Friday, November 20, 2009

Project Overruns Getting Worse

The TaxPayers' Alliance has just updated its analysis of cost overruns on large government projects.

The headline conclusion is that they're getting worse, with an average 38% overrun compared to the 34% identified in 2007. In cash terms the overruns now amount to £19bn, or £750 for every single British household.

The TPA's John O'Connell has waded through the details of 240 projects (well done John), but the top five culprits will be very familiar to BOM readers:
  • NPfIT - the NHS supercomputer is currently overrunning by £10.4bn (450% of its original budget)
  • 2012 Olympics - £6.9bn overrun (290%)
  • Astute Class Submarine - £1.3bn (48%)
  • Type 45 Destroyer - £1.0bn (18%)
  • Nimrod MRA4 - £0.8bn (28%)
And we might just note that these bald totals - shocking though they are - almost certainly understate the real overruns because of the various tricks routinely deployed by the commissars to limit their blushes.

For example, the 28% programme overrun on Nimrod needs to be adjusted for the fact that we were originally meant to get 21 planes for £2bn - £95m each. But we're now paying £3.6bn for 9 aircraft- £400m each. That's a unit price increase of 321% (see various BOM posts eg here).

[NB - the first version of this post was incorrect, for which many apologies. As commenter Think Defence pointed out, we are no longer getting the 12 aircraft we originally quoted: we are now only getting 9. Which means the unit cost is actually £400m. Thank you Think Defence - we now feel even more depressed].

And as we blogged just last week, the commissars have only been able to restrict their admitted overrun for the 2012 Olympics to £6.9bn, by hiding a further £2.7bn elsewhere. Adding that back in means the overrun is already standing at £8.6bn, or 360%.

It's not all bad news. Many of the projects listed in the TPA report are actually on budget - or at least, they are to the extent we can take the official numbers at face value. But a quick eye-balling of the list suggests they tend to be the small ones (we'll investigate further).

As we've blogged before, experience around the world is that 90% of public projects blow their intial budget.


It's that old toxic mix of incompetence and salami slicing (ie officials/politicos deliberately understating the initial costs in order to get the go-ahead). Everyone knows it's endemic in public projects, and HM Treasury has even developed a detailed methodology meant to deal with it.

HMT calls it optimism bias. But as this TPA paper underlines, you'd need to be a particularly starry-eyed optimist to believe there's any cure.

Other than dismantling Big Government, that is.

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