Big projects vs. small projects? When size does matter

July 2019: Strong media and public scrutiny, whether it is in the newspapers, leaked government papers or on social media, can sway public opinion (and sometimes cabinet decisions) towards big infrastructure projects. The cost of these projects alone does justify such scrutiny but are these big projects really needed and more importantly, would smaller more flexible ones not achieve the same results?

Step5’s client list counts large private organisations and government departments in the UK and overseas, including the Ministry of Defence and the Department for Business, Energy & Industrial Strategy. Step5 works with government teams and independent auditors – always as an integral part of the project management team – to revise governance structures and establish timely, high-quality delivery. Whether it is digital transformation, project recovery or business change, there are many aspects to managing big projects.

Infrastructure projects are typically the ones we cite as examples when we talk about ‘Big Projects’. The most talked about and the most scrutinised by the public and the media are HS2, Crossrail and Hinkley Point C Nuclear Power Plant, all classified as ‘megaprojects’ by the UK government.

Professor Bent Flyvbjerg, Professor and Chair at the University of Oxford Saïd Business School, defines infrastructure projects into three categories: ‘small’, ‘major’, and ‘mega’.

The term ‘Big projects’ usually describes all those costing more than £100 million, incorporating both major projects (over £100 million) and ‘mega’ projects (over £1 billion). For example, in the UK the cost of infrastructure projects can range from £1 million to £56 billion (HS2). Based on an analysis made by The Institute of Government of the Infrastructure and Project Authority’s infrastructure and construction pipeline data, it is estimated that the Government has almost £550 billion of economic infrastructure projects – covering communications, energy, floods, transport, and utilities – planned. The vast majority of these are small projects, under £100 million.

The wider benefits of HS1 were estimated to be £3.8 billion. Incorporating wider effects almost doubled the benefit–cost ratio from below 1 to over 1.7. Regeneration benefits, not included in the appraisal, were estimated to be £10 billion over the project lifecycle.”

– The Institute of Government of the Infrastructure and Project Authority

The government currently has 23 ‘mega’ projects in development which constitute a widely  disproportionate large amount spent on infrastructure: almost £150 billion. It makes sense that the costliest projects, HS2, Hinkley and Crossrail, are all very large and complex.

One of the major and most attractive characteristics of big projects is their contribution to high-level economic objectives, whether it is boosting productivity, restructuring the economy or regeneration, all arguments made in the proposals for HS2, Heathrow’s third runway and Hinkley Point C.

There is however a case made against big projects. They are often not as transformative as claimed and economic effects like regeneration are not always realised to the extent claimed. Even when transformative economic effects do appear, they are very difficult to attribute to individual infrastructure projects rather than being originated by a broader industrial or regional policy framework. For example, attributing the regeneration at King’s Cross to High Speed 1, is slightly dubious when little regeneration had occurred near HS1 stations outside of London.

Big projects are by nature inflexible. They are much easier to scale up but if necessity (economic or other) demands they are made smaller, it is near impossible to do so – at least not without significance expense. There is currently a debate about whether large old-style nuclear power solutions like Hinkley are still relevant and appropriate in a world where energy demand is variable and might even decrease in the future. Even more interestingly, while still backing Hinkley as one of its ‘mega’ projects, the UK’s Department for Business, Energy & Industrial Strategy published an independent report – Micro Nuclear Reactors, their key characteristics and an assessment of the market and regulatory challenges – as recently as 22 March 2019. This report outlines the key technological characteristics of Micro Nuclear Reactors (MNRs), compares them with existing technology such as PWR (used at Hinkley) and assesses the associated market challenges as well as potential economic and environment benefits. It also looks favourably at a practical implementation in a near future.

It is also harder to predict the costs, benefits and timelines of big projects as they are often unique and therefore there is no reference to past projects. Benefit overestimates and cost underestimates are more likely for big projects.

Internationally, nine out of ten projects costing over £1 billion go over budget.

– Bent Flyybjerg, Professor and Founding Chair of Major Programme Management Said Business School, Oxford University 

Big projects mean bigger risks and are more difficult to finance. By definition they affect more people, resulting in more opposition which can sometimes mean significant delays. The Roskill Commission report on expanding runway capacity in South East England was published in 1971. Almost 50 years later, planning approval for a new runway has still not been given.

 

Why is smaller better?

Smaller projects usually have better benefit-cost ratios as they will generally perform better on cost-benefit analysis. It is easier to conduct a thorough appraisal of small projects, because their impacts will be limited and usually geographically concentrated. This makes identifying costs and benefits easier and far less speculative.

For example, when looking at Department for Transport data, the Eddington Review (Dec. 2006) found small projects generally delivered greater returns on investment than larger ones. The report argued that the UK’s existing, well-connected transport network is sufficient, but performing poorly. The priority, it argued, should be to improve the existing network, rather than extend it or create a new one, such as HS2.

Delivering multiple small, homogenous projects can lead to more accurate prediction of costs and benefits.

 

For more information on Step5 services, contact jim.berrisford@step5group.com