It’s an all-too familiar story. Insert mega infrastructure project [here]. Its original budget [here]. And the figure it will have blown out by [here].
And so it was last week when Brisbane City Council announced that the Brisbane Metro – original budget $944 million – had exploded to $1.55 billon.
The irony is Brisbane’s Metro – a new rapid public transport network consisting of high-capacity, high-frequency electric bendy buses – was chosen as the lower-cost option to link the city to the suburbs.
Funded through a partnership between Brisbane City Council and the Australian Government, the Metro was initially envisaged as a rapid subway network but – with a budget forecast at $1.54bn – the idea was ditched in favour of banana buses.
Speaking of rapid subway networks. Sydney’s City and Southwest Metro was initially budgeted between $11.5bn to $15.5bn. However, after a series of overspends, the bill for Sydney’s Metro project is now expected to come in at an *estimated* $20.5bn.
Meanwhile, the cost of Melbourne’s Metro Tunnel keeps hitting new highs. With another budget creep of $837m, the total bill for the project is likely to land somewhere in excess of $15bn.
Kiri Parr – senior fellow, Melbourne Law School, University of Melbourne – told Government News she’s unsurprised by the ever-spiralling infrastructure overspends in Australia. “More often than not, our overruns are at the worst end of the scale of overruns,” she said.
Indeed, nine out of ten megaprojects overspend. “We know these projects are going to go over budget because more projects than not go over budget – 99% of projects don’t achieve budget,” said Parr.
She told GN it’s known as the iron law of megaprojects. Conceived by Bent Flyvbjerg – one of the world’s leading experts in program management – the iron law of megaprojects is based on performance data from around the world, which show the more complex a project, the more vulnerable they are to extreme budget blowouts.
Evidence shows that overruns of up to 50% in real terms are common, and over 50% overruns are not uncommon. “Some of them are going to go a little over budget and you’ll always going to have a project that’s going to go way, way, way over budget,” said Parr. “And the thing with the cost overruns is that the next time you take on one of these projects, it could get even worse than the worst project before.”
To tackle these blowouts, Parr told GN governments need to get their initial cost estimates right. “Cost estimating at the beginning is almost always affected by behavioural biases,” she said. “Our desire to get the project up, the political drive to get the project up all lead to us consistently under-estimating the original price.”
When tackling mega infrastructure projects, governments need to examine how things progressed in the past, said Parr. “How have rail projects gone before from a budget perspective? By looking at what happened the ten last times you’ve done something, you’re going to have a better idea about what it might realistically cost this time.”
Looking at a project with an external, historical view, means you can challenge how people approached it, said Parr. “You’re overcoming the optimism bias. Those prior costs are more likely going to give you an inkling of what the future project is going to be.”
The problem is, said Parr, people always think things are going to be easier than how they turn out in practice and assume megaprojects can be fully scoped and priced at the outset. “We’re doing initial cost estimates which are riddled with optimism bias with people thinking bad things won’t happen.”
Leave a Reply