What is the most common cause of big projects over running on their estimated budget? For example, I recently learned that the HS2 train line in the UK will be nearly £75bn over the estimated budget! How was the estimate so wrong?

Question

What is the most common cause of big projects over running on their estimated budget? For example, I recently learned that the HS2 train line in the UK will be nearly £75bn over the estimated budget! How was the estimate so wrong?

In: Engineering

Answer 1

In this case the budget overruns have happened *before* construction (they’ve started on construction but that’s not the cause of the overruns).

It looks like it’s coming in at about twice the original budget, which was from a schematic phase, about a decade ago.

The bust appears due to several factors:

1. Inflation. This starts to be impactful over a decade. The original $ amount wouldn’t have been in 2020 money. The project is still over budget but not quite as much as some newspapers might be pushing.

2. Poor ground conditions. During prelim geotechnical world as the project has been finalized they’ve found sections of the ground work are going to be much more expensive than planned.

3. Possibly over specifying the project requirements. The rail speed required is apparently higher than typical HSR, which the initial estimates were prepared for. This is a common cause of budget overruns during initial design – as the owner first decides what they want the go with their “Option A” for everything from tile selections to air conditioners to light switches, and then the project is way over and everyone needs to have meetings to work out what the Owner really needs/wants and what they can afford and where efficiencies can be found. This stage happens on every project ever. It’s possible they’ve just done a poor job of reining in these types of additional costs.

4. Land values are higher, and rising faster, than originally planned for.

Once construction really begins I’d expect more overruns as either late design changes are made which cost $$$, or £££, as they contractor already has the job and doesn’t feel much pressure to give the best price possible. They go high on the add service/change order fees and it’s not easy to negotiate down. There will also undoubtedly be cases where they find additional unforeseen conditions that require costly additional services, again not at competitively bid rates.