. Neither it depends on the year of construction: for the 70-year period for which comparable data exist cost overruns and time delays are common.

Success in megaproject management depends on budget, time, and benefits. Projects rarely succeed on all three variables. It is common to a project to be on budget, but out of time and with fewer benefits than planned in the beginning. Flyvbjerg (2011) derived “the iron law of megaprojects” that describes the average practice on megaproject management: “Over budget, over time, over and over again”.

1.3.2 History of megaproject management

The history of megaprojects begins in ancient times from the Great Wall in China and Egyptian pyramids. Certainly, the sufficient data to study megaprojects began to appear only in the 19^th century from the construction of turnpikes and railways.

First modern megaprojects, as we know them today, appeared after the World War II in 1940s. Almost all of them were military and space projects, but they were the basis for contemporary project management. The most famous ones - the Manhattan, Atlas, Polaris, Apollo - were managed successfully due to the dedicated organisation and acceptance of uncertainty. As Lenfle and Loch stated, “they combined experimentation (for example, in the form of pilots), parallel pursuit of alternatives, and dedicated (possibly costly) actions to gather information as part of the core project” [24; 46].

These successful megaprojects had two main limitations. First, their goals reflected the military nature and were less complex due to the absence of societal component. Second, the military projects were developed during the Cold War, so the competition with the Soviet Union suppressed any debate around them. John F. Kennedy addressed to the Congress the idea of not only the battle between two nations, but also “the battle between freedom and tyranny”. Therefore, stakeholder disagreements were small.

The megaprojects of 1940s and 1950s are known as successful, but there is not enough information about their internal processes. Politics was reduced to the army and the government and megaproject management became a “closed” process. Today the context of megaproject management is absolutely different. The challenge is to manage megaprojects as an “open process”, dealing with the necessities of all the stakeholders and being transparent in terms of universal access to information about the project.

Megaproject management style has changed over the last 80 years, so project managers cannot just go back to the 1950s practice. However, they can study the historical cases in order to repeat good practice and to avoid obvious failures.

Next section of this chapter is focused on the history of overspendings in terms of money and time and is fulfilled with statistics collected by scientists over the last 80 years. It is vital to study numbers first in order to talk about lessons learned from the megaproject management history.



1.3.3 Statistics and problems

Infrastructure megaprojects are the projects with the highest level of uncertainty and, as a result, with the most problematic cost planning. The average difference between the real cost and the cost estimated is often 50-100 per cent. However, there are a few famous projects that totally got out of control (see figure 2).

Table 1.1

Major cost overruns of infrastructure megaprojects

Project	Cost overrun (%)
Suez Canal	1900
Scottish Parliament Building	1600
Sydney Opera House	1400
Montreal Summer Olympics	1300
Concorde supersonic aeroplane	1100
Elbe Philharmonic Hall in Hamburg	1024
Troy and Greenfield Railroad USA	900
State Archives Of North Rhine-Westphalia in Duisburg	650
Berlin Brandenburg Airport	600
Lake Placid Winter Olympics, USA	560
Krestovsky Stadium, Russia	542
2014 Winter Olympics in Sochi, Russia	420
Three Gorges Dam - hydroelectric dam, China	402
Helsinki Western Metro Extension	298
Olkiluoto Nuclear Power Plant Unit 3	287
Panama Canal	200
Boston's artery/tunnel project	196
Humber Bridge, UK	175
The Berlin State Opera	166
Boston-Washington-New York rail, USA	130
Great Belt rail tunnel, Denmark	110
Brooklyn Bridge	100

Top 10 megaprojects worldwide with the largest percentage of cost overrun (2014) Retrieved from: https://www.statista.com/statistics/526416/top-10-megaproject-cost-overruns-worldwide/;

Flyvbjerg B., Bruzelius N., Rothengatter W. (2003). Megaprojects and risk: an anatomy of ambition. Cambridge, England: Cambridge University Press, 14, 19;

Cost overrun // Wikipedia. The Free Encyclopedia URL: https://en.wikipedia.org/wiki/Cost_overrun#List_of_projects_with_large_cost_overruns (дата обращения: 17.04.2020).

It is important to talk about cost overruns in absolute numbers too in order to understand the scope of megaprojects (see picture 1.3). One of the most significant megaprojects of the last 80 years is the Three Gorges Dam - the largest water conservancy project in the world, situated in the middle of the river Yangtze in China. It controls approximately one million square kilometers and averages a runoff of 451 billion cubic meters annually [54]. Construction period took 17 years and the first test was run 22 years later after the beginning of works. 120-metre long, 18-metre wide and 3,5-metre deep, the dam required $12 billion according to the project documents. Nevertheless, its cost got out of the scope and achieved $48 billion in the end.

