Panama Canal expansion - Essay Example

REPORT ON THE PANAMA CANAL EXPANSION PROJECT Table of Contents Table of Contents 2 Introduction 3 Background 3 Literature Review 5 International governance of projects 5 Corporate Social Responsibility 6 Stakeholders in projects 7 Project maturity 7 Findings 8 Finances 8 Environmental Impact 9 Stakeholders 10 Project Maturity and the Project Approach 10 Governance and oversight 11 Risk mitigation 11 High level risks and insurances 12 Procurement Policies 12 Strategic Human Resource Management and HR concerns 12 Performance Assessment of the Panama Expansion Project 12 Earned Value management 13 Professional Reflective statement 13 Conclusion 13 Recommendations 14 Bibliography 15 Abstract This report discusses the issues considered in Panama expansion project. The main issues analyzed in this report include financing of the project, its environmental impacts, main stakeholders and governance and oversight of implementation project. Risk mitigation, high level risks and insurances and procurement policies followed in carrying out the Panama expansion project. The report will first begin with a small background on Panama project then a literature review will be presented. Introduction Most infrastructural mega projects are prone to suffer from cost overruns, delays, poor performance or inability to give customer satisfaction if inadequately managed. Interaction of several factors such as governance of such projects, their financing, human management and financing can cause complexities which can either promote their success or inhibit it depending on how they are approached. It is therefore crucial for project managers to thus critically analyze a mega project before undertaking it. This report takes an in-depth assessment of the expansion of the Panama Canal which is one of the busiest waterways internationally. Panama expansion project is also of key interest given that it plays a critical role in maritime trade and brings together international concerns. This report highlights some of the areas that have been considered since the decision to embark on Panama Canal Expansion Program was made. Background The initial construction of Panama Canal went underway in 1880 under the leadership of Ferdinand de Lesseps who built Suez Canal. This was a large scale project undertaken by people who had little prior experience in canal construction. They faced several challenges including minimal workforce, diseases and lack of funding. The geology of the region also posed a challenge to the construction work. A second company, the Compagnie Nouvelle du Canal de Panama, was contracted to complete the construction (Mack, 1944, p.24-26). After the American government the requested French machinery for construction, work officially began in 1904. Despite the challenges encountered in constructing the canal, Panama Canal was completed a decade later. The canal comprises of artificial lakes, channels and sets of locks. The three lock system included a one-stage Pedro Miguel lock, a two-stage Miraflores lock system and a three-stage Gatun locks (Maddox, 1993, p. 78). The locks determine the size of which ship can be allowed entry. Since the Panama Canal is of great importance to international trade, most traders use ships with a maximum size the locks can allow. With continued development and increase in international trade, Panama Canal lacked enough capacity to accommodate this growth, hence ship traffic congestion. As a result, it has lost market share to other trade routes including Suez Canal. Besides this, the canal has stagnated in growth of transit demand; its canal structure is outdated and lacked the ability to divert traffic to alternative routes (Dasgupta Marine insight, 2011, p.1). For this reason, Panama Canal Authority proposed the expansion of Panama Canal (Reagan, 2007, p.16). By doing so; APC applied the project principle of analyzing its customers’ needs. By expanding the canal, customers will be able to ferry more cargo at once. On October 22, 2006, Panama held a national referendum to decide on whether to implement the expansion project of the canal. The results indicated a seventy eight percent approval from voters. This would be a major undertaking to Panama. The project would create a new lane of traffic through construction of a new set of locks. The two lock complexes would be located on the Atlantic side and on the Pacific side. In addition to that, excavation would take place to create new access channels and deepen navigation channels (Dasgupta Marine insight, 2011, p.1). Literature Review International governance of projects There are three major challenges facing international projects which include presence of different national cultures which leads to communication and work-style concerns. In such international projects, the workers are not exposed to a domestic multiculturalism and the minority, that is, the expatriate holds special power given that they control special expertise (Kealey et al, 2006, p. 38). However, the locals expect things to be done their way and this creates disharmony. The strategies used in dealing with cultural friction