The trouble with government ‘megaprojects’

There is virtually no chance that any big government project – such as the Olympics or HS2 – will come in anywhere near its original budget, says Merryn Somerset Webb.

After the Olympics last year, I found myself in a lot of trouble with readers. I pointed out that the whole thing had come in massively over budget, and that there was no way of knowing if it had delivered much in the way of economic benefits in either the short or the long term.

You can read those posts and get yourself all het up again here, here, and here.

I was pleased to see John Kay addressing the matter again in the FT this week (I think the overspend on the Olympics is a bit like the Royal Mail debacle we shouldn't let it brushed under the carpet).

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Kay runs through the history of the horrible overspend. In 2003 it was estimated that the bill would come in at around £3.1bn, of which the taxpayer would have to come up with £1.3bn (the rest would be recouped by the sale of assets after the games). The bid that actually went in to the International Olympic Committee put the sum at £4.2bn. By 2007 it had risen to £6.5bn with a contingency of £2.8bn.

In the end, the total cost to the taxpayer was ten times that first suggested. Some people still like to say that the games came in within budget. This is just nonsense.

So what of the economic benefits? The papers produced by the government on this, says Kay, are surely an "embarrassment", conflating as they do "incommensurable monetary amounts and confusing costs with benefits".

The UK isn't alone in not being able to get large projects done in the way they say they are going to. But David Cameron should take a closer look at what happened with the Olympics with HS2 in mind. Because, as Kay points out, if there is one other type of project that pretty much always costs more and delivers less than promised, it is rail.

It is worth reading the first chapter of Professor Bent Flyvbjerg's book on big transport projects, Megaprojects and Risk,to get a feel as to why these projects all go so very wrong.

The key bit for me is this: "Megaproject development today is not a field of what has been called "honest numbers". 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 analyst 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."

Sounds familiar doesn't it?

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.