Picture 1.3 Examples of megaprojects' budgets and overspendings

Source: Keep your megaproject on track. Implement decision-making support for successful megaproject management // Roland Berger URL: https://www.rolandberger.com/de/Publications/Keep-your-megaproject-on-track.html

The cost overruns can appear because of many factors: technical challenges, over-optimism, strategic misrepresentation, and inadequate communication. All these lead to poor planning and insufficient risk management and, as a result, to impressive budget expansions. But not only cost overruns are the problem for megaprojects.

The same Three Gorges Dam was built with a 5-year delay, but there are many examples of projects built much longer than estimated. Extra costs always need extra time. Different studies show that the origin of cost overruns and time delays can more often be found in the planning rather than in the construction phase [27]. Poor planning is based on poor forecasting, which is extremely difficult to make for megaprojects. Flyvbjerg recommends planners and politicians to pay attention to risk management rather than to forecasts [39].

Risk is an uncertain event or condition, that if it occurs, has a positive or negative effect on a project's objective [2]. Risk management includes a few processes that deal with risk. It begins with determining risk management plan, which includes risk strategy, roles and responsibilities, methodology, funding and timing, risk categories, stakeholder risk appetite, definition of risk probability and impacts, probability and impact matrix, reports and tracking. After that, the project team makes qualitative and quantitative analysis of all the risks and develop strategies to deal with them.

Risk management usually becomes one of the weakest parts of megaproject realization plan due to the huge range of risks existing.

(1) Market-related risks appear because of instability of financial markets in the long term. Parties of the project usually react differently to changes; thus, some of them deal with risk successfully, while others suffer from it.

(2) Completion risks are the engineering and innovation risks. They appear due to the inaccurate work breakdown and schedule management.

(3) Institutional risks refer to the access to key resources and appropriate returns from operations such as debts repayments and receiving profit from investments. These depend on the political environment in the country or countries where a megaproject is executed. In some countries the government works under constitutional frameworks and the rule of law, while in other this government is represented by powerful political parties or clans. The long-duration nature of megaprojects leads to appearance of risks of unexpected political changes. As the political environment changes, the laws and regulations within a country or even a region may also change.

(4) The risk of turbulence may appear because of unforeseen events. Lots of megaprojects have the construction phase, which depends not only on economic circumstances, but also on geological conditions, for example. Some parties leave the project if something goes wrong in order to minimize their losses. This can lead to the collapse of the whole project.

(5) Finally, project managers sometimes miss good opportunities to reduce costs or to increase value of the project. An opportunity failure usually undermines project credibility in the eyes of stakeholders. The more opportunities are missed, the more project parties decrease their legitimacy. Opportunities failures mean that project management team do not see these opportunities or do not want to see them. To cope with this problem, project managers introduce new models that rely on partnerships or relational contracts to trigger innovations and incorporate changes.

Finally, another problem that megaprojects have is extremely difficult communication. As megaprojects involve many stakeholders and many internal participants, communication should be established almost perfectly. According to the PMBOK (2017), stakeholder is “an individual, group or organisation who may affect, be affected by, or perceive itself to be affected by a decision, activity or outcome of the project”.

For many years projects did not include stakeholders in a decision-making process and just announced new policies and actions post factum. Flyvbjerg (2014) called it a traditional approach to megaprojects development and highlighted a few problems that it has.

(1) The project lifecycle does not include a preliminary analysis of project feasibility. The project team goes straight to the full-scale research, which is usually expensive and resource-intensive.

(2) The project team emphasizes the technological side of a project at first and do not pay enough attention to the political, economic and social sides.

(3) External impact of a project is not considered until the late stage, when technological changes become extremely expensive.

(4) Stakeholders are not included in a decision-making process. Therefore, their dissatisfaction may increase and have a negative impact on a project reputation.

(5) There is no risk analysis.

(6) The regulatory framework lacks of strict definition, so responsibility for implementation, exploitation and economic regulation is blurred among project participants.

As for modern approaches, it is recommended to include the stakeholders in the initial planning process in order to consider all the requests. In addition, the roles of all parties should be defined clearly in the beginning, so that the government does not take many roles, sometimes even incompatible.

