In a relatively recent assessment of Oxford Said Business School’s Bent Flyvbjerg, megaprojects are characterized, roughly speaking, by budgets in the billions of dollars, while major projects run in the hundreds of millions and garden variety projects amount to tens of millions and less.
In the fifteen years to come, a deal volume of $35-90 trillion in megaprojects is expected to materialize world-wide. At the high estimate, that exceeds the current annual GDP of the planet while, at the low estimate, it is still twice the GDP of the United States or the European Union. Annually, this amounts to at least the GDP of France, up to twice the GDP of Germany. So we are not talking about a footnote in the global economy. Quite the contrary, they are often centerpieces of substantial economic stimulus plans.
Yet 90 percent of all megaprojects – however one wants to define the category did not seem to matter terribly much in a study of about 1,000 of them – result in grotesque cost and time overruns relative to budget. The primary diagnosis is that megaprojects, be they major infrastructure projects or capital investments, are typically one of a kind, without comparable precedent, complex and first of their kind, at least in their setting. It is also fairly obvious that, under such circumstances, challenges emerge only midstream. Regardless of political or economic system, cost overruns average 55 percent. Munich-based consultancy and study author Roland Berger concludes that savings of just 10 percent through avoidance of management errors and omissions would result in savings of $3.5-9.0 trillion – not a particularly ambitious assessment given average cost overruns of 55 percent. There is considerable potential for intelligent systems engineering as well as for improved risk management. The general problem with high-quality cost control and risk minimization is that damnum cessans (damage avoided) is a very tricky base for performance reward and incentive compensation, as opposed to lucrum emergens – and thus frequently enough is not avoided.
Criticism of megaprojects has addressed a wide range of issues: their top-down planning and adverse effects on certain communities as much as their extreme complexity in technical as well as human terms, a long record of poor delivery, its remodeling of urbanism in the spirit of neoliberalism in recent years, introverted governance lacking democratic participation and accountability, global economic positioning at the expense of local issues, physical and social disconnect from the context of the host city or region, and, in too many cases, lack of public benefit and social outcomes – they “foreclose upon a wide variety of social practices, reproducing rather than resolving urban inequality and disenfranchisement” and “inhibit the growth of oppositional and contestational practices.”
Megaprojects appeal to policymakers consistently for a quadriga of reasons set forth by Flyvbjerg, all rooted in ambition and yearn for a legacy: their technological, political, economic and aesthetic dimension. A seldom mentioned reason should be added: megaprojects mean mega-budgets and present unique opportunities for credible justification of elevated cost due to unforeseen and quasi-unique challenges: where challenges of coordination and integration run high, it is almost impossible to lay blame for relatively minor deviations from planning. But if Roland Berger arrives at an average of 55 percent in cost overruns, it shows a very similar effect to the one I hold ultimately responsible for the 2007-2008 financial crisis: too many, virtually everyone, tried to pass off 98-99 percent compliance as 100 percent. This has a way off adding up to a meltdown, or to extreme leverage in the compilation of adverse effects. I am also inclined to believe that the average of 55 percent deviation is very generously calculated, or by inclusion of many projects in the sample that present fewer opportunities for it. There are simply too many megaprojects in the 200 percent overrun range to support a less than absolutely shocking figure.
Interestingly, less than a decade following overrun disasters, the mere fact of each project’s completion and the pride and identification it entails furnish proof of Sir Frederick Henry Royce’s adage: “The quality will remain long after the price is forgotten.” In a way, megaprojects are the Rolls Royce of legacy and pride – for all categories of stakeholders. Secure knowledge of the fait accompli of this investment and its consequences is the reason why so many get safely away with so much. It is not a sign of personal failure or wrongdoing so much as it is indicative of systemic flaws and the absence of genuine system auditing and adjudication.