January 2, 2021
Infrastructure megaprojects are crucial to the future of cities, states, and individual livelihoods. Governments are now fast-tracking mega transport projects in the quest for an infrastructure-led recovery from the COVID-19 recession
Worldwide spending on megaprojects will reach US$6 and US$8 trillion, or 8% of the total global gross domestic product every year.
Mega projects are particularly risky in Australia as more than one third of overruns since 2001 came from just seven big projects.
Ten years ago there was just one transport infrastructure project in Australia worth more than $5 billion. Today there are nine, and costs have already blown out by $24 billion on just six of them.
Bent Flyvbjerg, an expert in project management at Oxford’s business school, estimated that nine out of ten go over budget. Rail projects, for example, go over budget by an average of 44.7 percent, and their demand is overestimated by 51.4 percent.
McKinsey has estimated that bridges and tunnels incur an average 35 percent cost overrun; for roads, it’s 20 percent.
In order to justify a project, sometimes costs and timelines are systematically underestimated and benefits systematically overestimated
McKinsey studies have shown that delivering infrastructure more efficiently can reduce its whole cost by 15 percent.
Problems materialise during the project lifecycle following commissioning - The long project durations leave plans open to changes to scope or budget.
Of a sample of 3,022 projects, 27% were on budget or better, 2.8% were on budget and on time, while only 0.2% of projects were on budget, on time and on benefits.
High early-stage sunk costs create project lock-in and many case studies demonstrate a propensity towards ‘optimism bias’.
The danger is that governments rush to build what may turn out to be white elephants.
The pandemic should prompt governments to rethink major projects that have been promised or are under construction, particularly those announced without a business case.
In summary, megaprojects are too easy to start and too difficult to stop.
