Tag: megaprojects

OM in the News: Is Blockchain Fading?

The value proposition of harnessing blockchain technology to transform supply chains is not new, as we discuss in Chapter 11 (see pages 451-2). The idea of a distributed ledger, that is transparent and immutable, lends itself to imagining a world where all participants involved in the process of producing, distributing, storing, selling, and consuming a product can view its origin and status in real time. The benefits of such traceability include improved food safety, reduced fraud and optimization in the distribution of scarce resources.

However, like any emerging technology, the early years of blockchain witnessed the launch of numerous projects and a wide variety of use cases with a mixed level of success. Reports conclude that as many as 92% of those early projects in blockchain have failed, writes Supply & Demand Chain Executive (June 4, 2024). While all early technical experiments don’t turn out as planned, it is critical to look at them closely.

There is a wide range of reasons why technology-led transformations fail: a lack of thorough strategy and planning or an inadequate understanding of what the market needs; insufficient time invested in truly understanding the problem definition; underestimating the time and effort needed for new regulatory frameworks; or simply not being able to access sufficient, affordable, talent at the right time.

These are all real challenges that are also applicable in the blockchain world. A major example is the Australian Stock Exchange blockchain project which was built to transform clearing and settlements. It started in 2016, originally planned for 2.5 years but finally dismantled in 2022. The team had set out to build a private blockchain infrastructure which proved too difficult.

Blockchain applications for supply chain rely on two primary elements: token services and decentralization. Token services, established by companies, facilitate real-time visibility throughout the value chain. Meanwhile, decentralization empowers independent entities to exchange and trust supply chain data securely, all while maintaining privacy. This type of visibility simplifies and automates the overall management of the supply chain and, in practice, reduces inefficiencies and intermediaries, which ultimately reduces overall costs.

But the concept of privacy in the context of a distributed ledger is often viewed as a paradox; that there is no room for privacy in a transparent world. Yet the true nature of a public blockchain operates with the goal of confidentiality.

Classroom discussion questions:

  1. Identify a major blockchain project that has failed.
  2. What makes blockchain success so difficult?

OM Podcast #3: Managing Large Projects

Welcome to our latest Operations management podcast! Today, Jay Heizer and Barry Render delve into the topic of managing large projects, which is a topic in Chapter 3, Project Management. What makes a project successful? Why do so many fail to meet their objectives? What is a “megaproject”? All three of these questions are answered by our authors.

 

 

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM.  Contact your Pearson rep to learn more!  https://www.pearson.com/us/contact-us/find-your-rep.html

See you for our next podcast on May 8th for a discussion about the strategic decision making at McDonalds.

OM in the News: Why 99% of Big Projects Fail

Oxford economist Bent Flyvbjerg is an expert in the planning of “megaprojects,” huge efforts that require at least $1 billion of investment: bridges, tunnels, office towers, airports, telescopes, the Olympics. He’s spent decades studying the many ways megaprojects go wrong and the few ways to get them right. His new book How Big Things Get Done, is summarized in The Wall Street Journal (Feb. 4-5, 2023).

Spoiler alert! Big things get done very badly. They cost too much. They take too long. They fall too short of expectations too often. This is what Flyvbjerg calls the Iron Law of Megaprojects: “over budget, over time, under benefits, over and over again.”

His work can be distilled into three pitiful numbers:

• 47.9% are delivered on budget. 
• 8.5% are delivered on budget and on time. 
• 0.5% are delivered on budget, on time and with the projected benefits.

The Guggenheim Museum in Bilboa Spain is a rare example of proper project planning

Flyvbjerg found that the complexity, novelty and difficulty of megaprojects heighten their risk and leave them vulnerable to extreme outcomes.  “You shouldn’t expect that they will go bad,” he says. “You should expect that quite a large percentage will go disastrously bad. Despite the fact that trillions of dollars had been spent around the world on such projects, nobody knew if they stayed on schedule or budget.”

Over the years, he compiled a list of 16,000 major infrastucture projects: skyscrapers, airports, museums, concert halls, nuclear reactors, roads and hydroelectric dams across 136 countries—not just megaprojects, but projects of all shapes and sizes.

What he found is that people struggle with projects for a simple reason: They’re people. Humans are optimistic by nature and underestimate how long it takes to complete future tasks. They ignore previous mishaps and delude themselves into believing this time will be different. Megaprojects are also plagued by politics as much as psychology.

What fascinates him more than the failings of the 99.5% is why the 0.5% succeed. Many projects are late because not enough time is spent planning, which is the most efficient way to shrink risk. You don’t start digging before you know exactly what you’re doing. Frank Gehry experimented with designs and tinkered with models in his studio for two years before starting to build the Spanish Guggenheim Museum. That meticulous planning was the reason the architectural wonder opened in 1997 on time and under its $100 million budget.

Classroom discussion questions:

  1. Chapter 3 deals with this subject in detail. Relate Flyvbjerg’s work to Figure 3.1.
  2. Tie PERT to his optimism in underestimating completion times?