Managing cost overruns on public infrastructure Friday, 21 July 2017

While Australia's major political parties have committed to sound planning of infrastructure and making decisions with broad social benefit, in practice they still promise projects that Infrastructure Australia has not evaluated or has already found to be not worth building.

A report from the Grattan Institute last year found that in the past 15 years, Australian governments spent $28 billion more on transport infrastructure than they told taxpayers they would spend.

The report's lead author Marion Terrill will be a speaker at the Project Controls Conference in Sydney in September. She says the projects which cause the greatest problems are those announced prematurely.

"Ninety percent of the cost over-run problem is explained by just seventeen percent of projects that overrun by a spectacular amount," she said, explaining that the projects announced with a budget commitment generally have no real issues.

"But there's this other kind of project that's announced before there's a budget commitment, and by the time it gets a budget commitment, the cost estimate has already gone up about twenty-five percent on average. Not only that, these projects continue to be haunted by these cost increases."

The other key finding was that the more complex projects are both more likely to have a cost over-run and that over-run will be larger on average than for smaller and less complex projects.

"I think when things are more complex they have more interdependencies, and so one thing going wrong then affects more subsequent elements of the project," Terrill said.

"So it's not hard to see how just even a few modest hitches can end up having quite a big effect. We actually found that a ten percent increase in a project size is associated with a six percent higher chance of a cost overrun."

While she feels much of the blame for these problems can be laid at the feet of politicians, she thinks engineers could pay more attention to the history of cost overruns on Australian projects.

"If you read all the guidance about how to do cost estimation, you would come out thinking that a given project is equally likely to have a cost over-run or a cost underrun," she explains.

"But in fact, when you look at the data, that's not at all the case. Under-runs are quite unlikely and over-runs are much more likely. So engineers could be guided by what history tells us and to know there are these predictable patterns that we can observe in the data that we could bring to bear in predicting what's going to happen with future projects."

That said, she feels the available data isn't always easy to find and bodies such as Infrastructure Australia or the Commonwealth Department of Infrastructure and Regional Development could play a part in collecting statistics on the costs of publicly funded projects.

"It would be much better if we consistently collected information about completed projects so that people who are doing cost estimates could draw on a large pool of past projects, and it would help them to basically do a better job of understanding cost and risk," she said.

 

What: Project Controls Conference

When: 20-22 September 2017

Where: International Convention Centre, Sydney

More info: projectcontrols2017.com.au