Improving decision-making for major urban rail projects

1. Improving decision-making for major urban rail projects Context Research purpose and approach Key issues A change agenda Conclusions Presentation to ICEA 7th July 2009 R.J. Allport BSc MA PhD DIC FICE

2. ‘Metros’ - carry a mass ridership rapidly When segregated – 30/40kph, capacity 35/60,000 pphd Part-seg’d LRT 20kph and 10,000pphd. Impacts City efficiency City structure + footprint Environment Social Finances High cost – for 15km line: Elevated US$ 0.5 - 1.1bn Underground US$ 0.9 - 2.7bn Revenue surplus over opcosts small/negative Capital cost requires largepublic funding Context - metros Allport ICEA Presentation

3. Opportunity cost Singapore’s NEL: US$3bn buys: • The budget for education + health per year…….Or • New Changi terminal + • 2 Hospitals + • 1 polytechnic + • 5 ‘LRT’ lines + • Interim upgrading for 10% of HDB flats Allport ICEA Presentation

4. Success - before research Allport ICEA Presentation

5. Poor success - explanations Flyvbjerg et al (2003): • A central tension between power and rationality • Two causes: ‘optimism bias’ (innocent) + ‘strategic misrepresentation (‘lying’) • To counter OB – benchmark forecasts [apply OB factors] • To counter ‘lying’ – increase accountability: • Public sector – proactive stakeholder part’n, inf’n made available, peer review, spec’s focused on ends not means, clear regulatory system • Private sector – competition, risk capital with no sovereign guarantees Allport ICEA Presentation

6. 2. The research Allport ICEA Presentation

7. Research- success updated Research identifies recent improved delivery……but no change in poor operational success Allport ICEA Presentation

8. 3. Key Issues – Context matters • Politics vs. technical rationality • Public finances - affordability • Sponsor authority • autonomy (powers, ability to raise funds) • capacity • culture/ ethos / transparency • Central government’s influence Allport ICEA Presentation

9. Turbulence changes everything This should change:> planning objective> way projects dev’d> type of projectThe core challenge – the management of dynamic complexity Allport ICEA Presentation

10. Metros are very risky • Megaprojects > mega-important • Challenging finances – widely misunderstood • Sponsors – public sector + often inexperienced • Central gov’t guidance – help or hindrance? • Many stakeholders > mixed objectives, imp’n thwarted • Long-lived assets – inflexible in a fast-changing world • Each project unique – no template for success • Technical complexity – huge …… increasing • Many critical decisions – all need to be good • Imp’n - through city centre of largest dynamic cities • Demand - No captive passengers • Operations - Little interest by anyone…… Allport ICEA Presentation

11. Sponsors matter Allport ICEA Presentation

12. A dysfunctional project dev’t process Allport ICEA Presentation

13. Central gov’t - part of the problem? CG usually defines the ‘enabling environment’ • National policies – dev’t, transport, PSP • City plans – req’ts and content • A funding system – who pays/ carries risk? • Statutory system - for consultation, powers • Process for project identification…. and appraisal • Procurement method UK guidance > complex, inconsistent, detailed, ever-changing? Contributes to unpredictability. Allport ICEA Presentation

14. Planning failure? Evidence • Ineffective plans - misleading/ aspirational • Incredible forecasts – for a certain world • Inappropriate projects - not implementable, bankable, adaptable Why? Planners are too often • Uninvolved, ‘techie’ + inward-looking • Without real-world sector experience • ‘hired hands’ Allport ICEA Presentation

15. Mindset Strategic/ holistic…. Creative/ imaginative… Entrepreneurial - engaged Approach Holistic PFS to identify feasible concepts – small experienced team, ‘back-of-envelope’ technical work Strategic technical work + stakeholder consultation Opportunities and downside risks ‘What next’ > efficient project dev’t process 4. A Change AgendaStart on the right path… Allport ICEA Presentation

16. Infrastructure planning > that stands the test of time • Strategise before detail – experience req’d • Engaged approach, negotiating a consensus • A creative endeavour (bankers much later) • Project to be ‘ready and adaptable’ • Operator influence early • Focus on stakeholders, robust technical viability, implementability (land), bankability • Formal risk management • (How to) involve the private sector? Allport ICEA Presentation

17. Forecasts that are not incredible • Role > probable outcome + risks • Risks formally analysed – opp’s & downside • Forecasters to understand project dev’t …. • Data/ models alone cannot provide ‘the answer’ • > All forecasts ‘reality-checked’ • Provide advice with interpretation. • Requires experience and deep sector knowledge Allport ICEA Presentation

18. Operations that are sustainable • Operations (the purpose) receive little attention • Operators have huge potential + rarely used • Operators face severe challenges, many in crisis. • Early, continuous operator influence • Concessions focused on op’l performance • Operator established contractually, regulated to provide predictable finances Allport ICEA Presentation

19. Involve the private sector? Role Create, validate, finance, deliver, operate Modalities • High-level Peer Review > project dev’t • Project Development Group > validate implementability/bankability/ concession structuring • Financing - £1.9bn from 5 concessions • Implement/ operate > concessions focus on whole-life And even - plan/ develop the whole project (risky) Allport ICEA Presentation

20. 5. Conclusions – why poor success? • Metros are different – public sector interest/ sponsorship • Implications of turbulence are not recognised Flyvbjerg’s analysis • Good analysis of accountability • Nature and cause of problems considerably more complex • Behaviour often a rational response in a difficult situation - not ‘lying’ • Optimism bias not an adequate solution, indeed reduces accountability Allport ICEA Presentation

21. Conclusions - project dev’t process > requires profound change Focus on op’l success > delivers projects ‘ready and adaptable’ • Requires: • Continuity in thinking, personnel, processes • Staged decisions, delayed commitment • Risk management and the business plan central process • ‘Project m’gt’ req’d to move upstream + downstream [not just imp’n] • Planner’s role to create consensus behind a good project • Critical at front-end to start on the right path • Identifying projects/ forecasts that stand the test of time. • Operator influence + focus on sustainable operations Allport ICEA Presentation

22. Policy conclusions • Metros and city sustainability are inextricably linked. • But when high opportunity cost projects ‘unsuccessful’ - decision-making fundamentally undermined. • Debate about ‘whether MRT?’ or which ‘which MRT?’ moot….. • Strong focus req’d on comparable cities/ projects + ‘what works’ • Requires in-depth sector experience. Models + analysis necessary but no substitute • Metro dev’t can create huge value. • Research reveals huge endeavour and success as well as problems. • It identifies an Agenda for Change that suggests progress can be made by informed people of good will. Allport ICEA Presentation