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Guesstimates don’t bear up to scrutiny

MY dictionary defines the word, ‘estimate’ as: “Approximate judgment of number or amount”, and ‘guesstimate’ as: “Estimate based on guesswork”.

Estimate or guesstimate, which-ever, when it comes to public projects – taxpayer-funded ones – big cost overruns are the order of the day.

And it’s difficult to see this ending.

It’s also difficult to find anyone, even among politicians, who believes the estimates/ guesstimates for public works projects when they’re announced.

We now find ourselves in the absurd position where it seems only ministers and their press secretaries believe the early figures handed out.

And this has been the order of the day for decades, with taxpayers always carrying the can.

Some extremely enlightening judgements on this practice are carried in an article in the Journal of the American Planning Association, “Underestimating Costs in Public Works Projects – Error or Lie?”

The authors, Danish academics Bent Flyvbjerg, Mette Holm and Soren Buhl, of Aalborg University, focused their attention on 258 big international projects.

And their findings may well

be relevant to WA today, with Planning and Infrastructure Minister Alannah MacTiernan having decided within just 20 weeks to change the route of the Perth-Mandurah railway line at Jandakot to enter Perth’s CBD via the Kwinana Freeway, not Kelmscott.

The MacTiernan plan means construction of a 700-metre tunnel beneath William Street and a further 300m of cut-and-cover work within the CBD. Quick work indeed for something that’s being claimed will cost $1.4 billion.

The Danish study showed the estimates/guesstimates for the 258 projects – undertaken between 1910 and 1998 – over-shot budget by an average 28 per cent. Among those widest off the mark were railways, which had an average underestimation of 45 per cent.

Keep your fingers crossed that’s not repeated on the Mandurah-Perth line, because if it is it’ll mean a final price of at least $2 billion – if we’re lucky.

Bridges and tunnels assessed by the Danes were guesstimated on average 34 per cent below final all-up cost, while roads tended to be just 21 per cent off target.

They found the English Channel Tunnel, for instance, came in at 80 per cent over budget. Let’s hope Ms MacTiernan and her guesstimators don’t emulate that.

Of equal concern is the fact that the study found estimates were no more accurate today – at the outset of the 21st century – than they were on the eve of World War I when the steam age was still vibrant.7

This means computers, calculators, and 90 years of mathematical and engineering advancements have made little difference to politicians’ and their engineering guesstimators’ abilities to calculate expenditure of tax-payers’ dollars.

This Danish study’s sub-section, “Explanations of Underestimation: Error or Lie?”, is probably the most telling.

Four types of explanations, meaning excuses – technical, economic, psychological and political – are canvassed, with each being critically assessed.

“The profession of forecasters would indeed have to be an optimistic group to keep their appraisal optimism throughout the 70-year period our study covers and not learn that they are deceiving themselves and others by under estimating costs,” the study says.

Hardly encouraging. The important Danish study isn’t one that’s easily ignored, since Professor Flyvbjerg’s primary area or focus is “rationality and power in decision-making”.

In other words, how engineers and politicians combine and behave when embarking on big-ticket projects with power over lots of taxpayers’ dollars.

Not surprisingly he’s drawn lessons from his hardly encouraging findings.

His remedy to this persistent problem is to ensure that there is far greater openness in the whole estimating process whenever applied to public projects.

“The more public awareness and anticipation, the more accurate the estimate might become,” Professor Flyvbjerg says in the study.

In light of this it’s interesting, and probably ominous, that the Government rejected a proposal by Liberals for Forests MP Dr Janet Woollard and the Liberal Opposition during last month’s debate on the Railway (Jandakot to Perth) Bill that the Auditor General be called in to scrutinise the $1.4 billion MacTiernan guesstimate.

“No learning is taking place among the professionals doing these budgets,” Professor Flyvbjerg says. “Either the people who do the budgets are incredibly stupid, but this is highly unlikely.

“The other possibility is they manipulated the budgets to make sure the projects are approved.”

State Scene isn’t criticising Ms MacTiernan for what certainly appears to have been a surprisingly hasty decision to opt to go boring below a major city street.

That, essentially, was a brave political decision and she was clearly convinced of its engineering feasibility. Time will tell if it is feasible and if it was wise.

What Ms MacTiernan cannot be commended for, however, is her off-handed way of discounting the Opposition’s suggestion of having the Auditor General look over at her guesstimators’ estimates, or estimators’ guesstimates, especially in light of the Danes’ recent and enlightening findings.

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