are creation of a corporate culture which overrides cultural differences (Kealey et al, 2006, p. 39). Another challenge with international projects is distance where the expatriates have to work away from their families and their headquarters and this can negatively affect their morale (Cullen, Johnson and Sakano, 2000, p. 223). Furthermore, few face to face meetings with heads can result in misunderstandings. International projects are faced by a challenge of accurately determining their impacts to social, economic and political environment (Cullen, Johnson and Sakano, 2000, p. 223). There are also other causes of failure of projects including failing to examine, prioritize and clarify the motives of the project and its strategic goals. Project failure may also result from failing to choose the best partners to complement the goals of the organization and blend well with the culture of the implementing organization (Cendant Mobility, 2000). Failure to plan is also a starting point of a failure of an organization. During the planning stage, the goals of the project are defined and the budget developed. The goals set must be realistic given that failure to develop realistic goals also leads to failure (Kealey et al, 2006, p. 43). Large projects require extensive consultation and consensus building with all stakeholders involved given that failure to involve all stakeholders leads to discontentment among the people living in the area where the project is implemented (Cullen, Johnson and Sakano, 2000, p. 223). Failure to initiate proactive measures to monitor the environmental impacts of the project can lead to the failure of a project. Environmental challenges of international projects occur at three stages including failure to assess whether the economic and political environment is supportive to allow implementation of such a project. Secondly, the consulting firm may be overly confident that success factors achieved in their home countries may be replicated elsewhere (Cendant Mobility, 2000). In addition, most international projects fail to influence local environment. Although it is impossible to control social and political environment, project managers can foster cordial relationships with opinion setters and local authorities, solicit opinions from them and develop community linkages by organizing sports teams, contests and scholarships (Kealey et al, 2006, p. 45). Corporate Social Responsibility CSR describes projects which reflect a sense of responsibility to the society and must therefore be planned with this goal in mind. CSR targets to ensure projects are implemented responsibly (Manuel Castelo BrancoLúcia, 2006, p. 111). Moreover, they encourage positive impacts by organizing activities to take care of the environment, employees, consumers, communities and all the other stakeholders. The most common approach in CSR is one of philanthropy where monetary donations and aid is given to local communities (Charles and Hill, 2004, p. 135). For projects to be considered as adhering to CSR standards, they must be accountable where the company explains all the environmental and social impacts of their actions to interest groups and the community at large (Charles and Hill, 2004, p. 135). CSR increase acceptance of the project by the community and in case of profit making company, CSR may lead to international accreditation and is also important in managing risks given that action taken during CSR initiatives that can prevent accidents (Charles and Hill, 2004, p. 135). In some cases, CSR is a requirement before a company licensed to operate as they must demonstrate a commitment to care for social welfare of the people and the environment (Manuel Castelo BrancoLúcia, 2006, p. 111). CSR is useful in brand recognition where companies which are engaged in CSR are defined by their activities to the people. Stakeholders in projects A stakeholder in a project is defined as any person, group, or organization which may be affected or has interest in a project or its outcomes both directly and indirectly (Paloviita and Luoma-aho, 2010, p. 306). Identifying stakeholders and their expectations increases the chances of a project success. Stakeholders are categorized into either internal or external stakeholders. Internal stakeholders include sponsors, internal customers, project team, portfolio manager and the project manager. External stakeholders include customers, suppliers, end-users of the product, governments, sub-contractors, media and local communities (Paloviita and Luoma-aho, 2010, p. 308). All stakeholders must be identified before inception of the project and then a strategy to management them developed. Project maturity Project maturity model is a method used in determining the present level in project management ability. The first level is known as the ad hoc level where many informal and incomplete approaches are used in handling a project (Robertson, 2011, p. 2). The outcomes of the project are not predictable and lessons learnt when implementing a particular project are not passed on for usage in future projects. Level two in project maturity is known as the foundation and a consistent approach