1.4 Lessons learned: big is fragile

As we have already discussed, megaprojects are big projects with big scope, big budgets, and big amount of time to plan and construct them. However, the construct of big and the related ideas of mega, large and so forth are elusive. Ansar et al. conducted a research on the different dimensions and definitions of the construct of big [6]. They highlighted a few of them: physical proportions; inputs required in terms of land, labour, and equipment; financial outlay; supply and demand; temporality; special fixity or immobility and the cost of moving an asset; complexity; and impact measured in the number of stakeholders.

Bigness entails many opportunities and risks. In traditional literature, it is proposed that “bigger is better”, however, it is not stated that bigger is also more fragile. Ansar proposed the construct of fragility to describe the randomness of events and the risk associated with them. “Fragility describes how a system suffers when it encounters disorder” and loses its functionality [6].

Due to its fragility, megaprojects tend to “break” often as planners and managers do not know how to deliver them successfully. Organizations pause megaprojects and try to reorganize them in an attempt to “fix” problems, however, this “fix” becomes unpredictably expensive and time-consuming.

Flyvbjerg claim the “break-fix” model ineffective and wasteful as it leads to misallocation of resources [17]. Under this model decisions are based on misinformation. As a result, the projects are still built as the best ones according to papers, but in reality they lack of perfection.

During the long history of megaprojects management a lot of data and experience were collected. Certainly, any large project can be studied for difficulties and lessons learned from them, but there are a few basic lessons that work for all infrastructure megaprojects.

(1) Managing uncertainty is a difficult process. The project team is usually unaware of possible events or cannot react on time. However, it can be diagnosed by systematic search for knowledge gaps. There are two main approaches to manage uncertainty: trial-and-error learning and selectionism. Trial-and-error learning assumes the team to move towards the best one outcome, but be ready to fundamentally change the course as new information appears. Selectionism approach proposes to develop a few scenarios and pursue all of them in parallel, observing what works and what does not work [24].

(2) The largest challenge for a project team is to manage risks caused by uncertainty. To do so effectively, a project needs an organisation structure, where each participant knows his role and responsibilities.

(3) Additionally, planning is the vital part of megaprojects management. During the history of megaproject management, there were many projects, which construction time was less than planning time. As a result, such projects were mostly more successful than those without a proper planning stage.

(4) To cope with risks effectively, the project team needs well-organized communications. Communication in a large infrastructure project can be done on a few levels:

· Interpersonal communication (face-to-face)

· Small group communication (3 - 6 people)

· Public communication (a single speaker addressing a group of people)

· Mass communication (a person or group sends the message)

· Networks and social computing communication (many-to-many messages supported by media and social computing technology)

All these interactions should be described in a communication strategy and a communication management plan. The project team should be kept aligned, understand the key goals and built communications on the principles of trust and transparency.

Besides internal communications, the project team should also manage communication with stakeholders.

(5) The project team should represent the most important and powerful stakeholder parties and to share information about all milestones with them. It should also be agile to negotiate during crises and be able to translate the technical language in the business one to stay in contact with governments, contractors and customers.

1.5 Summary

In the first chapter we have briefly overviewed infrastructure megaproject management. We have defined that megaprojects are large-scale projects of long duration that usually cost more than $1 billion, have a large scope, many stakeholders and transformational nature. We have discussed the four sublimes that drive megaprojects and impact their environment: political, economic, technological and aesthetical.

After that, we have turned to the history of budget overspendings and time delays and described it briefly in numbers and examples of different megaprojects. We have defined main problems that megaprojects face and made a conclusion that big is fragile. Finally, we have summarized a few lessons learned from the long history of megaproject management, which are basic for any large-scale project.



2. Case studies: metro systems around the world

2.1 The history of metro construction and management

Before studying the history of metro systems, it is vital to define what are these metro systems. The term “metro” is the most common, however, there are many other names for underground rapid transit systems. The names for these systems can be inspired by the use of tunnels (subway, underground, Untergrundbahn in Germany and Tunnelbana in Sweden) and viaducts (elevated, skytrain, overhead, overground, Hochbahn) or busy central business districts. Metros are defined by UITP as “high capacity urban rail systems, running on an exclusive right-of-way” [59]. In addition, trains are composed of at least two cars with a total capacity of 100 passengers per train.

