A few days ago, the former Prime MInister, Paul Keating, came out with a proposal for a ‘Reserve Bank for Infrastructure’.
“What Australia desperately needs is a Reserve Bank of infrastructure, that is a public body that nominates the big projects and then gets them going, that’s what I’d be doing.”
On line comment was generally favourable. The idea of taking infrastructure decisions out of the hands of politicians (but putting it where exactly?) was also well received. We don’t trust our politicians. But is there any other group that we do trust? Bankers? Professionals? Overseas Investors? Big Business? (Who would fill the ‘private’ slots in the proposed public-private RB?)
Only one commentator thought to ask exactly what infrastructure Keating had in mind, and what growth might result from it. Which is to my mind the real issue with infrastructure decision making – we don’t know how to do it. If we had clear criteria on what constituted a ‘good infrastructure investment’ then we could leave it up to a professional group to determine. We could even leave it up to a computer algorithm!
Two questions:
How might such a ‘Reserve Bank’ work – and in whose interests?
If such a RB were to be established, what rules would you like to set for it?
In the early days of asset management, enthusiasts, seeking to expand the boundaries of their craft, would argue that we should consider people as assets. At the time it was meant positively. For example, if you invest capital in an employee’s training, then you need to maintain that capital by providing opportunities for practice and maybe refresher courses, or the new skills and learning will gradually fade and disappear – or depreciate.
Others, however, argued that thinking of people as assets was unwise. Assets are a means to an end but people, in any civilised context, are the end in themselves. People are citizens. Public infrastructure, in particular, is to serve the citizenry.
We lose sight of the ultimate end game – the wellbeing, strength and resilience of our communities – when we focus on people as merely cogs in a production machine.
Moreover, if we are to cope with future change – political, demographic, climate and technological change – we need people who can respond imaginatively, can be flexible, and can innovate, not for personal gain alone but for the sake of the community as a whole, to be part of civic improvement. So important for infrastructure decisions.
Which brings me back to Virgin (see previous post). But not only Virgin. To all companies that treat their people as cogs in a machine, and to all governments that do the same. Companies can change, governments can change, but it is unlikely that change will come from within.
Where then does change come from? I am reminded of a comment by Michael Breen in an online forum on change that I ran many years ago. It was shortly after the death of Princess Diana and, in answer to the question of where change comes from, Michael referred to the strange thing that happened at Princess Diana’s funeral. After the eulogy by her brother, the very upright audience clapped. (This was completely not ‘the done thing’ at a solemn state funeral!) Michael observed that the clapping at the church ceremony started outside in the park. The insiders were too culturally bound to change things – even spontaneously. The outsiders were less bound, and therefore more able to be spontaneous, so much so that the inside people were able to ‘join in’. So the ‘opinion makers’ were able to change their behaviour with permission from commoners outside the elect group.
Question: As ‘commoners outside the elect group’, what can we do to get the positive change that we need to ensure that the infrastructure decisions we make will serve our future well?
Sunday night the first automatic check in machine I try at the Virgin terminal in Brisbane is set to ‘Check-in baggage only’, and the next and the next. In fact they all are. The one attendant on duty is dealing with another passenger but I have 15 minutes to spare before check-in closes so I wait patiently. When I have her attention she says, cheerfully, ’the baggage tag printing isn’t working, hasn’t been working all afternoon. Ignore the instruction, just use the machine and get your tag at the baggage drop’. By now it is 40 minutes to check-in and, as it turns out, these machines require 45 minutes clear for passengers with baggage. I therefore go to the counter. Now I am beginning to suspect my seat has already been given away to a waitlisted passenger because the check-in assistants go into a huddle, make telephone calls, hold me up for many minutes and then announce that the check-in is closed! My only recourse is the Services Desk. Here the clerk, in a tone implying she is doing me a favour, says that, as this is the last plane for the night, she can book me on the first flight the following morning at a cost of $120. I explain that my delay was caused by their malfunctioning machines but it makes no difference, she simply repeats (many times) that she ‘understands how I feel’ (She doesn’t!) At this stage my only alternative is to book with another airline and pay the full fare, so I accept. I am now out two taxi fares, one overnight accommodation – and $120!
While waiting for the cab, I reflect on the way that Virgin started business. It put its focus on its people and they were not only given the chance to take initiative but actively encouraged to do so. It was said that recruitment of young people (and they were mostly young) was on the basis of their ‘improv’ ability – their ability to react quickly (and generally with humour) to circumstances and customers’ needs. Those early years were fun. The liveliness of the crew was in stark contrast to the more sober performances of the more established airlines.
So what is happening now? The machines had been malfunctioning ‘all afternoon’, but no one had taken the initiative to put up a sign explaining the cause and letting passengers know what to do. The programmed and robotic parroting of standard spiels and ‘I understand how you feel’ was so mechanical, the clerk might as well have been a machine herself. This is a far cry from the early days. What has gone wrong?
