Managing a metro rail project to avoid cost overruns

Abstract

While technical failures remain the most common triggers for overruns in metro projects, the causes have not typically been deficiencies in the underlying engineering principles but in project management. This work involves the complementary use of requirements and risk management processes and real options theory. The Crossrail project provides a case study with a scheme design for an underground station at Farringdon being considered in detail.

The requirements process documented in this research is capable of providing an interactive format for managing project requirements and importantly, any changes that are made to them. This is achieved using commercial software (Telelogic DOORS®) and it is shown that this process is effective when working on multidisciplinary metro projects. This process is then expanded to consider the interaction between risks on a project. This is identified as being crucial given the impacts that technical, project and external risks can have on each other. The developed risk process therefore allows the interactions between all risks to be recorded and provides a holistic view of all risks for management purposes. The requirements and risk processes are complemented by a fuzzy logic methodology to evaluate global and elemental risks (such as political or client risks). Over 50 external risk factors which are known to have caused overruns on previous projects are identified and the performance of Crossrail is evaluated against each risk factor by way of a questionnaire circulated to industry professionals.

An approach to avoiding cost overruns is demonstrated by the application of real options theory where the chosen design for Farringdon station is developed alongside an alternative design. Real options theory is used to value the cost of implementing the design alternative should it be needed during the project construction cycle due to cost increases and the potential occurrence of major risks. This implementation cost is presented as a fixed cost agreed prior to construction rather than being an added cost to the agreed budget once construction has started. It is proposed that using real options in this context can avoid significant cost overruns by predetermining the value of payments to be made for changing from one design to another.

This thesis will show how additions and adjustments to existing processes and the inclusion of real options valuation in the procurement of metro projects can help practitioners avoid cost overruns in a metro rail project.

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Identifiers

ORCID for John Preston: orcid.org/0000-0002-6866-049X

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