The history of metro began in 1863 with the construction of the first line in London. After that, in 1868, New York government opened the elevated railway. As for the beginning of 2020, metro systems were in 228 cities in more than 56 countries around the world, with a combined length of 16678 km, serving 13575 stations (see picture 2.1) [1]. Comparing to the previous decades, in 2010-2019 the amount of new metro systems has increased rapidly (see picture 2.2). The most quickly growing region is Asia-Pacific with China having over 40 metro systems. In Europe, Eurasia and North America the total line length almost remains stable increasing by 50 km per year (see appendix 1). 7 out of 10 busiest metros and 6 out of 10 longest metro systems are situated in Asia-Pacific region (see pictures 2.3 and 2.4).



Picture 2.1 Countries with metro systems, 2017

Source: World Metro Figures 2018 // UITP URL: https://www.uitp.org/sites/default/files/cck-focus-papers-files/Statistics%20Brief%20-%20World%20metro%20figures%202018V4_WEB.pdf

Picture 2.2 Metro system opening per decade, 1860 - 2019

Source: bird's-eye view on metros // Metrobits.org URL: http://mic-ro.com/metro/metrostats.html

Pictures 2.3 and 2.4. Top 10 longest (km) and top 10 busiest (annual ridership, million) metro systems

Source: World Metro Figures 2018 // UITP URL: https://www.uitp.org/sites/default/files/cck-focus-papers-files/Statistics%20Brief%20-%20World%20metro%20figures%202018V4_WEB.pdf

Metro is used in cities and their agglomerations to transport large numbers of people with high frequency. Metro systems may extend to suburbs and be reached by a rail network, so the differences between urban and suburban systems may not be clear. Each metro system consists of lines and/or circuits. For example, operation of new metro begins with one line, while older systems are usually more complex and consist of lines and a few circuits (Moscow) or a complex grid (Barcelona) (see appendix 2).

Metro systems are large infrastructure projects that require high costs and benefits and, as a result, are highly risked subjects. As for their benefits, the rapid transit is seen as a better alternative to roads, as it impacts the environment less, allows higher capacity and lower costs. Most systems are public enterprises, owned by local or national governments or transport authorities. It allows the owners to connect metro systems with bus or rail systems, which makes the city transport structure more usable and cost-effective. Almost all metro systems have high fixed costs and operate on fare revenue, advertising and subsidies to cover their costs.

The highest risk in metro system management is safety and security. Compared to other transport, it is one of the safest transport modes, however, this requires much effort. Fire, high platforms and derailment are the most dangerous risks, while pickpocketing and baggage theft are not so serious. Still all the risks need maintenance. Management of metro systems usually develops strict safety regulations with requirements for minimizing risk.

In the last decades metro systems have been a subject to terrorism, such as 2010 Moscow Metro bombing with 40 deaths and 102 injured people or 2005 London bombing with 56 deaths and 700 injured people [25]. In addition, other external risks affected dramatically the work of metro, for example, flooding in Sydney and Saint Petersburg or earthquakes in Manila and Istanbul. To cope with these risks metro systems are usually designed in a specific way with the use of modern construction technologies.

Turning to the typical problems of infrastructure megaprojects, metro systems also have them (see table 2.1). Two main objectives are ridership and cost overrun. The first one may not be achieved due to the low demand. It usually happens in middle-size cities where citizens are satisfied with the existing transport system (they use bus and rail systems or drive their own cars, which is especially common for US). Cost overrun appears due to the same problems with planning and management.

Table 2.1

Comparison of metro systems by ridership and cost overrun

Project	Actual ridership as a percentage of the planned in the first year (%)	Cost overrun, %
Kolkata Metro, India	5	No data
Miami Metro, US	15	35
Nord TGV Paris, France	25	25
Buffalo Metro, US	30	50
Baltimore Metro, US	40	60
Portland Metro, US	45	55
Tyne & Wear Metro, Great Britain	50	55
Mexico City Metro, Mexico	50	60

Source: Flyvbjerg, B., Bruzelius N., Rothengatter W. Megaprojects and Risk: An Anatomy of Ambition. Cambridge, England: Cambridge University Press, 2003.

Despite many similarities, different metro systems have different management approaches. Therefore, in order to provide recommendations for the Moscow metro, it is relevant to study a few cases in detail, to find its strengths and weaknesses and to collect lessons that could be learnt. For this reason, the London Underground and the New York subway are discovered further.



2.2 Mobility trends

Before turning to the cases, it is important to mention a few trends in a new mobility development. Reeb noticed three key directions of transport development [15]. First, the competition from taxis and carsharing increases quickly. Ridership on buses and metros falls while passengers more and more use pp-based services. Second, some transit agencies integrate delivery service in their work, so people become move less and buy online more. Third, new technologies are tested and implemented in transport operations and maintenance. For example, driverless trains in Copenhagen metro, contactless fare payments and transit planning apps.

