The trouble with government ‘megaprojects’

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).

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?