ix) More Thoughts on Thinking (cont.) Megaprojects and cognitive bias

Mega-projects and Cognitive Bias

Mega-projects can suffer from cognitive bias with many projects having their economic benefits substantially reduced by running behind schedule, over budget, etc.. The bigger the project like airports, dams, IT networks, high-speed trains, etc, the greater the chance of this happening, ie it is estimated that 70 - 90% of mega projects have cost blowouts. Some examples include

- London's Jubilee Line Underground extension was 80% over budget in real terms

- Denver International airport (200%)

- Canadian Firearms Register (590%)

- Sydney Opera House (1,400%)

- Boston's Big Dig (200%) (Bent Flyvberg, 2017)

This occurs in both the private and public sector projects irrespective location.

This is linked with poor planning, ie business cases with inadequate forecasts, poor front-end planning, cost-benefit analysis, social and environmental impact assessments, decision-making, etc.

NB Garbage in, the garbage out

Many mega-projects can be technologically successful but financial failures

"...dams on average cost overrun of 96% combined with an average demand shortfall of 11%, and of the rail project an average cost overrun of 40% combines with an average demand shortfall of 34%......the Channel Tunnel, the longest underwater rail tunnel in Europe, connecting Britain and France...... capital costs were 80% over budget, and financing costs are 140%. Revenues started at a dismal 10% of those forecast, eventually growing to half the forecast. As a consequence, the project has proved financially non-viable, with an internal rate of return on investment that is negative, at - 14.5%, with a total loss to Britain of $US 17.8 billion......an economic and financial expost evaluation of the Channel Tunnel......concluded that the British economy would have been better off if the tunnel never been constructed..."

Bent Flyvberg, 2017

Large-scale ITC projects are very risky; 1 in 6 projects have cost overruns in excess of 200% in real terms

"...total project waste from failed and under-performing ICT projects for the United States alone has been estimated at US$ 55 billion annually by the Standish Group..."

Bent Flyvberg, 2017

Delays cause both cost overruns and benefit shortfalls. For example, delays in dams are on average 45%, eg if the dam was planned to take 10 years from decision to build until operation, it will take 14.5 years on average.

It has been estimated that a 12 month delay, or other extension of the implementation phase, has an increase in percentage cost overrun of around 5% (Bent Flyvberg, 2017), eg a 12 month delay for London's US$ 26 b. Crossrail project would cost another US$ 1.2 b. or $ 3.3 m per day.

"...many projects end up in the so-called debt trap where a combination of escalating construction costs, delays and increasing interest payments make it impossible for project revenue to cover costs, rendering projects non-viable. This is what happened to the Channel Tunnel and the Sydney Lane Cove Tunnel..."

Bent Flyvberg, 2017

Despite all the evidence about the problems with megaprojects, there are 4 reasons, or sublimes or cognitive biases, why decision-makers are attracted to mega-projects,

i) Technological sublime (engineer and technologists get a lot of satisfaction from building large and innovative projects and are pushing the boundaries of what technology can do, eg building the tallest building, the longest bridge, the fastest aircraft, the largest wind urban; they like to be first in anything)

ii) political sublime (the satisfaction politicians obtain from building monuments to themselves and their causes; most mega-projects are media magnets and give the politicians publicity, media attention and visibility, ie help with re-election

"...Mega projects are manifest; they garner attention and lend an air of proactiveness to their promoters..."

Bent Flyvberg, 2017

iii) economic sublime (the delight different stakeholders get from making lots of money and creating jobs from mega-projects; these stakeholders include financiers, business people, trade union officials, contractors, engineers, architects, consultants, construction and transportation workers, bankers, investors, landowners, lawyers, developers, etc)

iv) aesthetic sublime (the pleasure designers and people who appreciate good design get from building, using and looking at something that is very large, iconically beautiful, etc)

 

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