Introduction
Big Dig is one of the largest transport infrastructure projects that have ever been undertaken in the US. At its inception in 1985, the project was held in high esteem because of the socio-economic benefits that were associated with it. However, the project suffered several setbacks as its cost grew rapidly from $2.6 billion in 1985 to $14.8 billion in 2007. This paper discusses the root causes of the cost overruns and how they could have been prevented.
Root Causes of the Cost Overruns
The main factors that led to the significant increase in the cost of the project include the following. First, the cost estimates were not computed accurately. The original budget for the project did not allocate funds for significant design changes. However, several design changes were made during the construction process, thereby increasing construction costs (Poole & Samuels, 2011). Second, the cost overruns are explained by the fact that inflation was not accounted for until 1994. Inflation increased the cost of the project through the general raise in the prices of construction materials.
Third, the construction process was poorly conceptualized since it did not fully take into account environmental challenges. The cost of the project rose significantly as the construction team struggled to relocate utilities in Boston (Omega Centre, 2012). Moreover, the constructor found it necessary to conduct several costly soil tests that were not foreseen to guarantee the safety of the tunnel. Finally, the cost overruns are attributed to poor project management practices. The project manager, Bechtel and Parsons Brinkerhoff (B/PB), worked on an hourly basis. Thus, they had the incentive to delay the project to earn more.
Prevention of the Overruns
The cost overruns could have been prevented in the following ways. First, contingencies should have been estimated carefully and accurately (Hobbs, 2009). Cost overruns could have been avoided if the factors that were likely to increase the cost of the project were clearly identified at its inception. Second, the project management team should have set precise goals, standards, and timeline to avoid cost overruns. This could have helped in defining the scope of the project, thereby eliminating the design enhancements that led to significant cost overruns.
Third, the government could have prevented the cost overruns by ensuring transparency in reporting. By 1994, B/PB had projected the overall cost of the project to be $13.8 billion (Poole & Samuels, 2011). However, this information was suppressed by the state government of Massachusetts to ensure continued funding from the federal government. This denied the federal government the opportunity to take measures to reduce the costs.
Causes of Projects that are Over Budget
First, over budget projects arise due to poor estimation of total costs. Using incorrect data for cost estimation and failure to appreciate future changes in market conditions such as inflation often lead to cost overruns (Kloppenborg, 2011). This leads to a situation where the bids presented by contractors and subcontractors are significantly higher than the estimates. Second, poor planning leads to a significant increase in the cost of projects (Hobbs, 2009). Poor planning causes delays in completing the project. The resulting increase in management fees raises the overall cost of the project. Third, a project can be over budget if it uses inappropriate designs. If the facility to be constructed has an unrealistic design, additional funding might be required to construct it. Moreover, the project team might have to incur additional costs to redesign or modify the project. Finally, the cost of completing a project can increase significantly if its scope is expanded.
Were the Causes of the Overruns Unique to Big Dig?
The causes of the cost overruns in the Big Dig project are typical of most megaprojects. Empirical studies indicate that most megaprojects suffer cost overruns due to poor estimation of costs, poor assessment of the risks that are likely to increase costs, and expansion of the scope of the projects. The Airtrain JFK project in the US had a cost overrun of 18% because of the inclusion of additional features that were not in the original plan (Omega Centre, 2012). In the UK, the cost of constructing the Channel Tunnel increased from $5 billion to $7 billion because the designs that were approved for construction were not in the original plan (Omega Centre, 2012). Furthermore, the project planners failed to take into consideration the major environmental risks that were likely to increase its cost. The Jubilee Line Extension is another megaproject in the UK whose cost rose by nearly 67%. The main cause of the cost overrun was poor ground conditions that were not foreseen at the design stage.
Available Options after Identifying Causes of Cost Overruns
Once the project is midway, the options that are available include modifying the project and implementing alternative cost reduction measures. Modifying the project by eliminating unnecessary components can help in reducing costs. If the project cannot be modified, alternative cost reduction measures should be implemented to ensure sustainability (Hobbs, 2009). The cost of the project can be reduced by renegotiating interest rates or the terms of debt repayment. The resulting reduction of the financing expenses reduces the cost of completing the project (Kloppenborg, 2011). Fast tracking the construction work is another strategy for reducing cost overruns. Completing the project on or before the set completion date helps in reducing management or consultancy fees.
Incentivizing Project Managers, Consultants, and Contractors
The build-operate-transfer (BOT) project delivery model can be used to incentivize consultants, project managers, and contractors to deliver a project in time and within the allocated budget. The BOT model involves collaborating with a private consortium that consists of project managers, consultants, and contractors to finance the project (Poole & Samuels, 2011). The consortium invests in the project so that it can make a profit in the long-run. As investors, the consultants, managers, and constructors will have the incentive to complete the project in time and to avoid lifecycle costs in order to achieve high returns on their investments. This will ensure that the project is delivered in time without significant cost overruns.
Conclusion
The Big Dig project had huge cost overruns due to poor planning. Specifically, the planners did not take into account the effect of inflation and the features that were likely to be added to the project. Moreover, there was no transparency in reporting the actual cost of the project. These causes of cost overruns are typical of megaprojects since they help planners to create the impression that a project is fiscally feasible in order to attract funding. Thus, project owners should use the BOT model to avoid cost overruns.
References
Hobbs, P. (2009). Project management. New York, NY: McGraw-Hill.
Kloppenborg, T. (2011). Contemporary project management. New York, NY: John Wiley and Sons.
Omega Centre. (2012). Mega-projects. London, England: Bartlett School of Planning.
Poole, R., & Samuels, P. (2011). Transport megaprojects and risk. Los Angeles, CA: Reason Foundation.