KPMG International adds a few more trends. First, governments become to encourage innovations in their infrastructure projects. As innovative technologies develop faster than governmental regulations, the governments are predicted to creating flexible and durable regulatory frameworks and moving towards “more holistic and evidence-based decision-making processes” [14, p.13]. Second, data is going to drive operational efficiency and planners are going to use it to improve effectiveness of the planning processes. Third, sustainability becomes the key trend. Fourth, the customer is now placed in the centre of a decision-making process. KPMG made an assumption that in the nearest future infrastructure projects will need real-time information and predictive consumer insight rather than expert opinions and historical behaviours [14].

These trends are the possible future of infrastructure megaprojects, so they need to be taken into consideration while studying real cases and comparing the reality with predictions.



2.3 The London underground, also known as the tube

2.3.1 The history of Tube

London metro, which is also called London Underground or Tube, is the oldest metro system in the world. The first underground railway was opened in 1863 between Paddington and Farrington, serving six intermediate stations. The central London network was completed in the first 50 years by private railway company Metropolitan Railway. Later, the development of electricity allowed to deepen tunnels and led to a second wave of construction. Private railway companies focused on extending the existing lines into London's suburbs. Actually, the creation of the Tube was the reason of suburbs' appearance as people had got an access to the London labour and housing markets.

In 1933, the private companies were nationalized and integrated into the London Passenger Transport Board. World War II suspended plans to extend a few lines and the development almost stopped until 1960's. In 1968 the Victoria line opened, followed by the Jubilee line in 1979.

In 2003, London Tube became owned by Transport for London (TfL) - a part of the Greater London Authority (GLA) responsible for London's transport system. The underground was reorganized in a public-private partnership (PPP), where the GLA was the public part and infrastructure companies, which upgraded and maintained the railway, were the private part. However, the PPP did not work for London Underground, so the Tube became a part of the public organisation TfL [26]; the reasons will be discussed further.

In 2000's the Underground expanded in suburbs with its East London line converted into a part of London Overground network. It was a shift that happens to many metro systems around the world: the underground goes into suburbs and combines a few transportation modes, for example, central underground and suburban railways.



2.2.2 Scope and objectives

The London Underground has 11 lines (400 km) with 270 stations and serves more than 1,3 billion passengers (see the map in appendix 3).

The London Underground objectives are based on the Mayor's Transport Strategy within the five-year business plan and the 2019/20 budget plan. The measures are aligned with the three main development directions: healthy streets and healthy people, a good public transport experience, and new homes and jobs. They are grouped into four key areas of Safety and operations, Customers, People, and Financial and have an equal weight of 25% [55].

To manage objectives, TfL developed a scorecard that captures long-term objectives, their measures, forecasts and targets in numbers (see appendix 4). In the nearest future, TfL plans to include targets on meeting diversity and workforce engagement.

Now the objectives are not separated into groups depending on whether it is London Underground or buses. The only objectives that are measured separately for the whole transport system are operational performance measures.

Turning to the operational performance, in 2018/19 1,38 billion journeys were made, comparing to 0,498 billion in 1982. London Underground is the second most popular transport mode in the city after the buses. It extends every year, and since 2014 the number of kilometers operated has increased for 4,7 millions, the number of passengers has increased for almost 80 millions and the percentage of schedule operated reached 98.1% (see picture 2.5).



Picture 2.5 Passenger journeys in the London Underground by years, millions of people

Source: ransport for London Budget 2019/20 // Transport for London URL: http://content.tfl.gov.uk/tfl-budget-2019-20.pdf

Other objectives are related to trains, stations and tracks improvement, customer satisfaction increase, minimizing disruption and the Night Tube development.

To forecast the changes in scope, TfL uses trend analysis and plans for closures, events and upgrades on the network, and policy decisions. The plans include threat and opportunity indicators (passenger journeys, safety, excess journey time, bus excess wait time net deficit, environmental impact). Monitoring them and external events enable the company to respond to early signs and take actions on time [56].

2.2.3 Organization

The London Underground made a journey from infrastructure managed by a few private companies to a part of a transport system governed by the public authority. In between, city government tried to organize the public-private partnership. In 2003-2011 the government of London introduced the PPP funding policy for two reasons. First, the Tube lacked investments, and that led to degradation of service and rising costs. Second, the politics played a key role here. The Conservative and Labour Governments always have had politically polarized views. The Conservatives supported privatization of the Tube, while the Labour wanted to switch to the PPP model. The Labour Government won the May 1997 elections and implemented the PPP funding model in the London Underground management system [7].

