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Putting a multibillion-euro rail project back on track

A transformative approach restores a megaproject's credibility, cuts costs through redesign, solves operational issues, and accelerates implementation.

Challenge

The vision was bold: transform a major European city center by moving its main train station underground, thus freeing up a square kilometer of prime land for redevelopment, and connecting the city to the high-speed rail network. With a multibillion-euro budget and a 10-year development plan, it would be one of Europe's largest infrastructure projects ever.

Backed by national, state, and local government, as well as the national rail company, the project created high expectations—and then dashed them as budget estimates proved inaccurate and were repeatedly revised upward, and delays pushed out the completion date by years. Public opposition to the project mounted; political leaders began to debate cancellation scenarios.

The rail company, as the main projector sponsor, sought McKinsey's help to stabilize the project, bring the budget under control, win back the support of funders and government, and help put in place a robust plan and a management team to ensure on-time implementation. To address all these issues, we put together a consulting consortium with leading experts in contract management and engineering and construction planning.

Discovery

With our consortium partners, we focused on four main priorities: revising the overall project-cost calculation to create a credible number; reviewing the entire design, construction process, and technical specifications to identify cost savings; solving the issues that had caused project delays; and building world-class project-management capabilities to see the development through to completion.

The first task, revising the overall project cost, resulted in more bad news. The budget had been too optimistic in its planning assumptions and had underestimated complexities and risks. Thorough risk analysis added around 50 percent to the overall cost, a figure verified by accounting firms. This finding, though sobering, gave financial and political backers confidence that they now had transparency on the project’s full costs and risks. Just as important, it created impetus for our second task: identifying major savings through a comprehensive “design-to-cost” exercise.

This effort followed a step-by-step process, involving numerous internal and external experts, to identify ideas for more cost-effective design, validate and prioritize those ideas through simulations, and translate them into construction plans. As a result, we identified several major redesign opportunities—for example, optimizing rolling stock handling facilities could cut the relevant costs by half, while changing specifications and procurement of railway electronics could save 20 percent.

In parallel, we established a series of high-caliber task forces to solve the operational issues that had held back progress—including fire-department sign-off for the underground station, management of thousands of landowners, and the spider web of electrical cables and gas and water pipes that had to be relocated to make way for the new station. Each task force undertook a thorough analysis of the challenges, prioritized measures to solve them, ensured the necessary management decisions were made, and tracked implementation progress on a daily basis.

Finally, we helped the client set up an operationally independent project-management company equipped with the capabilities to oversee the decade long implementation of this massive, complex project. The new company has been designed and staffed to bring deep expertise in risk, schedule, and claim management—as well as stakeholder management, critical to sustain the support of the many public and private entities involved.

Impact

The revised overall cost, along with the transparency we created on project risks and opportunities, restored the project's credibility in the eyes of funders—and helped reconfirm their support for full implementation. Backers were also impressed at the depth of the design-to-cost effort, which pinpointed cost-reduction opportunities in the region of 10 percent of the total budget.

At the same time, the operational task forces stabilized project delivery and broke through major bottlenecks that had caused delays, thus accelerating implementation and making it feasible once again that the project would “go live” on the envisioned completion date.

The new project-management company was successfully launched as an independent legal entity and equipped with the core skills needed to drive daily implementation, manage a complex web of contractors, keep a tight focus on costs, remove bottlenecks, and engage various government authorities and other stakeholders with transparency and credibility.

FEATURED EXPERTS

Michael Della Rocca

Partner, Philadelphia

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