
Performance data for megaprojects speak their own language
Performance data for megaprojects speak their own language. Nine out of ten such projects have cost overruns. Overruns of up to 50 percent in real terms are common, over 50 percent not uncommon. Cost overrun for the Channel tunnel, the longest underwater rail tunnel in Europe, connecting the UK and France, was 80 percent in real terms. For Denver International Airport, 200 percent. Boston’s Big Dig, 220 percent. The Canadian firearms registry, 590 percent. The Sydney Opera House, 1,400 percent (see more examples in the table below). *

Overrun is a problem in private as well as public projects, and things are not improving; overruns have stayed high and constant for the 70-year period for which comparable data exist. Geography also does not seem to matter; all countries and continents for which data are available suffer from overrun. Similarly, benefit shortfalls of up to 50 percent are also common, and above 50 percent not uncommon, again with no signs of improvements over time and geography.
Combine the large cost overruns and benefit shortfalls with the fact that Business cases, cost-benefit analyses, and social and environmental impact assessments are typically at the core of planning and decision-making for megaprojects and we see that such analyses can generally not be trusted.
A megaproject may well be a technological success, but a financial failure, and many are
For instance, for rail projects an average cost overrun of 44.7 percent combines with an average demand shortfall of 51.4 percent, and for roads, an average cost overrun of 20.4 percent combines with a fifty–fifty risk that demand is also wrong by more than 20 percent. With errors and biases of such magnitude in the forecasts that form basis for business cases, cost–benefit analyses, and social and environmental impact assessments, such analyses will also, with a high degree of certainty, be strongly misleading. "Garbage in, garbage out," as the saying goes.
As a case in point, consider the Channel tunnel in more detail. This project was originally promoted as highly beneficial both economically and financially. At the initial public offering, Eurotunnel, the private owner of the tunnel, tempted investors by telling them that 10 percent "would be a reasonable allowance for the possible impact of unforeseen circumstances on construction costs." In fact, costs went 80 percent over budget for construction, as mentioned above, and 140 percent for financing. Revenues have been half of those forecasted, with even lower numbers after the Covid-19 pandemic.
As a consequence the project has proved non-viable, with an internal rate of return on the investment that is negative, at minus 14.5 percent with a total loss to the British economy of 17.8 billion US dollars. That is to say the Channel tunnel detracts from the economy instead of adding to it.
The British Economy would have been better off had the Channel tunnel never been built
It is difficult to believe this when you use the service, which is fast, convenient, and competitive with alternative modes of travel. But in fact each passenger is heavily subsidized. Not by the taxpayer this time, but by the many private investors who lost their money when Eurotunnel went insolvent and was financially restructured. In 2021, a second insolvency threatened due to Covid-19.
This drives home an important point: A megaproject may well be a technological success, but a financial failure, and many are.
An economic and financial ex-post evaluation of the Channel tunnel, which systematically compared actual with forecasted costs and benefits, concluded that "the British Economy would have been better off had the Tunnel never been constructed." Other examples of non-viable megaprojects are Sydney’s Lane Cove tunnel, the high-speed rail connections at Stockholm and Oslo airports, the Copenhagen metro, and Denmark’s Great Belt tunnel, the second-longest under-water rail tunnel in Europe, after the Channel tunnel.
Delays would cost 3.3 million dollars per day
Large-scale ICT projects are even more risky. One in six such projects become a statistical outlier in terms of cost overrun with an average overrun for outliers of 200 percent in real terms. This is a 2,000 percent overincidence of outliers compared to normal and a 200 percent overincidence compared to large construction projects, which are also plagued by cost outliers. Total project waste from failed and underperforming ICT projects for the United States alone has been estimated at 55 billion dollars annually.
Delays are a separate problem for megaprojects and delays cause both cost overruns and benefit shortfalls. For instance, results from a study undertaken at Oxford University, based on the largest database of its kind, show that delays on dams are 44 percent on average. Thus if a dam was planned to take 10 years to execute, from the decision to build until the dam became operational, then it actually took 14.4 years on average. My colleagues and I modeled the relationship between cost overrun and length of implementation phase based on a large data set for major construction projects. We found that on average a one-year delay or other extension of the implementation phase correlates with an increase in percentage cost overrun of 4.64 percent.
To illustrate, for a project the size of London’s 26 billion dollars Crossrail project, a one-year delay would cost 1.2 billion dollars extra, or 3.3 million dollars per day. The key lesson here is that in order to keep costs down, implementation phases should be kept short and delays small. This should not be seen as an excuse for fast-tracking projects, that is, rushing them through decision making for early construction start. Front-end planning needs to be thorough before deciding whether to give the green light to a project or stopping it. But often the situation is the exact opposite. Front-end planning is scant, bad projects are not stopped, implementation phases and delays are long, costs soar, and benefits and revenue realization recedes into the future.
It is far easier to produce long lists of projects that have failed than lists of projects that have succeeded
For debt-financed projects this is a recipe for disaster, because project debt grows while there is no revenue stream to service interest payments, which are then added to the debt, etc. As a result, many projects end up in the so-called "debt trap" where a combination of escalating construction costs, delays, and increasing interest payments makes it impossible for income from a project to cover costs, rendering the project non-viable. That’s what happened to the Channel tunnel and Sydney’s Lane Cove tunnel, among other projects.
This is not to say projects do not exist that were built on budget and time and delivered the promised benefits. The Guggenheim Museum Bilbao is an example of that rare breed of project. Similarly, recent metro extensions in Madrid were built on time and to budget as were a number of industrial projects. It is particularly important to study such projects to understand the causes of success and test whether success may be replicated elsewhere.
It is far easier, however, to produce long lists of projects that have failed in terms of cost overruns and benefit shortfalls than it is to produce lists of projects that have succeeded. To illustrate, as part of ongoing research on success in megaproject Management the author and his associates are trying to establish a sample of successful projects large enough to allow statistically valid answers. But so far they have failed. Why? Because success is so rare in megaproject management that at present it can be studied only as small-sample research, whereas failure may be studied with large samples of projects.
Best practice is an outlier, average practice a disaster
Success in megaproject management is typically defined as projects being delivered on budget, time, and with the promised benefits. If, as the evidence indicates, approximately one out of ten megaprojects is on budget, one out of ten is on schedule, and one out of ten is on benefits, then approximately one in a thousand projects is a success, defined as on target for all three. Even if the numbers were wrong by a factor two – so that two, instead of one, out of ten projects were on target for cost, schedule, and benefits, respectively – the success rate would still be dismal, now eight in a thousand. This serves to illustrate what we call the "Iron Law of Megaprojects": Over budget, over time, under benefits, over and over again.
Best practice is an outlier, average practice a disaster in this interesting and very costly area of management.
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*) See sources and solutions to the Iron Law here.