The book should be mandatory reading for anyone involved in the promotion and financing of very large “mega” projects. It explores the recent growth of mega projects around the world and the phenomena that vested interests (“rent seeking behaviour”) of those wishing to construct the projects, results in skewed performance distributions. It finds that there is a significant bias to underestimating the outturn costs and over estimation of the benefits. For the rail projects considered the mode of cost overruns is 40-50% and a 60% overestimate of passenger numbers.
This results in inefficient allocation of funds within the economy. Some recent Case histories are then explored in more detail including the Channel Tunnel, Great Belt and the Öresund Crossing. Whilst there are many reasons why projects go “off the rails”, recommendations are made on good practice to keep the parties “honest”.
A Private Finance Initiative (PFI) approach is recommended with a 30% contribution fro the private sector that is wholly “at risk” and is not subject to sovereign guarantee. The advantage of involving the private sector is that the project is subjected to the rigors of the financial market on the decision whether to go/no go. It also ensures financial accontablity throughout the life of the project reducing the risk of political expediency in making the decision.
The involvement of the public sector is also considered essential to control both political and regulatory risks and to provide transparency in public consultation to ensure stakeholder’s views are taken into account. Risk management is considered to be essential for the success of mega projects and the financial failures of several are seen to be down to inadequate consideration of risks.
The book does not deal with minutia of project risks but the large financial, political, regulatory and consultation risks. It considers a very short time horizon to measure the benefits or otherwise of the project. If people today were faced with building mega projects such as the mainline railways, London’s Underground system or the M25 and the motorway system, it is not certain that these would get the approval to go ahead based on the books evaluation criteria.
One hundred years on would the modern day commuter countenance life without the infrastructure provided by our forbears. It is likely that the Channel Tunnel and other mega projects considered in the book will be considered retrospectively by our decendants to be an essential part of daily life.
