Reference no: EM133303059

Case Study:

Olympics (B): The Olympics, Project Management, and PMI's Code of Ethics and Professional Conduct.

Project managers are expected to abide by the Code of Ethics and Professional Conduct established by the Project Management Institute (PMI). But sometimes doing so is difficult. There are situations where executives in the company you work for, or external stakeholders may act in an immoral or unethical manner for either personal or company gain. Although you, as a project manager, may not personally act in this unprofessional manner, you may be drawn into it by decisions made by your company's hierarchy. What if you like the company you work for and do not want to leave? What if you had no knowledge that this was happening until well into the project? What if you are asked to be part of this while managing a project? What if this is forced on you by the stakeholders after the project begins? 

Sochi Olympic Games 

The 2014 Winter Olympics in Sochi, Russia, had an initial budget of $12 billion, and the organizers had expected a cash surplus of over $300 million after the Games were over. The $12 billion estimate was significantly more than the $8 billion spent in the 2010 Winter Olympics in Vancouver, Canada. The final cost of the Sochi Olympics eventually ballooned to an estimated $51 billion and surpassed the $44 billion spent in the Beijing Summer Olympics in 2008, which had been the most expensive Olympic Games in history. Generally speaking, Summer Olympics should cost more than Winter Olympics because of the factors shown in Table I.

Table I  Comparison of Beijing Summer and Sochi Winter Olympic Games

Factors	Beijing Summer	Sochi Games Athletes
Athletes	10,942	2873
Event	302	98
Venues (Sports Discipline)	28	15

There were political reasons behind the high cost of the Beijing Games. China wanted to show the world that it was now a political and economic power. The Olympics Games were one of the means by which China achieved its goal. Vladimir Putin hoped that, by hosting the Winter Olympics in 2014 and the World Cup in 2018, Russia would demonstrate to the world his nation's political and economic power. There was a valid reason why the costs escalated at Sochi. Russia wanted Sochi to become the premier year-round resort area for years to come. This required that significant expenditures be made to improve the infrastructure in the region, specifically telecommunications, electric power generation, and transportation such as roads, railways, stations, bridges, tunnels, interchanges, and air[1]ports. Other infrastructure requirements were needed specifically to support the Games, such as housing for the athletes and for IOC officials and guests, facilities for the media and the press, and security. Generally, it is not a good idea to include infrastructure costs as part of the costs for running the Games because many such costs are expenditures that would most likely have been spent on development of the region even if the Games were not held. Infrastructure costs are long-term investments. In Sochi, only 13 of the 424 facilities built for the Olympics were sports-related.

The contracts for the infrastructure development, especially construction[1]related contracts, provided some people with the opportunity for embezzlement, kickbacks, graft, and other forms of corruption. There appeared to be an absence of fair competition in the awarding some contracts. Sochi was not the only Olympic Games to have these issues. The 2002 Salt Lake City Winter Olympics also suffered from corruption and mismanagement, as did other Olympic Games. Mitt Romney was brought in to clean up the mess in the Salt Lake City Olympics. 

Cost Escalations at Sochi

As work at Sochi began, the escalation of the costs provided ammunition for Putin's adversaries, who claimed that a good portion of the corruption was at the hands of government officials The opposition figures Leonid Martynyuk and former Deputy Prime Minister Boris Nemtsov claimed in a May report that up to $30 billion of the $51 billion budget had gone missing in "kickbacks and embezzlement" to close associates of Putin, claiming the Games had turned into a "monstrous scam.

There was also criticism of the construction of a road that was deemed an infrastructure necessity, but many believed would not have been needed if it were not for the Games. 

An 18-mile road between Sochi, where events such as hockey, speed skating and figure skating will be held, and the mountain sports cluster of Krasnaya Polyana [for skiing and snowboarding events] has become a symbol of the huge cost increases, spiraling to a reported $8.6 billion. "You could have paved this road with five million tons of gold or caviar and the price would have been the same," Nemtsov said in an interview with the RBK television channel in July.

The massive construction requirements for the infrastructure improvements and the need to have the opening ceremonies on time required tens of thousands of construction workers, including 16,000 from outside Russia. Many of the non[1]Russian workers felt that they were being exploited.

A Human Rights Watch report accused firms contracted to build venues including the Central Olympic Stadium, the main Olympic village, and the main media centre of cheating workers out of wages and requiring them to work 12-hour shifts with few days off. The companies were also accused of confiscating passports and work permits, apparently to coerce employees to remain in exploitative jobs.

For the Russian government, the Olympic Games were a sign of national prestige and pride. For Putin, the Games would be part of his legacy. Therefore, because of the importance of the Sochi Games, no one was afraid to let costs escalate and ask for more money for contracts. It is also necessary to understand who was receiving the lucrative contracts. 

