The Global Infrastructure Quandary: Impacts on Major Projects

Major infrastructure projects have always played a pivotal role in driving economic growth and increasing the population’s standard of living. Fundamentally these projects take years from inception, through business case, planning and approvals before procurement and more years still of delivery. Historically, these projects have regularly encountered cost and time overruns.

Having recently attended the RICS World Built Environment Forum focused on APAC megaprojects: (Contracting, Supply Chains and Skills) listening to the issues and solutions being discussed, I thought it a worthy topic for some further research. 

In our current somewhat chaotic world, unsurprisingly we are seeing a trend in these overruns increasing exponentially since the business case. Some current project examples in the media follow:

Snowy 2 – From $2b to $12b

Hight Speed 2  – From $37.5b to $106b now 2 lines removed, scope curtailed and expected at $49b

Metro west (only) – From $12.5b to $20.5b

Inland Rail – From $11b plus – maybe $30 something depending on scope changes

The electricity transmission network is also under Global pressure as we move to address climate change and these costs are being similarly substantially revised upward. See AEMO.

Its not just major projects, construction costs alone have risen rapidly since COVID. The examples above do provide some old lessons to be relearnt in managing Major Projects.

The recent adumbrate published as  Why do large projects go over budget? (strategy-business.com). provides four pragmatic value-based management approaches worthy of some focus during the journey.  This paper references the now retired inaugural professor of Major Program management at Oxford University’s Sai’d Business School. Professor Flyvbjer along with colleagues, who has published extensively on this topic, amongst other subjects.

This research also touches on the human factors at play and notably for the sponsors the competition between major projects. Infrastructure Australia has its role to play here as does the use of project portfolio optimisation.

For those interested in Empirical Analysis some further conclusions pre Covid, have been published through the University of NSW

Microsoft Word – ALLAHAIM AND LIU.docx (unsw.edu.au)

Infrastructure Australia in its Delivering Outcomes advice published the following https://www.infrastructureaustralia.gov.au/node/1086

Delivering Outcomes – Key reform recommendations

1. Shift from a focus on manual work on-site to off-site digitally enabled, pre-fabricated production processes, in line with international best practice.
   
   
2. Develop and publish jurisdiction-wide, cross-sectoral infrastructure investment pipelines that outline current, funded, committed and planned public and private infrastructure activity over a ten-year horizon.
   
   
3. Shift from current, combative contracting models to longer-term, collaborative models that integrate the supply chain.
   
   
4. Support the financial sustainability of the infrastructure industry by adopting principles of fair return, improving benchmarking, reviewing payment terms and risk allocation.
   
   
5. Establish and embed equality, diversity and inclusion objectives through each infrastructure investment.

Standing back a moment, any Aussie assisting those most in need of housing support or looking at a major renovation / new build residential home will tell you the Housing Affordability crisis is throughout the socio-economic classes.  Those Sydneysiders with a house would struggle to rebuy their own home today.

Aussies know and have felt the meteoric rise in the cost of living since Covid when the systemic weakness of the global economy / supply chain were exposed. Combine this with geopolitical tensions, the end of cheap money, the western world’s race to Net Zero, increasing natural disasters, labour shortages / inequitable capital distributions and social inclusions and it’s easy to account for some of the macroeconomic impacts.

Another looming factor which always existed but is increasing in its demands is any major projects social licence measured in its community acceptability

Looks like a Perfect Storm.
Do we drop the hammer on the trawler like George Clooney did in the movie of the same name?
No. It’s not a movie and it didn’t work there either. HS2 eventually and Inland Rail prove that a review and subsequent Value management process can reset projects. 

If you can see that your project is spiraling beyond your acceptable limits Stoke Consulting can assist. Contact us for a discussion.

James White

Stoke Consulting

James’s background in property development across both government and private sectors underscores his project management experience in identifying opportunities for financial gain and risk mitigation. Proficient in strategic planning, feasibility, deal structuring and brokerage, stakeholder management and creating value, he owns outcomes to successfully deliver results.