The Channel Tunnel Rail Link source: Akanekal (via Flickr)
The Channel Tunnel or Chunnel is a 31 mile tunnel running underneath the English Channel to carry Eurostar trains and freight trains between the UK and France.
Construction of the tunnel started in 1988, the project took approximately 20% longer than planned (at 6 years vs. 5 years) and came in 80% overbudget (at 4.6 billion pounds vs. a 2.6 billion pound forecast).
The tunnel wasn’t completely unprecedented. The Seikan Tunnel in Japan had similar length and depth. Nonetheless, like projects such as NASA’s missions and the Sydney Opera House, it seems part of the reason for cost overrun was the absence of many precedents and associated experience to base sound estimates off. In fact, subsequently, the Channel Tunnel has been listed as one of the engineering wonders of the world, which emphasizes its uniqueness.
The issues that caused delay resulted from three factors:
- Changed specifications for the tunnel, there was need for air conditioning systems to improve safety that were not included the initial design.
- The communication between the British and French teams who were essentially tunneling from the two different sides and meeting in the middle could have been improved. Theses sorts of communication issues are relatively common in delayed projects when tensions rise, Wembley Stadium is an interesting example, where poor communication meant that junior employees where often more informed about project status than senior managers.
- The contract was bid on by competing firms, this framework will necessarily encourage the ‘winner’s curse’ of the successful bidders having the lowest and most optimistic price estimates, again the Wembley Stadium project offers another example of the winner’s curse.
Another interesting aspect of the Channel Tunnel’s forecasts were that a lot of revenue was projected to come from driving the existing ferry operators out of business. Of course, these ferry operators were the main way to cross the English Channel before the Channel Tunnel existed. However, this analysis ignored the possibility that the ferries would react to the Channel Tunnel with improved pricing and service, leading to them retaining market share. In addition the creation of budget airlines providing cheap air travel between UK and France was not foreseen. It is a good reminder that in making strategic forecasts of benefits or results you should bear in mind how competitors will react to the project you are envisioning.
Whilst it is not a project management issue per se, it should be noted that a great deal of the financial problems with the Channel Tunnel were caused by overly optimistic revenue projections, on top of the construction cost overruns, and those projections failed to anticipate that the set of options for getting from Paris to London might change, both in reaction to the tunnel and because of innovation in other areas such as the development of the budget airline business model.
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Channel Tunnel Drilling Equipment (source: Tony Bradbury)
This entry was posted in change management, decision making, PPM, project failure and tagged channel tunnel, chunnel, cost overrun, English Channel, Eurostar, IGC, project failure, revenue forecasts, Seikan Tunnel. Bookmark the permalink.
Home » Case Studies » Operations and Project Management » Operations and Project Management
Operations and Project Management Case Study
Eurotunnel: In Troubled Waters
Publication Year : 2004
Authors: Sandeep Chaurasia & T Phani Madhav
Case Code: OPM0003
Teaching Note: Not Available
Structured Assignment: Not Available
The Channel tunnel is a 50.4 km long tunnel rail link under the English Channel between UK and France. The Channel tunnel is considered to be one of the greatest civil engineering projects of Europe. Both British and French governments decided against using public money and the contract was awarded to Eurotunnel Group, a major player in the European railroad industry. The project took eight years to complete and became operational on May 6 th 1994. However, with most projections about the traffic to utilise the Channel tunnel not materialising, Eurotunnel ran into losses and by 2003, and was submerged in a debt of �6.4 billion. With the situation deteriorating, a group of shareholders approached the court for a change in the management of Eurotunnel.
- To understand the financial and operational problems faced by Eurotunnel and how it is restructuring its operations and financials to tide over the crisis
- To discuss whether the change in the management would solve the problem for Eurotunnel by increasing the traffic through the Channel tunnel or will the tunnel end up being an engineering wonder that people would like to admire but not use.
Government and Business Environment Case Study, Eurotunnel, Channel tunnel, Construction, Raising finance, UK, France, Financial problems, Losses, Debt restructuring, Passenger services, Freight services,Business Environment Case Study, Channel tunnel railway link, Traffic volumes, Toll tariffs, Shoring up the balance sheet
- Channel Tunnel: A Journey through the Past
- The Financial Crunch
- The Operational Front
- The Path Ahead