Photo by Miriam Espacio
It is rare to come up with 5 new directions from a single conference after 30 years of attending. But the last 2 days at the Sydney ‘Asset Management for Critical Infrastructure’ conference, I did, and I am both excited and grateful. There is nothing like a nice idea to wrap your head around. Here, in brief, is early notification of what I will probably be thinking and writing about in the next several weeks (even months). Please join me in exploration.
1. Business Cases
I made a disparaging comment about the quality of business cases and was taken up on the issue. “Why so bad?” he asked. I thought that there was probably three reasons. 1. We come at them with the wrong attitude. We don’t ask, ‘is this project justifiable?’ and then seek the information on costs and benefits that would enable us to answer the question, instead we start from the biased position of ‘how can we prove that this project should go ahead?’ Under these circumstances it is not surprising we have a tendency to overstate the benefits and understate the costs. 2. It is a genuinely difficult thing to figure out the benefits of infrastructure, for they usually reach way beyond the immediate recipients of the infrastructure service. I have also found, surprising as this might sound, that there is genuine difficulty for many in determining what is a benefit and what is a cost. 3. There is a lack of independence. I was told (who by?) that in Germany the C/B studies are done independently. This would be a great help if we were to adopt that here. It would overcome the first two issues and enable all projects to be considered on an equal footing as well as allowing the evaluation body to develop real evalution skill.
2. AM Ethics
Ashley Bishop had asked, in a comment to an earlier post, how AM could develop as a profession. I had given a keynote address on this many years back, but not covered one particular aspect that a fellow raised yesterday (who?). He said that we couldn’t become a profession until we developed a set of professional ethics. Fascinating! I started to wonder what such a set of professional ethics might look like? I would love to hear from anybody who also finds this an interesting question.
3. The Boom that never ends
Andrew O’Connor, KPMG had made it clear that we are currently experiencing a boom in infrastructure spending. Except that it isn’t! At least it isn’t if we are to believe new Infrastructure Australia CEO, Romily Madew, who argued that this level of spending is now ‘the new normal’. Booms come to an end, that is the nature of a boom, they don’t become the ‘new normal’. Capital spending over the next 10 years is about double that of the previous ten or around 100% growth. Justified by population increase? But that is only expected to be less than 25%. If this level is to be the ‘new normal’, it means we will continue to spend on infrastructure at about 4 times the rate of population growth! Does this sound normal? Let alone necessary and possible? And I am only looking at continuation of the level, if we look at continuation of the ‘rate of growth’, the problem assumes an even scarier dimension. What on earth are we thinking here? – to be explored.
4. Selective projections
All spending projections focus on capital costs. But every time we build a hospital, the recurrent costs (medical staff, cleaning staff, medical consumables, as well as the infrastructure operations and maintenance costs) easily come to about 40-50% of the capital costs, and they do this every year. Schools and Universities also have a high recurrent to capital ratio. Utilities less so, and probably roads the least of all, nevertheless even at the lowest level we are looking at around 10% of the capital cost as an ongoing recurrent cost. These costs continue even when the ‘boom’ has passed. Tom Carpenter said that in Japan, forecasts include both capital and recurrent. This is a much safer management process. If they can, why can’t we?
5. Infrastructure Debt and national security
Where are we getting the money from for this infrastructure spending? And how much are we paying for it? Already the University sector is financially dependent on China (as reported in the AFR, 21 August). How soon before all sectors are? Romily Madew, CEO, Infrastructure Austraia, said that this question was not within her remit. She thought it maybe was being done in the Treasury. Who is keeping an eye on this? The University sector has become dependent on Chinese funds simply because the Federal Government took short term decisions. It didn’t see today’s consequences. Maybe it is about time we took a serious look before this all gets out of hand. To be explored – does anyone know where this is being examined?
If any of these ideas intrigue you and you would like to work with me to see where these ideas can go – please write to me at penny@TalkingInfrastructure.com.
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