is followed in project implementation. These projects also have managed support and processes used can be replicated and outcomes predictable. Thirdly, there is managed level where a consistent and comprehensive approach is followed in project implementation. The project also has support from senior management and such projects are usually implemented as a replication of previous projects. The level 4 projects are known as integrated projects and portfolio management of the project is usually institutionalized and incorporated in business planning. Such projects also have active participation from senior management and databases from previous projects are used. Lastly, the highest level of project management is the optimization level where improvement of the project management environment is fostered and flexibility is upheld. Findings Finances The main reason behind the expansion project is to increase Panama’s profitability from the traffic demand. The Panama Canal Authority (ACP) estimated that the project would cost approximately $5.25 billion (2009: p. 9). These costs would cover design, administrative, environmental mitigation, commissioning costs and construction. The estimates also took into account contingencies to cover risks. However, it excluded interest costs on loans that would be taken during construction. One of the complexities facing funding is in relation to the source of funds and determination of project costs. Some of the contenders of the project argued that it was based on uncertainties concerning maritime trade and global economy. Some people argued that the financial and economic projections made concerning the project were based on manipulated data (Jackson, 2007: pp.12). In the midst of the 2008 global financial crisis, loans were taken from government-owned financial institutions to finance the $2.3 billion budget. Some of the leading institutions approached include Japan Bank for International Cooperation, European Investment Bank, Inter-American Development Bank CorporacionAndina de Fomento and International Finance Corporation (Jackson, 2007: p.12). Environmental Impact One of the major requirements for this project was colossal amounts of water (Rosales, 2007, p. 16). The canal experienced shortage of water over the years due to environmental phenomena such as the El Nino. Thus, the project needed more supply for the expanded waterway. Previously, hydraulic projects were put in place to mitigate the problem. The waterway was fed with water from lakes and rivers that served the rural communities. Lack of consultation with the locals ignited reactions from peasants and Panamanian citizens (Chambers, 1983, p. 123). Actions by ACP were justified by urgency to update the waterway to meet the trends in global maritime trade and claims of the dependency on national development on the project. Consequently, water scarcity has proved to be a great challenge (Jeonget al., 2009: p. 12). Change in land use as a result of loss of vegetative cover and biomass has brought about several effects including microclimatic changes (Panama Canal Authority, 2007, p.5). Secondly, there is loss of potential carbon capture as excavations and deepening of sea level exposes soil surfaces. All these impacts directly affect the local people. This can have a negative influence on the project as they will not give the full support for it. Many locals argued that they do not use the canal yet they are bearing the brunt of its expansion. Stakeholders The government of Panama has partnered with other private firms to oversee the expansion project (Pearson, 2006: p3 23). Some of the stakeholders in the expansion project include financial institutions that have offered funds for the project in terms of loans. By approaching many financial institutions, the government reduces its stake in the project. As a result, instead of being a government run project, it may be run a small group of stakeholders with majority shares. Other stakeholders include the locals, environmental protection groups and the project team. Project Maturity and the Project Approach The implementation of Panama Canal expansion project is at level five of project management. This is because a consistent and comprehensive approach is observed in project implementation. Senior management mainly the government supports the project and the consulting firm has effectively planned the project execution plan. The project is utilizing data from previous Canal expansion initiatives and the team members have the required project management skills. The project allows for flexibility as has been witnessed with changes in scheduled date of completion and budgetary allocation. Moreover, the outcomes of the project are highly predictable. Governance and oversight The global recession caused an awakening where people show interest in fiscal responsibility. Moreover, investors seek assurance of positive financial performance. After the referendum, the Panama Canal Expansion Program (PCEP) came under a lot of scrutiny. This made ACP take a conservative approach towards the development of their program (RICS America, 2011, p.2). ACP did this