Sunday I sat reading the usual crop of the weeks papers and other magazines and journals as I relaxed during the morning and of the articles that I focused on I noticed a common theme emerging, that being the significant cost overruns on HS2 and also Sizewell C. This led me to fire up the computer and after a couple of hours searching for Capital Cost Infrastructure Projects I was dismayed to have my thoughts confirmed that Project Cost forecasting is seldom accurate in many cases and the margin of error is astounding to the point that it suggests that the initial cost model that was submitted first for the Go/No Go Decision, and then Contract Placement is at best proven to be a fiction in many cases.
For example, McKinsey reports that large projects typically overrun budgets by 80%, and Cycle Construction suggested nationwide overruns average 15-25%. These issues are not unique to the UK, with global statistics showing similar trends.
Further examples of Project Failures include:
- HS2: The high-speed rail project has faced significant cost increases and delays, making it one of the most expensive megaprojects in the UK. The initial estimate was £56 billion, which has since ballooned to £106 billion, with potential further increases, according to Full Circle Continuous Improvement,. Factors contributing to this include rising land acquisition costs, complex engineering challenges, and environmental protests.
- Aberdeen Western Peripheral Route (AWPR): This Scottish road project experienced a significant cost increase from its initial budget.
- London Jubilee Line Extension: This project was significantly over budget and behind schedule.
- Scottish Parliament Building: Initially estimated at £10-40 million, the final cost reached £414 million due to a complex and frequently changing design, poor project management, and underestimation of the scope,
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Channel Tunnel:While a vital link, the Channel Tunnel project suffered from significant cost overruns, with the final cost exceeding the initial estimate by 80%. The project also took longer to complete than anticipated.
- The Wembley Stadium Reconstruction: The project started with an initial budget of £326.5 million provided by Australian construction company Multiplex. However, the project ended up costing over £1 billion, making it one of the most expensive stadiums ever constructed.
I could continue to list many projects that I fear that the such a list would be exhaustive.
I therefore pose the question, do Project Cost Models provide any value at all when many cost overruns exceed 100%. Are financial risk models adequate or even understood? As professionals working in Project Cost and Control, how do we address these issues, and how do we truly measure the effectiveness of what we do as any such metric is only as good as the data and assumptions used?