Question today: Is technology increasing or reducing customer service? And how is it impacting the ‘human element’ in our interactive systems? Short practical examples preferred.
Over the last several weeks we have looked at problems for infrastructure decision makers when directions change – but before construction has started. However, since large scale projects can take a long time to construct many changes are likely to take place (and today much more so than in previous decades). If we were to stop and start again each time a new development comes on line, nothing would ever get done and budgets would explode. So do we accept that once a project starts construction, we ‘leave well enough alone’? Consider the following:
in 1950, Port Adelaide was rated as Australia’s third busiest port with berthing capacity for 41 ships and 6 kilometres of wharfs. The Greater Port Adelaide Plan was published that year with plans for the expansion of the port. A great deal of development then took place: reconstruction of wharfs, bulk handling facilities for coal and other bulk materials installed. Huge grain silos were constructed in 1963 and many storage sheds.
Then along came containerisation and made it all largely redundant as not only were the storage facilities not needed, the new container ships had a deeper drafts which required moving this shipping to the Outer Harbour because the Inner Harbour where the reconstruction had taken place, did not have the depth required. Compounding the misery for the port was another change that saw an increase in transportation by land rather than sea.
Looking back we always say ‘the signs were there’ – and no doubt they were, but how are we to tell ‘the signal from the noise’ to use Nate Silver’s phrase. Yes, the first container ship was launched in 1956 and it is hard to believe that this had not been a subject of much discussion in the navigation industry for years before its launch, possibly back to the time of the publication of the Greater Port Adelaide Plan but information was then not as easily accessible as it is today and it is also likely that the full potential of container shipping only gradually became apparent after that first voyage, i.e. while the reconstruction, much of which was to prove redundant, was going on.
So, our question for today is: Given the long lead times for planning and developing major infrastructure – and the likelihood of increasingly rapid change – what can we do to protect ourselves from such seismic changes, or even smaller, but nevertheless expensive, ones?
A second question is: How can we build in processes that make adaptation to new information easier?
Over the last few posts I have been looking at the problems for decision making. We may never be a hundred percent sure of success from our projects, but sometimes we can be a hundred percent certain of failure!
This is the story of a new hospital, designed as a private-public-partnership. It featured a very complicated financial vehicle that got extensive coverage in the financial press, so much so that I decided to visit with the designer and find out more. Over a period of 5 hours, he generously went through the details of the contract design with the relevant paperwork stacked in three piles at our feet, each almost a metre high! At the end, convinced that if it had taken 5 hours to explain it to me, a fellow economist, the chances of non-economists understanding the finer details were pretty slim, I asked him two questions.
The first was: “This is a very complicated contractual arrangement, what is the likelihood that you will have the opportunity to use this tool for another PPP?”
The designer replied that this was unique. I was concerned that so much valuable time had been committed to the design of this contractual vehicle and it would have no further use outside this project. But more so I wondered about the stability of such a contract. However it was the answer to my second question that told me that the project would not succeed.
I asked him “If you were an investor, would you undertake this project under these contractual conditions”. He laughed heartily and said a very definite “No Way!”
The contract failed and caused the government much grief. The moral, as I see it, is that unless a contract is designed to be a win-win situation – expect failure!
Our question for exploration today is: What would you look for to determine the success/failure of a project?
As a board member of several boards I learnt to be suspicious of a ‘one-off’ reason/excuse for failure. Especially if the same problem returned but was ‘explained away’ with a different ‘one-off’ answer. It was always worth drilling down for the root causes, always worth examining the process.
A poor outcome can be used as an opportunity to improve a process. You will find that the trust in you and your processes will increase if you do, as illustrated in the following two stories:
1. The Quality Control Manager of a large white goods industry tells how sales considerably increased when he took the trouble to explain to sales staff what problems had occurred in the past and what had been done to ensure that they would not happen again. The sales staff used these stories in their conversations with potential buyers who were impressed by the quality improvement processes involved. They bought into the process – and the product. But even more interesting, he told me that if customers had had an initial problem with a product butit was fixed promptly and courteously, they became more loyal customers than those who had not had a problem at all! The reason is that with their good experience of correction, they now trust the process.
2. This is a personal story: I was working on a report, one of a series, for the South Australian Public Accounts Committee, and discovered a flaw in the modelling – at the 11th hour! The Committee had approved it and the House had been advised we would be tabling but when we sat down to write the press release it became evident something was wrong. Worse, I had no idea how to put it right.This presented somewhat of a problem as the rules are that once the Committee commences an investigation, it must publish its findings. Nobody had noticed, and perhaps nobody would, but I knew it was there. We could not let it go ahead and had to advise the House that there would be a delay. In the event I was able, after much further and anxious work, to find the solution. But I was convinced that after this embarrassing hiccup the Committee would never trust my judgement again and I was prepared for a hard time when I presented the next report in the series. It never came. In fact, they were less, not more critical and searching. I was very puzzled. The Committee Secretary grinned: “Why should you be surprised? They now know that the process can be trusted, for when the going gets tough you will protect them from embarrassment at the cost of your own”. That poor outcome had, paradoxically given me an advantage! With the chance to refine and demonstrate the strength of our checking procedures, trust levels went up!