The London Underground was reorganized into four organizations: an Operating company and three infrastructure companies (BCV infraco, JNP infraco and SSL Infraco). The three companies were offered three 30-year contracts with three review periods every seven and half years. Two contracts were awarded to the Metronet (BCV and SSL) and one contract - to the Tube Lines (JNP).

Gannon (2011) called the performance of the Metronet and the Tube Lines an interesting paradox: “Tube Lines has shown the PPP works and Metronet has shown the PPP can fail” [7].

The initial objectives were:

· Additional track works on the Victoria and Northern Lines;

· Conversion of old Jubilee Line trains for use on the Piccadilly Line with ten new trains available by 2001;

· Replacement of fifteen escalators;

· Refurbishment of thirty stations.

The overall performance of the London Underground has improved: 26,6 km of track had been replaced, 25 escalators refurbished, 2 lifts replaced and 23 stations modernized [48]. However, the government lost about Ј170 million to Ј410 million to the taxpayer due to Metronet's poor financial control and inadequate corporate governance. The overall cost of the PPP is estimated no less than about Ј2,5 billion. In addition, performance on lost customer hours was ambiguous (see table 2.2).



Table 2.2

Lost customer hours against benchmark on the lines managed by Tube Lines and Metronet

	2003-04	2004-05	2005-06	2006-07	2007-08	2008-09
Lost customer hours against benchmark on the lines managed by Tube Lines
Jubilee	33% worse	1% better	8% better	20% better	0%	9% worse
Northern	32% worse	95% worse	62% worse	23% worse	25% worse	31% better
Piccadilly	8% better	52% better	63% better	51% better	49% better	54% better
Lost customer hours against benchmark on the lines managed by Metronet
Metropolitan, Circle, Hammersmith & City	21% better	50% better	39% better	37% better	44% better	48% better
District	43% better	35% better	16% better	19% worse	53% worse	14% better
East London	4% better	2% better	34% better	29% better	20% better	Line closed
Bakerloo	15% better	34% better	13% better	10.7% worse	3% better	34% better
Central	16% worse	2% better	14% better	24% better	33% worse	33% better
Victoria	16% worse	9% worse	11% worse	26.7% worse	40% worse	23% better
Waterloo & City	58% worse	12% worse	66% worse	29.2% worse	66% worse	219% worse

Source: Update on the London Underground and the public-private (PPP) partnership agreements. Seventh Report of Session 2009-10 // House of Commons Transport Committee URL: https://publications.parliament.uk/pa/cm200910/cmselect/cmtran/100/100.pdf

This failure was studied by the Centre for Public Impact (a BCG foundation), which highlighted a few main weak points of the PPP (see figure 2.7).

(1) Stakeholder management was weak. A majority of stakeholders did not support the PPP implementation, as they believed that the private part of organisation would make the underground less safe and less efficient.

(2) Feasibility of the well-managed PPP was doubted. London Underground had problems in establishing an effective partnership with Metronet. The specification for modernisation work, for instance, was only 600 words long and left considerable room for interpretation, leading to frequent, time-consuming disagreements between Metronet and LUL” [12]. In addition, London Underground limited access to the cost and management data, so the Metronet's interpretation of objectives and data cost much more than expected.

(3) Metronet's management could not control five suppliers, which performed in line with their own interests. Because of this, TfL used to slow down work and run over time and budget. Poor management led to poor cost planning. TfL expected to spend Ј8,7 billion, but Metronet demanded for additional payment, so the cost estimated increased up to Ј10,5 billion. The following assessment showed that the taxpayer lost between Ј30 million to Ј40 million on inefficiencies in operating and maintenance activities and between Ј50 million to Ј100 million on administration activities (see picture 2.6) [12].

Pictire 2.6 Metronet's projected funding shortfall as at July 2007

Source: Department for Transport. The failure of Metronet // National Audit Office URL: https://www.nao.org.uk/wp-content/uploads/2009/06/0809512.pdf

(4) The lack of cooperation between London Underground and Tfl, Metronet and Tube Lines led to ineffectiveness of the PPP.

The only strong part of the PPP was political commitment provided by two parties and their clear view of objectives. Both parties supported the PPP with manifestos in which they stated that the London underground needed investment promised to modernize it.