"How people cheat in large-scale projects"

Using a satirical parable about an “entrepreneur” and an “investor,” the article exposes how an investor can be deliberately misled about a project’s actual cost and duration to get it started and then keep it going through repeated delays. It shows how gradually getting used to an expanding budget, combined with reputational risks, can pressure an investor into continuing to fund a project known to be unprofitable. As an alternative, the author proposes systematic solutions drawn from international project management practice: an independent cold-eye review or due diligence before funds are committed; a phased gate model with project economics recalculated after each stage; an unaffiliated PMC contractor to provide an objective assessment; and arrangements such as design–build–operate–maintain that link the contractor to the facility’s long-term operation. The key takeaway is that investors need independent oversight and staged decision-making tools to avoid becoming “hostages” to their projects.

A slightly satirical note about the risks of investing in projects. The characters and events are fictitious, any similarities with real situations are purely coincidental.

Introduction.
Once upon a time there lived 2 people.
Let's call the first one "investor". He has a lot of money, and he needs to invest this money somewhere. After all, as you know, money should work.
Let's call the second one "entrepreneur." He has no money, but he has ideas for investment.

Scene one.
An entrepreneur comes to an investor with a conversation: "There is a topic: we invest 2 million in a plant construction project for 4 years, after the launch of the plant we receive an income of 5 million."
The investor agrees (Why not agree? Profit 3 million, profitability more than 200 percent).
The project is initiated.
The entrepreneur is appointed as the project manager.

Scene two.
A year has passed.
The project manager reports: "500 thousand spent. Unfortunately (and, of course, for reasons beyond my control), the cost of the project increases to 3.5 million."
The investor winced, but thought: "It's bad, of course. I will earn less than I planned. But the project is still in the black by 1.5 million. Let's move on."

Scene three.
Another year has passed.
The project manager reports: "2 million spent. Unfortunately, the projected total cost increases to 6 million."
At this point the investor became seriously angry. "The project ceases to be profitable and becomes unprofitable: the projected losses amount to 1 million. But if you stop the project now, the losses will amount to 2 million already spent," the investor thought to himself.
As you know, choose the lesser of two evils. Therefore, the project was continued.

Scene four.
Another year has passed.
The project manager reports: "4 million spent. Unfortunately, the current estimate is that the total cost of the project is 10 million."
The investor had a strong desire to close this ill-fated project altogether. After all, losses in case of closure of the project will be less than if it continues. But here the question of reputation came into play: after all, closing the project now means signing on for failure. And people don't like to look like losers, especially people with a lot of money.
Reluctantly, the investor decided to see the project through to completion.

Conclusion
The project was implemented over 10 years, the cost of the project was 15 million.
The investor suffered a loss of 10 million.
Curtain.

What's the catch?
The entrepreneur knew from the very beginning that the project cost 15 million, and the real time frame for its implementation was 10 years.
He simply gave information to the investor in a light favorable to himself.
And it is beneficial for him that, firstly, the project is launched, and secondly, it continues the longer, the better. Because while the project is ongoing, it:
A) Employed and receiving a salary;
B) Controls cash flows for the project.
And the investor's profit or loss is the investor's problem...

So what should investors do about it?

In the world practice of project management there are several system solutions:

Independent examination project before each decision to allocate funds. In the practice of the oil and gas industry, I met it under the name "Cold-eye-review", and in the practice of the nuclear industry - as the "Due Diligence" examination. Regardless of the name, during the independent examination a variety of aspects of the project are considered: technical (design) solutions, contract strategy, logistics schemes, schedule, budget, management processes, organizational structure of the project, etc. That is, we are not talking about an audit of processes for ISO certification or a formal verification of compliance with any procedures, but about an independent operational examination of the project, as lawyers say "on the merits."
Application "gate model". The project is divided into phases that are carried out sequentially (For example, "Assessment", "Selection", "Definition", "Implementation"). At the end of each phase, more accurate information appears, on the basis of which the economic indicators of the project are recalculated. And only if the economic indicators are confirmed, funding is allocated for the work of the next phase.
Attracting an independent PMC contractor, which is not affiliated with the project operator or contractors, and provides the Investor with an objective picture of the project.
Implementation of the project under contract scheme "Design-build-operate-maintain", when the project operator company itself operates the constructed facility and receives profit from the sale of products.