One of the biggest difficulties facing big projects is cost?
If the question is asked at an early stage the answer can only be given with a high degree of variability, often up to 60% or more. This is not because the forecasting is inaccurate but simply because the scope and risk-profile of the project are not sufficiently well defined. This degree of variability is recognised in the Treasury Green Book as “optimism bias”.
This is what we have over 2012 where the Olympic Delivery Authority is at the stage where masterplanning and design are putting shape to the scope and costs are becoming clearer. The challenge now will be to fix a cost envelope that reflects the desired scope and risk profile, and deliver the Olympics within it.
This will take considerable expertise in cost management and will include a zero-sum approach (that is, any cost overruns must be paid for through savings elsewhere) and ruthless removal of cost. It can be done, as Heathrow T5 showed.
Here are some of the risks that the Olympics face:
- Ground difficulties
- Interest rate hikes
- Clients’ scope changes
- Difficulties with waterways
- Planning delays
- Difficulty in reaching commercial agreements.
- Site access.
- Materials and labour supply.
- Demand-pull tender price rises.