Testing times ahead for infrastructure

With the National Infrastructure Strategy pending, concerns are growing that Britain’s competitiveness could be compromised by under-investment and a lack of strategic direction.

Having secured a working majority in the December General Election, the Government must now deliver on its commitment to bring about an ‘infrastructure revolution’. So how can it ensure that every pound of taxpayers’ money is well spent, and what tools are available to guide their decision-making?

The consequences of uncertainty

Following months of economic and political instability, the construction industry is facing a crisis, with outputs and orders in decline. The outcome of last week’s General Election means that the Government can now forge ahead with transforming the UK infrastructure landscape and start realising the economic benefits that this stimulus will bring.

With austerity firmly off the table, the Prime Minister has already announced an £80Bn funding package for Britain’s roads and railways, with a further £22Bn to spend on specific projects included in the Conservative Manifesto.

To facilitate this ‘infrastructure revolution’, the long-awaited National Infrastructure Strategy is urgently needed. Since the collapse of Carillion, tough trading conditions and ongoing Brexit uncertainty have caused the industry to contract significantly.

Without a timetable for project delivery, businesses may struggle to plan ahead and put sufficient resources in place, leading to time and cost overruns or even a failure to deliver projects altogether.

The importance of cost-benefit analysis

When planning its investment pipeline, the Government must ensure that taxpayers’ money is well spent. This process can be far from straightforward; while some infrastructure projects have a clear return on investment (ROI), others are never intended to make a profit.

Located in Gateshead, the ‘Angel of the North’, for example, was constructed for reasons of cultural and historical significance. On the other hand, the financial benefits of rail project Crossrail 2 could extend across the South East, as well as strengthening London’s position as a successful and growing capital.

Cost-benefit analyses could help the Government to compare and rank different types of projects by converting their expected benefits into a cash equivalent.

For example, regardless of whether it represents value for money, the previously abandoned Swansea Bay Tidal Lagoon project could have brought valuable environmental benefits, which need to be taken into consideration.

By inputting any long-term benefits into a cost-benefit ratio, policymakers are able to compare the value of different projects and decide which should go ahead, and which should stay on hold.

It is important to bear in mind that often, unique, complex projects can prove expensive to deliver and therefore can be hard to assign a cost-benefit. However, as subsequent projects normally prove more cost-efficient, taking a leap of faith should pay off in the long run.

In order to ensure they have an objective measure to support each project’s selection or rejection, it is essential that competing projects are assessed using the same methodology, against the same criteria. The values to be considered in the analysis should also be pre-agreed by key stakeholders, for example, journey time and reduction in pollution levels.

The importance of early-stage planning

To optimise the economic benefits to be delivered from new infrastructure programmes, there should also be a greater focus on the initial stages. While there are numerous high-profile examples of projects with significant time and cost overruns, it is likely that many of these problems could have been avoided with more detailed long-term planning.

By recognising that many large-scale projects are hugely technical, one-of-a-kind undertakings and putting robust risk mitigation strategies in place at an early stage, Government stands a better chance of delivering critical projects on time, and on budget.

With careful planning, the Government’s forthcoming strategy could play a crucial role in preserving the UK’s reputation as a global leader in infrastructure design and development.

By using cost-benefit analyses to guide its decision-making and staying focused on delivering positive results in the early stages, the Government can bring lasting economic benefits to the UK whilst making the most of every pound spent.

Bill Zuurbier, co-founder and managing director of risk management consultancy, Equib.

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