Transportation Research Forum

Book Review: Megaprojects and Risk: An Anatomy of Ambition

Book Author(s): Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter
Review Author(s): Porter K. Wheeler
Source: Journal of the Transportation Research Forum, Vol. 43, No. 1 (Spring 2004), pp. 145-148
Published by: Transportation Research Forum
Stable URL: http://www.trforum.org/journal

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Book Review
Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter, Megaprojects and Risk: An Anatomy
of Ambition. Cambridge: Cambridge University Press, 2003. ISBN 0-521-804205.

Megaprojects and Risk: An Anatomy

of Ambition
by Porter K. Wheeler
This book makes an important contribution
to understanding the infrastructure
development process worldwide, with focus
on megaprojects. Megaprojects, essentially
multi-billion
dollar
infrastructure
developments, have become synonymous with
development ambitions gone astray, albeit
well-intentioned. Yet truly, most significant
projects today are megaprojects as urban
populations, goods movement, and demands
for mobility have far outpaced infrastructure
development. Notwithstanding the tortured
record of experience with projects like
Bostons Big Dig Central Artery, more
capacity and other major improvements seem
inevitably needed. Hence, sound thinking
about how to get there from here is very much
welcome.
Flyvbjerg, et al, make a resonant case that
the central problems at the heart of the matter
are lack of accountability and inappropriate
risk sharing, notwithstanding the admitted
complexity and unique characteristics
associated with planning, financing, and
developing individual megaprojects.
Furthermore, the authors conclude on a
hopeful note that outcomes can be improved
by reforming the institutional arrangements
that form the context of megaproject decision
making. Better yet, they provide a roadmap
to such reform that warrants close attention.
The book is accessibly written for a fairly
broad audience and provides a convenient
framework for addressing megaprojects as a
generic species. The history of project cost
overruns is traced and summarized, with an

informative array of examples, ending with the

warning: dont trust cost estimates (p. 20).
Demand forecasts that provide the
underpinnings for project development are
examined in equally harsh light, ending with
a similar warning: dont trust traffic
forecasts, especially for rail (p. 31).
Providing further access to their examples, the
book includes extensive notes and
bibliography (49 pages worth).
There is substantial and informative, but
occasionally repetitive, focus on three
modern-era megaprojects:
the Channel tunnel linking France and the
UK;
the Great Belt link, connecting Denmark
with continental Europe;
and the Oresund link between Sweden
and Denmark.
On the whole, this information should
prove helpful to North American practitioners
who may have limited or inaccurate exposure
to those projects, which are set forth in such
exemplary fashion. Understanding the applied
development history and economic
underpinnings can be a critical contribution.
For example, the U.S. thrust to develop
demonstration projects for MAGLEV might
benefit from knowing more about the German
experience on the Berlin to Hamburg route
during the 1990s, as set forth here.
To my mind, this book is a promising,
thought-provoking contribution to dealing
with infrastructure development issues. The
authors suggestions are to institute
accountability, especially at the project

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Megaprojects and Risk

development and appraisal (evaluation)

stages, before construction commitments are
set in concrete and short-term beneficiaries
mobilized. After examining the lessons
learned from recent privatization experience,
the authors are certainly correct to conclude
that public-private collaboration is crucial.
This has been recognized by USDOT for more
than a decade.1 Neither sector can optimize
an approach to or finance megaprojects on
their own.
The authors set forth four key instruments
of accountability for which they suggest
rearrangement of the project development
process:
Transparency, focusing on public
scrutiny of all information, active (and
early) participation from stakeholder
groups, and independent peer reviews;
Performance Specifications, setting
forth all requirements relating to policy
objectives before approving the technical
solution (bridge, tunnel, etc.), and
including environmental outcomes and
safety issues, not just financial feasibility;
Regulatory Regime, formulating the
rules for financial and economic
performance, necessary complementary
investments, and methods for dealing
with risks (including political risk, in a
prospective fashion); and
Risk Capital, emphasizing that projects
should be structured so that private capital
is put at risk (without sovereign
guarantee), for at least one-third of total
capital needs. Private capital at risk is
intended to shift risks to those better able
to understand and protect against them,
and to obtain more realistic assessment
of those risks from the private sector.
Reaching even further, the authors then
propose two alternative paths for addressing
these four areas and obtaining more
accountable decision making:
Concessions Approach, built around
build-operate-transfer (BOT) or even
design-build-finance-operate (DBFO)
contracting approaches, where private

