Megaprojects and risk

There’s lots of big projects on the go at the moment, and experience suggests that some will go badly wrong. The man who wrote the book on this (literally) is Bent Flyvbjerg of Aarlborg University in Denmark. He’ll be appearing at a symposium organised by Griffith’s Urban Research Program at 80 George St, Brisbane (wasn’t there a blog with a name like that?) on Friday 1 December. I’ll be the local support act.

Over the fold is the promotional poster. Here’s a review by Darryl Jarvis. I also wrote one which I will try to post later.

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7 thoughts on “Megaprojects and risk

  1. Sounds very interesting. When I read the book, which was mainly about very very large projects, I was looking for justification of PPPs (since there didn’t seem to be a justification anywhere else I could find). The main justification seemed to be the discipline that private financiers could bring to project planning and management, through having their own capital at stake. Clearly there are some inspired actual risk transfers (Margaret Thatcher’s insistence on the channel tunnel being privately financed being one). However the current PPPs seem to transfer very little risk indeed. I would be very interested in his comments on the Australian situation.

  2. I enjoyed that review. But I’m not at all sure about Jarvis’ assertion (via Beck) that technological complexity is linked to increased risk in modern societies. The evidence against this lies in longer life expectancy at higher standards of living than exists in less technologically complex societies. The latter are in reality the ones who will suffer most from climate risk, for example. I suspect that it is precisely the increased control that we have achieved that ‘precipitates intense risk aversion’. The perception of risk is greater because people are used to being insulated from it.

  3. I don’t know if there’s any evidence to support this but it seems to me that out internal risk aversion system(s) have a incapacity to switch off, similar to our immune and disgust systems.

    When environmental pathogens are taken away, the immune system often turns on the only available target – the body itself – and autoimmune diseases result. Kids raised in antiseptic environments tend to get asthma. A new treatment for Krone’s disease (an autoimmune inflammatory bowel disease) is the ingestion of pig threadworm eggs. The worms give the immune system meaningful employment and the vandalism subsides.

    Our disgust system was an adaption to prevent humans from eating where we shit (vice versa, etc) but in our modern technological world of clean water and flushing toilets Disgust fumbles around for something to latch on to. Modern targets include former food delicacies like crustaceans and offal, social customs, and even things like home furnishings.

    Our risk aversion systems seem to be doing the same in our high-tech-low-risk world, seeking out targets, any targets. Surely the prevalence of “snuff” TV – crime and criminal pathology shows – extreme sports, scary fairground rides, and so on – is psychic food for our risk systems. This is all well and good, but the problem (risk?) is that our risk systems tend to become erratic and sensation driven. We see this in the common inability to deal reasonably with simple things like food and other health risks, and the absence of sensible evaluation of project risks in the public sphere. Major wars can now be launched without considered public risk accounting, as we saw in the Iraq debacle: The possibility of Saddam nuking us was a major risk, but the possibility of the war failing dreadfully and negative impacts on a variety of other relationships was not worthy of serious consideration.

  4. I would add Barbara Tuchman’s ‘The March of Folly’ as a primary reader on some great policy and ideology failures involving substantial risk. If you would like a more technical analysis of risk management or the outcomes of systems failures in applied sciences then I would also commend Prof James Reasons work on accidents which has been the backbone to much of the improvements in human factors in high risk activities, especially the aviation industry, in the past two decades. More interesting is the pyschological notion of ‘false consensus’ and ‘group think’ which shows how we manage to negate any sensible anaylsis with more human failings. Meanwhile back to the Stern Report.

  5. I read the review. I don’t have a sense, though, of what percentage of big projects go badly over budget. A Channel tunnel would be a one-off but there must be quite a few $5 billion projects.

    I have read, somewhere, that the great railway building age of the late nineteenth century was also dogged by cost over-runs. Panama too, I think. Hmm, Chunnel, airports – is this a peculiarly transport thing?

    Maybe the only way to get things done is by (over)enthusiastic promotion.

    Flyvbjerg, who is well toward the left end of the political spectrum, wrote a fascinating book about the chicanery of reorganising the transport system in a smallish Danish town. It went on for ten years or so and as I recall commercial interests saw to it that virtually nothing was achieved.

    Nice analogies, Jim. We’re safe like no human society has ever been before and the safer life gets, the more worried we are that we’re not safe.

  6. Standard & Poor’s has something to say about risk in relation to private equity firms, as reported by The Independent (8/11/06):”The quality of debt backing private-equity deals has fallen dramatically, Standard & Poor’s has warned.

    The ratings agency’s research shows that at the end of August the loans backing three-quarters of European private-equity deals were rated in the single “B” range of junk debt.

    This means there is a one in five chance of the companies taken private using the loans as finance falling into default.

    That is a sharp decline compared with the situation at the end of 2002, when the agency started compiling figures: less than one-third of debt was rated in the B range, while 57 per cent was rated in the BB range – just below investment grade. At that level, the risk of default is just one in 20. Currently only one in 10 deals has this rating…”

  7. After a lifetime of dabbling in projects which mostly involve application of a modicum of technology to economic data processing, hardly mega projects but illustrative nonetheless, I reach the conclusion the Hofstadter’s theorem is alive and well.

    Hofstadter: it always takes longer than you think, even when Hofstadter’s theorem is taken into account.

    Apart from the obvious inability to predict the future, most project promoters have a vested interest in dissembling about downside risk, otherwise the project won’t “get up”. Many project approvers really want the project to go ahead, and insurance about a result is achieved by asking project promoters to undertake the project within the confines of their proposal plan.

    This leads to monomaniac project managers squeezing the scarce resources to produce the result, or something close to it.

    This approach has achieved some marvellous outcomes such as the 19th century UK rail network, and the Sydney Opera House. With “prudent” risk assessment such projects would not have been started.

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