Question: Could this be an answer to our decision-maker’s dilemma’s (Oct 21 and Oct 25)?
It happens a lot! A senior staff member visits another country, sees something new, comes back full of enthusiasm to have the system installed here. His idea is new and exciting and it is given consideration. Time passes, the protagonist commits all his energies to getting the new project accepted and he is successful. In the meantime, over in the original country, experience with the new system is already throwing up a great many problems. Already the original country is starting to regret adopting the idea and is making excuses for the problems that have already arisen. The protagonist and his team, of course, hear about these problems.
Now they have a decision to make. Do they bring these problems to the attention of their superiors? If they do so, their position on the most innovative departmental project team, which is bringing them lots of interest and kudos, is at risk. Besides the directors, department chiefs and even the Minister have already made favourable noises about the project. Not so much that it could not be quietly shelved, but still it could be a bit of an embarrassment. Do they risk embarrassing their seniors or go ahead with the project despite the serious objections now being raised overseas?
This problem is not confined to the public sector, and is certainly not avoided by contracting out the work to the private sector.
Questions:
- What are the arguments in favour of change in these circumstances?
- What are the arguments in favour of doing nothing?
- Would a change in the system help? If so, what?
In his October 11 post, Gregory introduced the trolly problem and asked whether it is ethical to not take action when by doing so you could save a life. It is a tricky problem, a real ethical dilemma which is why the trolly problem has lasted so long in the literature. It might seem that as advisors on asset decisions we are never in such a dire life-or-death decision, yet is this really so? Consider the Railway Signalling Project.
The signalling system was part of a larger redevelopment of the railway station and had taken many years to design and develop and to pass all the various hurdles that such large scale public developments require. It had also languished a long while with the cabinet sub-committee entrusted with making such decisions. Now, during this time it had become perfectly obvious to all the departmental protagonists that there was a far better signalling system now available, one that would be cheaper, easier to install and maintain and far more reliable. The question was: Do we issue an amendment to the original design to take account of this new development which would invitably slow the already lengthy procedure even more, but would save considerable money and, quite possibly, lives because of the greater reliability of the new system?. The ease of installation of the new system would allow us to recoup some of the extra planning time involved. Or, now that we are so close to the finish line and have spent so very much time in deliberation already, do we simply run with the inferior system and say nothing?
The organisation chose the latter course of action and the railways thus ended up with a more costly and worse performing system than it could have had.
Question: Were they right to have done so? What would you have done?
“When the first attempts at systematic weather forecasting were made, one idea was to look back through the records for a day where the weather was much the same as the day when the forecast was being made. The assumption was that the weather on the following day would be the same as the weather on the following day in the historical past. But surprising events are always occurring to disrupt this sort of forecasting.” (from Len Fisher’s talk on the ABC’s Okham’s Razor, 11 May 2016.
We laugh now at the absurdity of these first weather forecasters. However, many in the stock market still analyse charts of past stock prices to predict future changes (this is a bit more complicated, perhaps, but it still seeks to find answers to the future from the past) At least, if you get it wrong with stock prices, you lose a bit of money but can try again tomorrow. But if you apply these ‘looking back’ ideas to future infrastructure investment decisions that will impact our communities for decades, that is a very different matter.
Thirty years ago when I became interested in infrastructure planning, it was common to take a rising trend and simply extrapolate it and although it often resulted in major oversupply, we still did it. And we are still doing it! We just use more complicated algorithms.
But if not extrapolation of the past, what techniques are available for anticipating a changing future?
Here is a story about looking forward that you might enjoy.
Many farmers use windmills to run bores for stock watering but pumps allow water to be extracted from much deeper resources. It is critical, however, that the pumps work or the stock dies. A friend had set up a business in selling – and servicing – pumps to farmers and his business was flourishing. He would routinely drive out and check all the pumps to ensure that they were working well.
Then he had the idea of buying a drone to do his survey work for him, but not a $500 hobbyist model, he decided on a top of the line model from the leading drone producers in Israel. He sent off his $27,000 cheque – only to have it returned to him! The Israeli government said it was not prepared to sell it to him for security reasons!
This was about 8 months ago. Not to worry, he said, soon there will be satellites I can connect to and I will be able to check the pumps using my smart phone!
This is a fellow who is keeping his eye on the rapid rate of technology change.
No specific question today – just enjoy!
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