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Cost overruns are endemic to mega-projects

Professor Bent Flyvbjerg took up his post as Chair of Major Programme Management at the Said Business School at Oxford University on April 1st 2009.

“In a landmark study, ....[he] analysed over 250 major transport infrastructure projects and found that 90% went over budget — and that the benefits averaged only half of those promised. This was so consistent that Flyvbjerg concluded it amounts to “strategic misrepresentation”, and that the culprits are politicians and bureaucrats competing for scarce public resources or seeking to get a suspect project off the ground to make political capital.“

From: Absolution ain't a modern solution Paul Morell, Building Design, April 24 2009.

In Chapter 1 of his 2003 book "Megaprojects and Risk" he says;

"Today infrastructure plays a key role in nothing less than the creation of what many see as a new world order where people, goods, energy, information and money move about with unprecedented ease. Here the politics of distance is the elimination of distance.

Megaprojects are central to the new politics of distance because infrastructure is increasingly being built as megaprojects. Thus the past decade has seen a sharp increase in the magnitude and frequency of major infrastructure projects, supported by a mixture of national and supra-national government, private capital and development banks.

There is a paradox here, however. At the same time as many more and much larger infrastructure projects are being proposed and built around the world, it is becoming clear that many such projects have strikingly poor performance records in terms of economy, environment and public support. Cost overruns and lower-than-predicted revenues frequently place project viability at risk and redefine projects that were initially promoted as effective vehicles to economic growth as possible obstacles to such growth. The Channel tunnel, opened in 1994 at a construction cost of £ 4.7 billion, is a case in point with several near-bankruptcies caused by construction cost overruns of 80 percent, financing costs that are 140 percent higher than those forecast and revenues less than half of those projected.."

In a recent lecture he said;

"construction of the Chunnel,.... caused such high cost overruns that the British economy may have been better off without it."

In "Megaprojects and Risk" he continued;

"Some may argue that in the long term cost overruns do not really matter and that most monumental projects that excite the world’s imagination had large overruns. This line of argument is too facile, however. The physical and economic scale of today’s megaprojects is such that whole nations may be affected in both the medium and long term by the success or failure of just a single project.As observed by Edward Merrow in a RAND study of megaprojects: “Such enormous sums of money ride on the success of megaprojects that company balance sheets and even government balance-of-payments accounts can be affected for years by the outcomes ... The success of these projects is so important to their sponsors that firms and even governments can collapse when they fail”

Stated in more general terms, the Oxford-based Major Projects Association, an organisation of contractors, consultants, banks and others interested in megaproject development, in a recent publication speaks of the “calamitous history of previous cost overruns of very large projects in the public sector”. In another study sponsored by the Association the conclusion is, “too many projects proceed that should not have done”. We would add to this that regarding cost overruns there is no indication that the calamity identified by the Major Projects Association is limited to the public sector. Private sector cost overruns are also common.

For environmental and social effects of projects, one similarly finds that such effects often have not been taken into account during project development, or they have been severely miscalculated.

However, environmental problems that are not taken into account during project preparation tend to surface during construction and operations; and such problems often destabilise habitats, communities and megaprojects themselves, if not dealt with carefully. Moreover, positive regional development effects, typically much touted by project promoters to gain political acceptance for their projects, repeatedly turn out to be non-measurable, insignificant or even negative.

In consequence, the cost-benefit analyses, financial analyses and environmental and social impact statements that are routinely carried out as part of megaproject preparation are called into question, criticised and denounced more often and more dramatically than analyses in any other professional field we know. Megaproject development today is not a field of what has been called “honest numbers”. It is a field where you will see one group of professionals calling the work of another not only “biased” and “seriously flawed” but a “grave embarrassment” to the profession. And that is when things have not yet turned unfriendly. In more antagonistic situations the words used in the mudslinging accompanying many megaprojects are “deception”, “manipulation” and even “lies” and “prostitution”. Whether we like it or not, megaproject development is currently a field where little can be trusted, not even – some would say especially not – numbers produced by analysts.

Finally, project promoters often avoid and violate established practices of good governance, transparency and participation in political and administrative decision making, either out of ignorance or because they see such practices as counterproductive to getting projects started. Civil society does not have the same say in this arena of public life as it does in others; citizens are typically kept at a substantial distance from megaproject decision making. In some countries this state of affairs may be slowly changing, but so far megaprojects often come draped in a politics of mistrust.

People fear that the political inequality in access to decision making processes will lead to an unequal distribution of risks, burdens and benefits from projects. The general public is often sceptical or negative towards projects; citizens and interest groups orchestrate hostile protests; and occasionally secret underground groups even encourage or carry out downright sabotage on projects, though this is not much talked about in public for fear of inciting others to similar guerrilla activities.

Scandinavians, who like other people around the world have experienced the construction of one megaproject after another during the past decade, have coined a term to describe the lack in megaproject decision making of accustomed transparency and involvement of civil society: “democracy deficit”. The fact that a special term has come into popular usage to describe what is going on in megaproject decision making is indicative of the extent to which large groups in the population see the current state of affairs as unsatisfying.

Extracts from Chapter 1, Megaprojects and Risk: An anatomy of Ambition, by Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter,Cambridge University Press, 2003.

In a subsequent academic paper 'Policy and planning for large-infrastructure projects: problems, causes, cures', published in 2005, he lists (p5-6) the Olympic Games of Athens in 2004 and Sydney in 2000 as being included within his model of overspending and underachieving mega-projects.

"Other projects with cost overruns and/or benefit shortfalls are, in North America: the F/A-22 fighter aircraft; the FBI's Trilogy information system; Ontario's Pickering nuclear plant; subways in numerous cities, including Miami and Mexico City; convention centers in Houston, Los Angeles, and other cities; the Animas La Plata water project; the Sacramento regional sewer-system renewal; the Quebec Olympic stadium; Toronto's Sky Dome; the Washington Public Power Supply System; and the Iraq reconstruction effort.

In Europe: the Eurofighter military jet, the new British Library, the Millennium Dome, the Nimrod maritime patrol plane, the UK West Coast rail upgrade and the related Railtrack fiscal collapse, the Astute attack submarine, the Humber Bridge, the Tyne metro system, the Scottish parliament building, the French Paris Nord TGV, the Berlin-Hamburg Maglev train, Hanover's Expo 2000, Athens' 2004 Olympics, Russia's Sakhalin-1 oil and gas project, Norway's Gardermo airport train, the Òresund Bridge between Sweden and Denmark, and the Great Belt rail tunnel linking Scandinavia with continental Europe.

In Australasia: Sydney's Olympic stadiums, Japan's Joetsu Shinkansen high-speed rail line, India's Sardar Sarovar dams, the Surat-Manor tollway project, Calcutta's metro, and Malaysia's Pergau dam.
I end the list here only for reasons of space."

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