Infrastructure mega projects—multibillion dollar investments—often require once-in-a-lifetime commitments of resources and capital. Yet, 85% of mega projects exceed budgets and schedules. The consequences for both owners and contractors can be disastrous. For owners, overruns not only affect their bottom line, but also lead to squandered business opportunities and compromised credibility. On the other hand, contractors who exceed budgets and schedules erode resources, profits, and perhaps most importantly, client trust. Projects of this size are naturally more challenging than smaller projects. In our experience, carefully planned mega projects can succeed, if both parties’ objectives and incentives are properly aligned and communicated, and when best practices for simple project delivery are consistently applied.
What we do
McKinsey’s Infrastructure Practice serves both owner teams and contractors. We help clients plan, execute, and in some cases, rescue multibillion-dollar mega projects. Our consultants are closely affiliated with the Capital Productivity Practice and collaborate closely with colleagues in other relevant areas, such as Oil & Gas, Electric Power & Natural Gas, Metals & Mining, and Travel Transport & Logistics, to deliver deep industry expertise to every project. Supported by McKinsey experts and our broad network of external experts, our global team of consultants constantly tests and refines its proprietary tools and solutions. To ensure the long-term success of a project, we work closely with clients to build their capabilities at every stage. McKinsey’s on-the-ground experience and deep knowledge of functional topics, such as organizational effectiveness, lean execution, procurement, supply chain management, and risk management, uniquely positions us to support both project owners and contractors.
Successful mega projects are rooted in and guided by a strong business case. Unfortunately, in our experience, design and construction issues can quickly hijack projects. And decision makers can lose sight of long-term investment goals. Many owners lack the resources and experience to manage contractors and at the same time, protect their broader business objectives. We support owners planning mega projects by developing business cases aligned with their long-term strategic objectives, by ensuring rapid and effective decision making through our proprietary Central Control Tower, and by performing key analyses to monitor the progress, economics, and risk associated with the project. During execution, we take a hands-on approach to help select and manage contractors, optimize procurement and supply chain strategies, monitor the overall execution of the project, and drive productivity in the construction yard. All the while, we ensure the client’s objective—delivering this mega project on time and within budget—remains the top priority.
Mega projects are inherently complicated. To deliver a project according to an owner’s often-changing requirements is particularly challenging. Other factors, such as shortages of experienced project staff, remoteness and complexity of projects, and deteriorating labor conditions can add to the challenge. With owners increasingly pushing to transfer project delivery risks to the contractor, decades-old practices of delivering engineering and construction services are no longer sufficient to ensure profitability and owner satisfaction. Drawing on our experience in other industries, we find that applying lean practices at every stage of a mega project can result in significantly higher margins, higher commercial win rates, and improved client loyalty and trust. Our Infrastructure Practice supports contractors in planning and executing projects according to lean principles. At the same time, we use our deep knowledge of mindsets and behaviors and our extensive experience in organizational transformation to embed these lean principles and change the project team’s way of working. To ensure long-term success, we focus on building the client’s skills throughout every stage of the project in a sustainable way.
Recent examples of our work
- We supported a client in designing and implementing a governance model and owner’s team for a vast water-diversion project.
- We helped identify value-improvement opportunities for a new transit line; opportunities included cost reductions through changes in the technical design and revenue improvements through a range of business plan and policy changes.
- We helped implement a project Central Control Tower to manage a world scale commercial high-rise complex.
- We assisted a major government infrastructure agency in developing a project manager academy.
Tools and solutions
We have developed a number of tools and solutions to support clients on the topic of mega projects. Examples include:
- Central Control Tower is an approach used to guide the project team executing a mega project. The approach is structured around five key components—project context, executive summary, project economics, project delivery, and project integration.
- Contractor due diligence methodology evaluates the readiness to execute of contractors bidding for the construction of an infrastructure project. This methodology ensures the contractor has not only the technical capabilities, but also the available resources and the long-term institutional health to sustain a multiyear mega project.
- McKinsey investment readiness assessment (MIRA) is a McKinsey proprietary stage-gate tool that evaluates five dimensions of a mega project—technical issues, execution requirements, market factors, political and regulatory concerns, and organizational capabilities—against five readiness criteria—degree of project definition, degree of project optimization, quality of risk assessment, maturity of planning for the next stage, and adequacy of resources – to ensure readiness for funding the next stage of development.
- Lean construction and last planner tools that allow us to achieve up to double the labor and equipment productivity typically seen in world-class construction yards.