The iconic Empire State Building, which stands 1,454 feet, was the world’s tallest skyscraper from its creation in 1931 until 1972 (when the World Trade Center overtook it). A megaproject in every way, “The construction of the ... Empire State Building was a model of efficiency,” says ThoughtCo.
Just how efficient? The building was completed in just thirteen and a half months, a year ahead of schedule. It was also under budget, at approximately $41 million ($615 million in today’s dollars) of its $50 million budget.
Like today, the area surrounding the Empire State Building construction site was a bustling city street. In fact, “…crowds formed to watch the work. Passersby would stop to gaze upward at the workers as they placed the girders together,” according to ThoughtCo.
And then there are today’s megaprojects. “The industry does poorly completing megaprojects on time, on budget, and to specifications,” according to McKinsey.
Let’s backtrack for a moment. Megaprojects are defined as projects with a price tag of $1 billion or more.
Just how problematic are today’s megaprojects? Again, from McKinsey, “Our research estimates that 98 percent of megaprojects suffer cost overruns of more than 30 percent; 77 percent are at least 40 percent late.”
How could the Empire State Building have been completed early and under budget 90 years ago while today’s megaprojects are typically late and over budget?
Although today’s projects are more complex and have more detailed specs to fulfill, construction industry professionals also have modern technology at their disposal. One might think this tradeoff would be enough to balance the scales. Yet, clearly it’s not.
So, where do major infrastructure projects go wrong?
Let’s take a deep dive into the major ways mega infrastructure projects go awry and consider potential solutions to these most common problems.
When a new project begins, those involved generally feel excited about the possibilities and the wonderful piece of infrastructure they are going to create. Beginnings, in general, are exciting and can lead to optimism bias.
“Your brain has a built-in optimism bias,” says Verywell Mind, an award-winning online resource for health information. “Researchers have found that the human brain is sometimes too optimistic for its own good.” Further, we “believe that we are less likely to suffer from misfortune and more likely to attain success than reality would suggest.”
While there are many positives to being optimistic, optimism bias can “lead to poor decision-making, which can sometimes have disastrous results.”
This bias goes beyond what an individual imagines or thinks of themselves. Some view it as a key reason why megaprojects regularly fail.
An article reported on ResearchGate “…found that optimism bias applies to estimates of costs and benefits, both. An optimistic cost estimate is low and leads to cost overrun, whereas an optimistic benefit estimate is high and results in benefit shortfalls.”
Some believe this sort of thinking is essential to getting a megaproject completed. They argue “that if people knew in advance the real costs and challenges involved in delivering a large project, ‘they probably would never have touched it’ and nothing would ever get built. So it is better not to know, because ignorance helps get projects started, according to this argument.”
As Colonel Jessup aka Jack Nicholson, said in the movie A Few Good Men, “You can’t handle the truth!”
With this sort of thinking, is it any wonder that megaprojects come in over budget and behind schedule?
Although the argument noted in ResearchGate is over 50 years ago, it’s still relevant. Despite the advanced technology available today to run models and crunch numbers, the figures are sometimes manipulated. It’s nearly impossible to determine whether optimistic predictions are unintentional or mistakes.
In reporting on an underground tunnel project in Australia, the Melbourne newspaper The Age reported, “They worked out what the investor was going to be happy with in terms of rates of return, and they worked back to a set of numbers which would produce that return for investors. Such forecasts do not properly relate to the interaction of land use and transport, and it is not surprising that they are not fulfilled.”
This may seem like a simple and insignificant error. However, it led to a huge shortfall of funding and left taxpayers liable for the money.
Can the optimism bias be overcome?
Professor Andrew Davies at Bartlett Faculty of the Built Environment, University College London, believes so. “Over the past decade or so, the UK has transformed the way megaprojects are delivered, moving away from a world of fixed-price contracts, risk transfer, lowest-cost tendering and adversarial relationships,” Davies says in an article by Jim McClelland and Raconteur Publishing.
The Age argues similarly, “as much as the legion of advisers, traffic forecasters and companies behind the failed projects share the blame, governments, too, deserve to take much of the criticism for creating a model that enabled the group with the most optimistic forecasts to win the project bids.”
It’s great to be optimistic and excited when a mega infrastructure project is being developed. However, if that excitement spills over and clouds people’s thinking and impacts the data used to develop schedules and budget, it will eventually turn to frustration.
In a company’s zest to be involved in high profile projects that score big paydays, they need to pump the breaks and be realistic. Fudging numbers, whether intentional or not, is ultimately a hindrance that can sink a project. Those who do so need to pay a price to encourage everyone to bid with more realistic data. Owners also need to be prepared to accept that what they initially budgeted and their hoped-for schedule might not be sufficient.