Governments have historically relied on cost-benefit analysis (CBA) to prioritise major projects. But CBA is limited at best—and misleading at worst. With infrastructure stimulus investing on the rise, it’s time for a new approach. Here, Deloitte and Oxford Global Projects share fresh strategies on how governments can prioritise their infrastructure stimulus investments.
As countries seek to recover from the ongoing COVID-19 pandemic, infrastructure spending is seen as a solution for stimulating economies worldwide. Infrastructure is often called the “backbone” of a healthy economy. Done right, infrastructure stimulus investments can not only hasten economic recovery from the effects of COVID-19, but can also accelerate progress in addressing other issues, such as social needs and the effects of climate change.
As public debt levels have increased dramatically through the COVID-19 crisis, governments must stretch stimulus investments as far as possible. Historically, cost-benefit analysis (CBA) has been used as a basis for sound project appraisal and project prioritisation. However, in a best-case scenario, CBA provides only a limited view on the potential outcome of investments—and in a worst-case scenario, it can be downright misleading.
The inaccuracies associated with CBA have recently been the focal point of discussion and research in both academic and industry sectors. Most of the lesser criticisms of CBA emphasise that such tools are limited as they typically include only easily measurable costs and benefits, while ignoring the wider social impacts of infrastructure solutions, which we believe should feature heavily in infrastructure prioritisation.
Other criticisms are more severe and call for reform while arguing that current CBA is inaccurate since it fails to consider variability and systematic biases that affect project outcomes. The inaccuracy of CBA was recently highlighted by Flyvbjerg and Bester (2022)1, who argue that cost and benefit estimates are inaccurate and biased and thus cannot be used to provide evidence around the worth of project investments.
Government infrastructure investments are significant, but governments often fall prey to prioritising in a flawed manner. This prevents infrastructure from achieving its maximum potential impact, resulting in lost opportunities for the communities these projects are designed to serve. This negative impact is compounded by the opportunity loss of better options that do not proceed or which are allocated fewer resources.
To overcome the weaknesses associated with CBA, this paper explores current approaches to project prioritisation and proposes several alternative strategies organisations can use to enhance the effectiveness of their infrastructure investments. While there is a way to go before all infrastructure investments are properly prioritised, adopting these strategies can position governments to make less biased, more informed resource allocation decisions.
Bent Flyvbjerg, Executive Chairman and Co-Founder of Oxford Global Projects, Professor and Chair of Major
Programme Management at Oxford University’s Saïd Business School
Dr. Alexander Budzier, CEO and Co-Founder of Oxford Global Projects, Fellow in Management Practice at Oxford University’s Saïd Business School
About Oxford Global Projects
"We are the world’s leading experts on megaproject management. Our co-founder, Bent Flyvbjerg, is the most cited scholar on the subject worldwide. And we have 30+ years of experience advising government and business. Our best-in-class data drives award-winning research. To date, we have authored or edited 10 books and 200+ papers that have been translated into 20+ languages. Those writings have been cited over 40,000 times and counting, making us the most-cited scholars on megaprojects worldwide." Learn more.
Source: Oxford Global Projects
It’s time to revitalise, rebuild and reimagine the future. Infrastructure plays a pivotal role in shaping tomorrow and strengthening our economy today, but not without challenges. Construction projects have grown larger, riskier and more complex.