ICE's insights paper examines how different international governments and infrastructure owners appraise the costs and benefits of major infrastructure projects, and whether the UK infrastructure sector can learn from these approaches.
It is well known that strategic investment in infrastructure projects fuels economic growth, raises productivity and improves public services. But, done well, this investment can go well beyond economic aspects and deliver enormous social and environmental improvements.
The UK has traditionally favoured projects based on lowest capital cost, but this is out of kilter with public opinion. As part of ICE’s previous work into reducing the gap between project cost estimates and outturns, a survey of the British public found that only 3% of adults felt that a low overall cost of construction should be the most important measure of success for major infrastructure projects.
This suggests that there should be an emphasis on redefining what a good outcome from an infrastructure project looks like, linked to a need for a broader approach to project procurement that better captures benefits.
Since major infrastructure projects take a long time to plan and build, it is important that decisions are made with regard to future demand. However, this can often be uncertain – technological or societal change could cause a project to become obsolete, the benefits to be reduced or its economic life shortened.
Some costs and benefits, particularly social and environmental ones, are also hard to monetise. As these are vital to making informed decisions on infrastructure projects, it is important to see the project appraisal process not as an exact evaluation tool, but rather one that reduces the degree of uncertainty that would otherwise exist. In many cases, project benefits are overstated and costs are understated.
This can be down to a multitude of reasons, such as optimism bias, cost misrepresentation, insufficient evaluation models and an unwillingness from promoters to adjust estimates from their initial base. In some cases, this means that a benefit-cost ratio (BCR) justifies a project that the promoter wanted to go ahead with regardless, rather than consider alternative solutions that may well deliver better outcomes for society.
What learnings can be applied?
Most efforts to improve project appraisal models in the developed world have seen existing frameworks evolve rather than brand new approaches materialise. While the UK is viewed as having one of the most mature frameworks for assessing, appraising and prioritising infrastructure investment, it is important to understand how other governments compare and whether there are any transferable lessons.
On federally-funded infrastructure schemes, Germany lends additional weight towards projects that serve low-income regions. This is a quite different approach to the UK, where methodologies focus on journey time savings and are inherently geared to favour economically-active regions. France, meanwhile, utilises the Commission Nationale du Débat Public (CNDP) as a form of public deliberation on infrastructure decision-making.
This can identify previously unknown benefits and costs that feed into a BCR process; indeed, on 61 French infrastructure projects between 2002 and 2012, 38 made modifications based on evidence from the public debates, with 25 of those choosing an entirely new project option.
There are a range of new decision-making models being either used or proposed, with a number of prominent organizations developing approaches that can better measure the total value of infrastructure projects. Some of these models are not without their risks, however. Many are so complex that they require a large amount of data to be fully effective, which is often not available.
Broadening the mechanisms studied as part of cost-benefit analyses can also risk exaggerating costs and benefits. The International Transport Forum believes the time may come where these larger and more complex models (with further research and application) can become the norm when appraising infrastructure costs and benefits.