New Research: Out of Control: How the Government overspends on capital projects 2

TaxPayers Alliance Better Government

Includes projects and spending figures across Britain

• The total net overrun on 240 key Government projects was more than £19 billion, this is equivalent to over £750 per household in Britain.

• The average cost overrun of the sampled projects, including those that came in under budget, was more than 38 per cent, up 4 per cent from our last survey in 2007.

• 32 per cent of the projects sampled overran, while 24 per cent came in under budget.

In 2007 the TaxPayers’ Alliance calculated the cost of public sector capital project overruns. Since then, numerous official reports have attacked big government projects. From ICT systems to public buildings and military aircraft, many projects have been late and over budget, and have not delivered on their initial promise. This report updates that analysis to show that failures in managing capital projects continue to impose significant costs on taxpayers.

The dire state of the public finances means that any future government will be forced to cut spending. It is essential that a more considered approach is taken to capital projects, and they only go ahead on the basis of a realistic assessment of cost. Even more importantly, they must be managed competently to conclusion. There have clearly been significant failures with many high profile (and many mundane) projects. The evidence for this is all too clear, with reports from the National Audit Office (NAO) and the Public Accounts Committee (PAC) consistently criticising public sector project management.

Read the full report here (PDF).

Key findings:

• The total net overrun on 240 projects was more than £19 billion. The figures are from an opportunity sample of Government projects with official costings available.

• This is equivalent to over £750 per household in Britain.

• The average cost overrun of the sampled projects, including those that came in under budget, was more than 38 per cent. This is up 4 percentage points from our last survey in 2007.

• 32 per cent of the projects sampled overran, while 24 per cent came in under budget.

• The project to overrun by the most is the NHS National Programme for IT, which is currently £10.4 billion over budget – over 450 per cent.

• The worst performing department was the Ministry of Justice with 2 projects overrunning by an average of 163 per cent.

• The best projects were the East and North Hertfordshire Hospital and the Future Joint Combat Aircraft, coming in under budget by a combined £840 million.

• The best performing departments were the Treasury, the Department for Innovation, Universities and Skills, and the Foreign and Commonwealth Office. Their projects came in under budget on average.

• Departments should make more effective use of optimism bias when estimating the cost of projects, and use good practice learnt on successful projects.

Download the full report here (PDF).

John O’Connell, Policy Analyst at the TaxPayers’ Alliance, said:

“Too many projects are coming in late and over budget and this failure is costing the taxpayer billions, endangering essential services. This can mean doctors having to work in outdated hospitals or soldiers on the front line having to use inadequate equipment, despite the taxpayer having paid handsomely for new facilities or kit. Sadly, it seems like the public sector’s record is getting worse, not better, over time. The state of the public finances means that it’s more important than ever to ensure value for money is achieved on capital projects.”

TaxPayers Alliance

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M.J. King

Good article. Only one slight problem. When one gets to know the way certain government departments work you then start to appreciate just how smart their senior managers are. Just why are these managers smart? Because, not wishing to suffer the opprobrium that comes with over spending project budgets, they over estimate the amount required (it’s called contingency planning) by enough to make sure they come in under the target.
Clive Bone

A well-researched and timely publication but this problem would be greatly reduced if value management was more widely adopted – particularly at the very early stages of capital projects. This has been said in innumerable publications over the past twenty years but there has not been enough pressure from the top to adopt best practice. A fairly recent book Value and Risk Management; a guide to best practice, Blackwell, 2006 (ISBN 1-4041-2069-X) contains a useful quote in respect of the Eden Project:
“…It is probably the most successful of all the millennium projects in the United Kingdom. It used value and risk management to great effect in overcoming seemingly impossible obstacles in fund raising, design and construction, to open ahead of schedule, within budget and exceeding expectations.”
In respect of public services value management, or kindred topics such as lean and systems thinking, should be mandatory for all service activities. Let them choose which but the non-use of one or more of them should not be an option. This will call for a new inspection regime to enforce take-up and assess efficacy of use; maybe supervised by the NAO. This could be much more effective and far less resource intense the public sectors’ failing value-for-money bureaucracy.
Clive Bone
Chairman: Institute of Value Management
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London SW1 H 9JJ