Trouble Down Under

It turns out that not only can the Aussies lose a game of cricket from a seemingly invincible position, but they also share the same struggle as everyone else. That is, delivering projects is hard. Sometimes too hard.

The folks in Sydney have been busy building a light railway, with the aim of making travelling around the city easier and, doubtless, getting some cars off the road. This is no HS2, the plan is for it to run only 12km. Maybe it’s hs0.5.

The budget was a seemingly manageable AUS$1.6bn, but, a little like Crossrail, there’s now a delay of at least a year, and costs have gone up AUS$1bn. That’s a big increase – a far bigger increase than the equivalent in Crossrail (1 year’s delay, £1bn extra cost, so far at least, but that’s roughly 10% of budget; this is more than 60%). Something went wrong with the forecasts.

As I wrote in a previous post, borrowing a quote from someone else:

“Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in”

Projects are hard. Big projects are harder. Big construction projects may be harder still. Australia is planning to spend some AUS$300bn on infrastructure (from 2015 onwards). Let’s hope that’s really AUS$100bn with AUS$200bn of optimism bias thrown in. Some reports suggest that the investment will be AUS$75bn a year for the next 10 years. Still other reports sugegst the spend it AUS$100bn over 10 years, on roads and rail. Numbers are hard too, it turns out.

When costs go up, suppliers may be blamed. That may make them bid more for upcoming projects, to cover their risk. Or bid less, hoping to beat out competition, and hope for the best – Carillion shows that’s not a good plan of course.

With a large budget for infrastructure, Australia may find itself its own worse competition – there may not be enough capability to delive. Bidders could concentrate on the projects that they think they can make the most money on, leaving other projects alone. They may focus on lower risk projects, meaning the flagships stall. Other companies with less capability may bid, and the failure rate may go up.

Managing a large portfolio, knowing when to press the accelerator, when to hit the brakes, when to cut funding, when to provide more funding, when to recognise a risk is actually an issue and ensuring there’s enough capabilty and resource available, is a challenge every company and sector experiences.

The ambition is eye catching, but the practicailities will catch up with that ambition … delivery will be delayed, costs will be higher and some projects will fail dramatically. The hole, though, will be deep enough that it will keep getting filled.

Leave a Reply