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companies bid for the right to build and

operate specific projects; or
State-Owned Enterprise Approach,
with careful attention to transparency,
clear performance standards, competent
board and staff, and private capital placed
at risk and not fully guaranteed by the host
government.
Commentary
Are megaprojects different?
I am not convinced that the development
particulars differ that much for large projects,
but certainly the magnitude of resources
committed, cost overrun exposure, and
associated societal benefits or disbenefits and
their lasting nature are of extreme importance.
These are not only sunk costs, and
irreplaceable resources committed, but as a
consequence the developmental benefits are
likewise sunk and will influence our mobility
for decades to come. While not a zero-sum
game, certainly much will be foregone in the
way of future scenarios when billions are
committed to a megaproject.
This analysis is useful but also a little bit
dangerous.
Its useful because it assembles data on
numerous large development projects,
primarily in Europe, synthesizes, and gives us
coherent suggestions about how to improve
the infrastructure project decision-making
process. Its a little dangerous because it
suggests strategic misrepresentation by project
sponsors and warns the reader: dont trust
cost estimates and dont trust traffic
forecasts. This begs the question, who and/
or what should we trust?
Is the answer more participation?
The authors argue that more participation
and transparency are part of the solution. I
have no desire to shoot the messenger, but
meeting all demands of all stakeholders will
not necessarily give us more effective
megaprojects. In essence, engaging the full
range
of
stakeholders
(political

Megaprojects and Risk

representatives, environmental groups, and

many others) can easily become anarchic (as
the authors themselves note early on) unless
mechanisms can be institutionalized for
effectively responding to or avoiding their
demands.
Environmental demands. The authors
themselves ask whether some of the
environmental demands are warranted.
For example, should the Hannover-Berlin
rail alignment be shifted to preserve rare
bustard habitat at a cost per bustard
preserved that was 25 times the value
assigned to human life? Environmental
adaptations come at a cost, especially so
when they are imposed late in the
planning process. The authors admit that
rarely is there a simple truth about such
projects, and I would add that we cannot
expect any simple truths.
Performance standards. Suggesting
adoption of an international development
bank approach relying on performance
standards is meritorious but has its own
deficiencies. Performance standards are
desirable but fraught with difficulties.
Such standards are not inherently clear,
and appointed boards (both public and
private) are not inherently competent,
though the potential is certainly there if
adequate and long-term provision is made
for accountability.
Local demands to augment the project.
The authors note that German high speed
rail between Cologne and Frankfurt was
designed with one stop to attain specified
trip times and attract passengers. After
responding to new requirements by the
Lander (German states) the revised plan
incorporated five stops, each with a new
station, and carried much higher costs

while speed and ridership were negatively

affected. There will always be political
realities that must be addressed, but the
feasibility of the project must remain
paramount.
This example reminded me of the US high
speed rail proposals put forward in the
early 1990s where the Washington to
Atlanta route plans showed no stops in
South Carolina, an omission not lost on
the Chairman of the Senate Commerce
Committee (representing South Carolina).
It also recalls the US Northeast Corridor
Improvement project, where high speed
rail passenger service was promoted with
multiple billion dollar improvement
grants (100% federally supported). The
research indicated that rail service would
be competitive and warranted if the
Washington-to-New York route could be
covered in two and one-half hours. This
performance criterion was built into the
legislation providing the improvement
funding, a clear research-based standard
imbedded in the policy decision to move
ahead with the project.2 However, even
the new Acela train sets do not satisfy that
performance in regular service.
The authors focus on accountability,
private involvement, and proper risk
assumption are certainly a large part of the
answer to better project decision making. Use
of independent experts is appealing to those
of us that style themselves as such, but the
economist in me suggests close attention to
the Washington version of the golden rule,
that is, whoever is paying for the independent
experts will almost certainly want to make the
rules. Structuring such an independent review
board for megaprojects will certainly be a
challenge, but one worth taking on.

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Disappearing Diagrams

Endnotes
1.

Passage of the Intermodal Surface Transportation Efficiency Act of 1991 provided more
flexibility for private involvement and USDOT convened a symposium in 1993 to develop ways
of overcoming barriers to public-private partnerships. See USDOT, Federal Highway
Administration, Summary of the Federal Highway Administrations Symposium on Overcoming
Barriers to Public-Private Partnerships, Number 11 in the Searching for Solutions Series
(September 1994).

2.

See, for example, my discussion of the role of research and analysis on the policy decision to
fund the Northeast Corridor in The Northeast Corridor: Has Research Influenced Policy? in
Transport Decisions in an Age of Uncertainty, Proceedings of the third World Conference on
Transport Research, April 1977.

Porter K. Wheeler is Chief Economist and Director of Transportation Policy at Infrastructure Management
Group, Inc., Bethesda, MD, where he has advised on concessions and privatization of infrastructure
facilities world-wide and has helped develop public-private partnership and innovative finance policies
on behalf of US DOT and numerous state DOTs and regional authorities. He is a member of TRBs
Committees on Finance and Taxation and Freight Transport Economics and Regulation. He also serves
on TRBs Design-Build Task Force. He is a graduate of Amherst College and earned his Ph.D. in economics
from Harvard University.

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