Frond-End Loading and its Impact on Cost Overruns in the Norwegian Public Sector
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Projects carried out in the public sector of Norway are often plagued with with large budget and schedule overruns. Not only that, the sector also struggles with delivering profitable projects, while delivering on the public service required. Front-end loading, is a process designed to increase the value of an opportunity and to decrease the uncertainty that could arise during their implementation. The Norwegian public sector has incorporated this process in the early 2000s. Front-end loading can be quite demanding, and the expenses of carrying it out can vary from 1% to 7% of the total project expenditures. The process is supposed to decrease the cost overruns the projects might face, but does it really deliver on this promise? Given these facts, this thesis aims to: - Review the international literature to establish an understanding of what the front-end loading - Answer the question of whether the introduction of the Front-End loading scheme really delivers on the promise of cost overrun reduction - Provide the academic community and the public sector of Norway with The process of exploring the Front-End loading related literature, yielded in the identification of the following crucial factors that are most essential for a successful FEL execution: - The use of a structured stage-gated project - Clearly defined project phases - Thorough risk and uncertainty analysis - Clearly defined decision gates - Quality assured basis for the decisions by a third party - Simplicity - Proper understanding and management of cost overrun causes: under which stage they occur and how to mitigate or eliminate their effect on the continuity of the FEL process - Standardization and common terminology In order to answer the question of whether the Front-End loading scheme has had an impact, a portfolio of 91 projects executed post the introduction of the scheme were compared to a second portfolio of projects executed pre-the introduction of the scheme. From the analysis, it appeared that some front-end Loading has had little impact on improving the cost overruns situation in the public sector of Norway. A set of projects were also reviewed individually, in order to identify the causes for cost overruns that are rooted in the Front-End loading scheme execution. Based on the insights gained during the research project, a number of recommendations is given to the academic community and public sector of Norway. To the Academic community of Norway: Research the development of cost estimation between K1 and K2 Research to further document the effect of perverse incentives on the FEL practices Improved sharing of public sector project related data between the different academic institutions of Norway Research on how to improve the adaptation of the government FEL scheme by the different ministries, departments, municipalities and other governmental agents. Research the effect of understanding risk on the decision-making process specifically for project in the public sector of Norway To the Public sector of Norway: Early involvement of the external consultancy services Increased transparency Cost estimates based on uncertainty analysis Improved attitude towards risk Availability of a Database for reference projects as recommended by Merrow: reports should be easily accessible for all departments, ministries and other governmental agencies for sharing experiences.
Master's thesis in Industrial economics