through consultation with firms relevant to the project and setting a timeline for the same. As a result, ACP retained Hill International for the sole purpose of providing program oversight (RICS America, 2011, p.2). Construction Assurance, an independent construction consulting service was also retained to help in the management of the program. The two companies report to the Audit Committee of the Board of Directors, an independent body overseeing the management of the project. Risk mitigation One of the tasks that Hill undertook was to carry out a detailed analysis of the construction program to determine the known and unknown risks that the project was at the risk of facing, their scale and impact. The team formulated a five- year audit plan to mitigate some of the identified risks. Risk assessment is done on a regular basis to identify secondary and new risks that may emerge with changing circumstances (RICS America, 2011, p.2). An advantage of carrying out a risk analysis is that it enables one to formulate measures to mitigate them hence guarantee successful completion of a project. Similarly, Hill’s construction services have offered assurance of a successful completion of the Panama Canal Expansion Project (PCEP). High level risks and insurances Panama Canal expansion project has been delayed due to strike from staff and this can adversely affect the attainment of the project schedule. According to (Winner, 2011), a consortium tasked with the construction of the third phase of locks in the project has confided that the project schedule may be delayed for six months. Procurement Policies In 2006, the government introduced a government procurement law which gives an assurance of equal treatment between national and international bidders (Gerber, 2000, p. 12). Consultants sourced from within may have little capacity to handle such a project or they may have never implemented such a project before therefore affecting the quality of work done and other project deliverables. Strategic Human Resource Management and HR concerns Panama Canal expansion project was locked by human resource tussle as workers went on strike demanding that their wages be increased (Panama Canal Expansion Workers End Strike, 2012). This may in turn affect the quality of work done by the employees. Changes in budgeted employee compensation also affect the total budget of the project thereby inflating the budget from the initial one. Performance Assessment of the Panama Expansion Project A project without any goals and timelines cannot be assessed against its performance. In the case of Panama Canal expansion project, there has been delays following employees strike and this can delay the completion of the project from its projected date of August, 2014 (Komuro, 2009, p.797). To cover up for the wasted time, it is critical that project managers ensure that implementation is even pushed to overtime. Moreover, the performance of the project is based on its successful completion within the budget. Earned Value management In managing a major project such as Panama Canal expansion project, project managers must incorporate earned value management (EVM). EVM is a control management system which helps in assessing and quantifying what is achieved by a contractor by using the project funds. It incorporates technical, costs, schedule and risk management. As at December 2011, the project had advanced by 32 % and a total of $ 4.257 billion dollars had been paid to the contactor, which is within the projects total budget of 5.25 billion dollars (Winner, 2011). Professional Reflective statement From the analysis carried out in the report, it is evident that Panama has employed project management procedures to ensure that it is completely within schedule and as budgeted. The report demonstrates that implementation of projects managers monitor the progress of the project and involve all the stakeholders concerned. One of the issues that stand out is the opposition of the project by several groups. Some of the reasons for opposition seem to arise from lack of transparency. Conclusion The Panama Canal expansion Program is one of the major world mega-projects. Its success or failure has a great impact not only on the Panamanian citizens but also on international maritime trade. Some of the positive impacts the project has include increase in revenue, generation of wealth and employment opportunities. Nevertheless, the project has certain risks including major risks is environmental degradation. However, this can be managed through proper implementation of mitigation measures. The government has managed to fund the project through loans and working in partnership with investors such as private firms. Recommendations Transparency in the authority’s undertakings. This can be done through regular press releases of information regarding the project. Through this, the public will be at per with the project’s progress. The Panama Canal Authority should also do a close follow up on the implementation of mitigation measures formulated to deal with environmental impact of the project. By working closely with the National Environmental Authority (ANAM), ACP can ensure that the local people feel as little impact as possible from the expansion project (All About Shipping, 2011. p.1). Another recommendation would be to carry out further sensitization of the public regarding the expansion project. Bibliography ACP 2009, “Annual Report", 2009, Panama Canal Authority. Berman, J., 2006, “Panama Canal expansion to reduce congestion, boost capacity”, Logistics Management (2002), 45(11), pp. n/a-n/a. Burnson, P., 2012, “Is The Panama Canal Expansion Really a Game Changer?”, Supply Chain Management Review, 16(1), pp. 6-7. Bush Promotes FTA in Brazil and Panama; Haiti Prepares for Elections. 