Finance in Project Management Case Study of the 2012 London Olympics (Essay Sample)

Finance in Project Management Case Study of the 2012 London Olympics
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Finance in Project Management case study of the 2012 London Olympics
Criticism has often been placed on large-scale infrastructure projects due to their hefty budgets and inability to deliver the promised benefits. The London 2012 Olympic project budget faced some criticisms as various parties termed the budget as highly costly. The initial cost of the project in one of the early projections was settled at £1.8 billion (Kim 2013). The figure later on increased to £4.2 billion and was then submitted to the International Olympic Committee where the cost was again revised upwards to £9.325 billion during a formal government review. After this review, cost increases have consistently become part of the project as each of the contingencies and construction of the project. The spiraling costs have had a significant impact on the project, with costs rising from time to time. As much as the team engaged in proper planning, the costs increase resulted to underestimation of the entire budgeting system, resulting to experiencing further extra costs into the project (Grabher and Thiel 2015). This paper reviews issues related to the London 2012 Olympic project as a basis for the project analysis.
Budgeting and cost control
Budgeting and cost control at the 2012 Olympic is one of the major aspects that raised eyebrows as the costs kept rising and shifting from on point to the other. With the costs initially set at £1.8 billion by the committee in charge. After the bidding process and the tender awarded to England, the cost analysis kept rising as new processes emerged into the budget. The government noted that the cost turned into £528m less than the expected. The overall cost of hosting both the Olympics and Paralympics was finally budgeted at £9.29billion notwithstanding that the cost had undergone significant changes (Tramantano, Barnwell, Bishop, Jones, and Miller 2015). The original budget projected in 2007 was estimated at four times the cost that was incurred in 2005 during the bidding. Some of the costs that were overlooked during the initial budgeting include the VAT costs, the security costs, and a little expansion that were made from time to time.
The above illustrates some of the major issues faced by the project managers in regards to budgeting and cost control. One such issue is the lack of proper planning(Arnold 2013). The spiraling and inconsistent rise in the budgeted cost illustrates poor planning or lack of proper planning of the event. The budgeting process was left to the Olympic Delivery Authority, which did not have adequate sittings to make decisions on budgetary items such as the cost approximations, key areas to be considered, and other relevant costs within the budget. Cost control was equally an issue as the Olympic Delivery Authority did not have proper controls on the various costs. This implies that the expenses were not well regulated resulting into the unnecessary expenses. During cost control in a project, the project team needs to estimate the required costs and the potential risks attached to such costs(Farrell 2003). This was not the case in the 2012 London Olympics, where the costs were arrived at without instituting any control. The result was the massive expenses and spiraling of costs experienced in the project life.
Funding
As articulated above, the funding was expected from both the public and the private sector. The public sector funding was estimated at £3.4 billion while the private sector funding stood at £738 million. The increase in cost estimates resulted in the public funding increasing by £5.9 billion given the lower expectation from the private sector funding. Out of the above amount, the Exchequer was estimated to meet approximately £4.9 billion, and the national lottery to meet the rest.
Considering the above, a number of issues can be highlighted on the funding. One such is the failure to plan on the sources of funds. The funds were expected from the public and the private sectors. Both the sources failed to fulfill their parts sufficiently. Thus, instead of receiving £738 million from the private sector, only £168 million was received, a major deviation from what was intended. This depicts the lack of proper consultation with the interested parties, causing the Olympic Delivery Authority to experience massive losses. The public sector, therefore, had to incur huge expenses to bring balance to the budget that was already becoming insufficient. The private sector was further required to fund the Olympic village, in contrary fully, they failed, leading to deficiencies in various areas. The poor funding can be attributed to improper planning and communication between the concerned parties(Farrell 2003). The Olympics Delivery Authority made a mistake of budgeting with funds they had not yet received and were not certain about.
Investment appraisal
The London bid to host the London 2012 Olympic games was pegged on long-term benefit, which was anticipated to boost the country’s economy. The government had further set up 5-high level legacy promises, which would stem from the hosting of the global event. The government was set to proceed and publish the legacy action plan in 2008. According to Tessa Jowell, the Minister for Olympics and London, the London Olympics and Paralympics would constitute the biggest and largest event to be ever hosted by the United Kingdom. In this regard, the benefits will not only be incurred in the initial five weeks but also will spread across many years to come (Thiel and Grabher 2015).
Despite being an investment and opportunity to depict the United Kingdom as a place ideal for visits and business, the cost was unreasonable. Investments need to be associated with the cost-benefit analysis to ensure that balance is strike between the benefits and the costs(Farrell 2003). In cases where the cost seems to exceed the benefits, the board or concerned committee needs to review the project and initiate a different approach. The Olympic Delivery Authority failed to make such decisions, and as a result, the cost exceeded the anticipated benefits. Despite the legacy promises published, it is evident that the cost exceeded the anticipated benefits. This is attributed to poor planning.
Provider selection and management
The providers of the 2012 London Olympics games were to emerge from both the public and the private sector. The private sector was anticipated to make bids in providing basic services such as deliveries and contracts during the establishment period. The Olympic Delivery Association (ODA) (Jennings 2012) did the management of the 2012 London Olympics. A number of issues were faced in the provider selection and management. The Olympic Delivery Authority utilized a bidding system where the private sector players were expected to bid tenders for making various participations. The bidding was not successful as anticipated since most of the private sector players did not participate. This was attributed to the improper planning of the process and lack of adequate communications regarding the tender prices. Most members of the public sector were equally uncertain about the project demands, as the planning process was poorly coordinated (Callahan, Stetz and Brooks 2011).
Procurement
Being a government funded organization; the Olympics Delivery Authority was under an obligation to abide by the EU procurement regulations. The procurement regulations are mainly aligned with fairness, transparency, and non-discrimination in competition management. This implies that each of the tenders were to be won fairly and the companies had to place a bid for the tenders. Apart from the above procurement principles, the Olympic Delivery Association had many priority themes set to offer guideline through the construction program (Thiel and Grabher 2015).
The procurement process was not properly coordinated. Procurement needs to be done in cases where adequate planning has been made. The procurement, in this case, was done after the shallow budget was drawn, leading to several inefficiencies in the budget. The estimated costs did not tally with the actual costs, thereby leading to great deviation from the budgeted outcome. The procured items, therefore, did not meet the required quantity. Relatively, the Olympic Delivery Authority failed to monitor the quality of products offered. In procurement, the quality delivered must tally with the agreed upon quality. The ODA failed to monitor this leading to delivery of varying qualities that resulted to wastage. The expected parties equally not effectively participated the procurement tenders in; only a few companies participated in the tenders leading to poor selection process (Arnold 2013).
Sustainability
Sustainability constitutes one of the major factors that led to the UK bidding to host the 2012 Olympics. The United Kingdom government aimed at preparing a sustainable environment where the population could benefit from various opportunities created by the 2012 Olympics. Despite the attainment of this objective, the cost incurred was highly ridiculous. The ODA Committee failed to take a considerable analysis of costs versus benefits of the project. This implies that the project cost more than the anticipated benefits(Hou, Al-Tabbaa, and Hellings 2014). Such resulted in the eyebrows that the project raised despite being considered a breakthrough. In addition, the huge public spending had a negative impact on the economy as the government had to spend a lot on the project(Farrell 2003). Critical analysis of the project, therefore, depicts that the sustainability criteria was not effi...