Two kinds of private business interests are involved in Sochi: companies hired by state-owned corporations to carry out specific work and those who came on as investors, taking responsibility for various projects and putting up at least some of their own money. Among the first group, according to the Nemtsov and Martynyuk report and opposition magazine New Times, no one has gotten more money from Sochi than brothers Arkady and Boris Rotenberg, childhood friends of Putin's from St. Petersburg who have become wealthy industrialists over the past decade. They received 21 contracts, according to the magazine, worth around $7 billion-more than the total cost of the Vancouver Olympics and around 14 percent of all spending for the Sochi Games.4 The private investors helping fund Olympic construction are most likely motivated less by the pursuit of large profits than a tacit understanding that under Putin they have certain obligations to the Kremlin and the nation at large. "They got a call with a voice saying, 'There exists the opinion that you should build this or that [project],' " says Sergei Aleksashenko, a former deputy chair of Russia's Central Bank now a fellow at Georgetown University.

Both the Russian Government officials awarding the contracts and the con[1]tractors understood the rules of the game. Contractors wanted to make a profit, often an excessive one. Officials awarding the contracts wanted kickbacks. Many contracts were artificially inflated, without any justification, to satisfy both parties. Other contracts were allowed to increase after contract award, knowing that additional funding would be provided. Examples of how some of the costs had increased are shown in Table II. 

Some Russian government officials have been charged with criminal activities. On February 6, 2013, Putin visited the ski jump facility in Krasnaya Polyana. Although the original cost of the venue was $40 million, the cost had risen to $267 million. Akhmed Bilalov was the head of the state-owned company responsible for construction of the ski jump venue. Bilalov was also vice president of the Russian Olympic Committee. The day after Putin's visit, Bilalov was removed from both positions and criminal charges were brought against him for fraud. He and his brother immediately left the country for London. The people working on the project stated that the proper geological tests were not done initially, leading to significant cost increases and constantly changing plans. The ski jump situation is an example of how big business, improper planning, and lax oversight leads to inefficient spending and possible abuse

Venue	Final Cost	Times Original Cost
Ski jump  Stadium  Speed skating   Bobsled	$267 million 6 times $700 million $226 million $76.5 million	6 times 14 times 7 times 1.6 times

Other issues related to corruption at the Sochi Games include: 

? Russian taxpayers picked up 96 percent of the tab. 

? The Olympic Stadium was two and a half times more expensive than similar stadiums in Europe; its cost may have gone up 14-fold in seven years. 

? Three of Putin's old friends were awarded contracts totaling $15 billion. 

? A Mafia-linked businessman with ties to Putin's friends built the Shayba hockey arena for $33 million over market price. 

? Prime Minister Dmitry Medvedev's ski instructor was awarded contracts totaling $2.5 billion. 

? A construction company owned by Siberian politicians with no experience building sports arenas spent $500 million on projects up to 2.3 times over market price. 

? The local governor spent $15 million in Olympic funds on a helicopter for himself. 

? A power station built at nearly double market price could not supply Sochi with enough electricity for the Olympics. 

? The speed skating arena was seven times over budget and $130 million over market price. 

? The Iceberg Skating Palace cost more than double the equivalent arena built for the 2006 Olympics in Turin. 

? The state company in charge of the Olympics had four directors in six years and was the subject of numerous criminal investigations.

? Putin spent Russian Orthodox Christmas in a new $15 million church paid for out of the Olympic budget.

Epilogue 

Large international sports events, such as the FIFA World Cup and the Olympic Games, are prone to corruption. Situations such as those that happened at Sochi probably occurred at several other Olympic Games but were not as publicized. But at Sochi, despite the cost overruns, schedule slippages, corruption, doping scandals that followed the Games, and complaints of shoddy workmanship, both the athletes and the worldwide audience appeared to be enormously satisfied with the Games. Putin achieved his goal. However, most residents of Sochi have seen very few economic benefits as a result of hosting the Games. Many of the problems that existed before the Sochi Olympics, such as poor transportation, potential for flooding, and electricity concerns, still remain unresolved.

Considering the PMI Code of Ethics and Professional Conduct, answer the following questions. For each question, assume you are a project manager employed by a company in the private sector. Your company has one or more contracts for venues at the Olympic Games.

Question 1. You have been assigned to manage one project and believe that there may be some corruption that could directly involve you in the future. As an example, an IOC official asks you to help her scalp tickets to some of the events with the promise that she will share some of the profits with you. What should you do? 

Question 2. You have been assigned to manage one project. Partway through the project, your senior management informs you that you must request (without any real justification) more money from the OCOG because one member of the OCOG wants a larger kickback. What should you do? 

Question 3. Partway through your project, one government stakeholder tells you that the government will pay you only 75 percent of the remaining cost; the other 25 percent will be withheld as a kickback. What should you do assuming that you need the remaining 25 percent to complete the project? 

Question 4. Partway through the project, your senior management tells you to sacrifice quality to keep costs down to compensate for the corruption. What should you do?