2006. Foreign Policy Bulletin, 16(3), pp. 266-285. Caso, A., Welsh, M., 1978, They Too Made America Great, Branden Books. Cendant Mobility, 2002, “New approaches to global mobility: 2002 world benchmark study. Danbury, CT: Cendant Mobility Corporation. Chambers R. 1983. Rural Development: Putting the Las First. New York: Longman Scientific & Technical. Charles, G. & Hill, T.D. 2004, "Towards an Iso for Corporate Social Responsibility", Quality Congress.ASQ's ...Annual Quality Congress Proceedings, vol. 58, pp. 135-145. Crittenden, J.,Jeong, H., Xu, M., Dec 2009, “Panama Canal Case Study,” Cullen, J., Johnson, J and Sakano, T., 2000, “Success through commitment and trust: The soft side of strategic alliance management. Journal of World Business 35(3): 223-240. “Construction Assured: Governance and Risk Mitigation on the Panama Canal Expansion,” May 2011, RICS Americas, vol. 1, issue 5. Dasgupta, S., 2011, ‘The Panama Canal Expansion Project and Its Benefits to the Shipping Industry’ Retrieved on March 15, 2012, from http://www.marineinsight.com/marine/the-panama-canal-expansion-project-and-its-benefits-to-the-shipping-industry/ DuTemple, Lesley A., "The Panama Canal", 2002, Lerner Publishing Group Gagné, G., 2011, “Free Trade and Cultural Policies: Evidence from Three US Agreements”, Journal of World Trade, 45(6), pp. 1267-1284. Gerber, J., 2000, “National Policies and the Limits of International Integration”, The Estey Centre Journal of International Law and Trade Policy, 1(1), pp. 11-22. Hayward, C., 2007, “Panama Canal expansion will attract investment flows”, Euromoney, , pp. 1-1. Jackson, E., 2007,‘Shipping industry complains about PanCanal toll hikes.’ Kealey, D., et al., 2006, “International Projects; Some lessons on avoiding failure and maximizing success”, Performance improvement Journal Vol. 45 (3): 38-45. Komuro, N., 2009, “FTA Outward Processing at the Crossroads”, Journal of World Trade, 43(4), pp. 797-846. Mack G., 1944,The Land Divided: A History of the Panama Canal and Other Isthmian Canal Maddox W.T., 1993, Panama Canal beyond the Year 2000, the Industrial College of the Armed Forces. National Defense University, Washington D.C. Manuel Castelo BrancoLúcia, L.R. 2006, "Corporate Social Responsibility and Resource-Based Perspectives", Journal of Business Ethics, vol. 69, no. 2, pp. 111-132. Paloviita, A. & Luoma-aho, V. 2010, "Recognizing definitive stakeholders in corporate environmental management", Management Research Review, vol. 33, no. 4, pp. 306-316. Panama & U.S. complete FTA. 2007. Beef, 43(6), pp. 7-7. Panama Canal Authority Announces Expansion Plans. 2006. Canadian Transportation Logistics, 109(5), pp. 12-12 Panama Canal Authority, 2007, Canal Expansion Program, Environmental impact study (EIS), Chap 4 Description of the physical environment. Panama Canal Expansion Workers End Strike. 2012. Journal of Commerce, , pp. n/a. “Panama Canal Expansion Project Update,” 2011, All About Shipping, Retrieved on March 15, 2012, from http://www.allaboutshipping.co.uk/2011/12/15/panama-canal-expansion-project-update-2/ Pearson, M. 2006, “Littoral society: the concept and the problems”, Journal of World History 17. Projects. New York. Reagan, B., February 2007, "The Panama Canal's Ultimate Upgrade", Popular Mechanics. Robertson, K. 2011, “Project Management Maturity Model”, Leaders in project management: pp 1-5. Rosales, R. M., 2007, “The Panama Canal Expansion Project: Transit Maritime Mega Project Development, Reactions, and Alternatives from Affected People,” University of Florida. Sayre, A., 2010, “Panama Canal Expansion Sets Race among Gulf Ports”, Transport Topics, (3877), pp. 16-16, 19. Ustr Ready to Work with Congress on Panama FTA Implementing Bill. 2011. Inside US Trade, 29(16), pp. n/a. Winner, D., 2001, “Panama Canal Expansion 32 % Advanced (Inadvertent Confirmation of Delays”, viewed 27th April, 2012 < http://www.panama-guide.com/canal/> Appendices Location of transit routes in Panama during colonial times (Castillero Reyes 2003). Table 1showing major Financers of the Panama Expansion project Financier Amount Loaned Japan Bank for International Cooperation (JBIC US$800 million European Investment Bank (EIB) US$500 million Inter-American Development Bank (IDB) US$400 million Corporacion Andina de Fomento (CAF) US$300 million International Finance Corporation (IFC) US$300 million A diagram showing the landscape within Panama environs following the implementation of the project. Project management maturity levels Source (Robertson, 2011) Read More