The Biggest Builds and Their Skyrocketing Costs
According to McKinsey, an astonishing 98% of megaprojects will incur a cost overrun of more than 30%. In fact, 77% of large construction projects are at least 40% late, dragging average construction profitability down each year. A megaproject is generally defined as “large‐scale, complex ventures that typically cost a billion dollars or more, take many years to develop and build, involve multiple public and private stakeholders, are transformational, and impact millions of people.” And if there is one iron law of megaprojects, according to expert Bent Flyvbjerg, it is “over budget, over time, over and over again.”
A quick glance at some of the most recent high-profile megaprojects illustrates this iron law perfectly:
- Channel Tunnel: 80% over budget
- Boston’s Big Dig: 220% over budget
- The Sydney Opera House: 1400% over budget
While there are undoubtedly several causes that contribute to cost overruns, the single greatest factor is inaccurate cost estimates that lead to change orders and schedule changes. Faulty cost estimation is implicated so much in budget creep amongst these large projects that governments around the world are instituting new cost estimating risk procedures such as cost estimate validation process or reference class forecasting, to improve the accuracy of cost estimation for megaprojects and the ability of firms to deliver megaprojects on budget without altering specifications or changing schedules. Budget creep is such a problem that some firms have been specifically commissioned for megaprojects to recommend “cost containment actions.”
Because some megaprojects’ budgets are larger than the national GDP of many countries, it’s not just companies that suffer when megaprojects go wrong, but national economies themselves. In this way, we must acknowledge how poor cost estimation contributes to these failures and how to improve cost estimating processes for future large, expensive construction projects.
With this in mind, we’ve provided a roundup of the Top 5 most expensive construction projects currently in development and the most common problems contributing to their soaring costs:
The Top 5 Most Expensive Construction Projects in Development
1. TEN-T Core Network in the EU: $600 Billion by 2050
The TEN-T or Trans-European Transport Network is billed as a “Europe-wide network of railway lines, roads, inland waterways, maritime shipping routes, ports, airports, and railroad terminals” with the objective not only to build new infrastructure, but also to reduce the environmental impact of transport while increasing energy efficiency and safety. This ambitious project includes, but is not limited to, 9 core corridors that reflect major long-distance transport movements and routes throughout Europe. The TEN-T is not only the largest, but also the most expensive construction project in world history–the estimated total cost is €500 billion ($600 billion). According to experts, it will cost at least €250 billion to remove bottlenecks and fill in gaps in the core transportation infrastructure.
It’s not surprising that the project is experiencing severe schedule and cost overruns. Begun in 2013, it’s no longer expected to be operational by its original 2030 target. And according to a recent audit of the project by a commission, changes in design and scope over time have “led to cost increases of €17.3 billion (or 47 %) compared to initial cost estimates.”
2. International Space Station (ISS): $230+ Billion by 2030
The International Space Station (ISS) has been described as the most expensive single item ever constructed. In 1998, the project was originally budgeted for $150 billion, making it the world’s largest megaproject at the time construction began. A joint project developed in collaboration with 15 different nations, the space station’s length is longer than a U.S. football field and was painstakingly constructed piece by piece while in orbit via spacewalking astronauts and robotics in 30 missions over 10 years.
However, the price tag for the station has only continued to balloon as the lifespan of the project increased and new sections and new equipment were added–a cost surplus that could have been preempted in the planning state. In fact, by 2030, when the project is now expected to complete, the total estimated cost of the station will be at least $230 billion. Some argue the final price tag will be closer to $1 trillion–dwarfing other space construction projects like the human Mars mission, which is expected to cost a meager $40 billion in comparison.
3. Madinat al-Hareer (Silk City) in Kuwait: $132 Billion
Planned as a solution to the twin issues of overpopulation and overloaded infrastructure in Kuwait, the proposed city Madinat al-Hareer (Silk City), is the centerpiece of the New Kuwait 2035 program, designed to wean the country off its dependence on oil and better link the Arab Gulf to Europe and Asia. The city will be constructed in phases over a period of 25 years, with Phase 1 commencing in 2019. Currently budgeted at $132 billion, Silk City is one of the biggest and most expensive builds in the world, but it is just a small portion of the $1 trillion currently being invested in Gulf region infrastructure.
While Madinat al-Hareer may not hold the world record for cost, it is set to break another record. The jewel of the city, the skyscraper Burj Mubarak al-Kabir, is on target to become the tallest structure in the world–exceeding Dubai’s Burj Khalifa and will top 1001 meters to reflect the Arabian folklore collection One Thousand One Arabian Nights. This massive metropolis will also house a new rail network, an international airport, and an international hub. More importantly, because the city is designed to bolster Kuwait’s tourism industry, the city will also include an Olympic-standard stadium, retail outlets, entertainment facilities, and housing and workplaces for 700,000 people.
While Kuwait’s vision for Silk City is bold, many are already questioning the soundness of the project given the sheer size and expense of the megaproject, and at least one expert suggests the project will likely suffer. Although the project was initially estimated to cost $86 billion, latest estimates suggest it is already 53% over budget.
4. High-Speed Rail in California: $100+ billion
If there were a poster child for megaprojects plagued by bad luck, California’s High-Speed Rail project would be the most likely candidate for the award. The High-Speed Rail project, which is being built by 4000 workers across the state, is devised to connect the megaregions of California and will be the first high-speed rail system in the United States when completed. Phase 1 of the project will connect San Francisco to the Los Angeles basin in less than 3 hours at speeds exceeding 200 miles per hour. Phase 2 will extend the line to Sacramento and San Diego, for a total of 800 miles.
However, the project is not only over budget, but also experiencing massive delays. When the project was approved in 2008, it had an initial price tag of $33 billion, but that budget has since increased to at least $100 billion. Indeed, there are now more than $800 million in cost overruns on the 65-mile, Kings County segment of the rail alone, which is now 62% over budget. Beset by delays, the project was supposed to be operational by 2020 and is now in danger of missing its new operational date of 2030 by at least 2 years, which will only increase cost overruns. Many of the issues that have plagued the project are the result of the state accepting the lowest bid by a design contractor with an extremely inaccurate cost estimate that promised $300 million in cost savings, but only delivered one expensive change order after another.
The California High-Speed Rail Authority (CHSRA), which oversees the project, contends it’s making progress on the rail despite these setbacks. In the recently revised business plan, CHSRA maintains that construction will either be “completed or underway on 83 of 93 structures and on 106 of 119 miles of guideway by the end of 2021.”
5. Forest City in Malaysia: $100 billion
Forest City is the smartest green city or luxury residential development being built in partnership with Country Garden, China’s largest developer, as part of China’s “belt and road” economic initiative. Begun in 2014, Forest City is constructed on four man-made islands off the coast of Johor in Malaysia and set on over 3,425 acres against seagrass, flora, and fauna. The city is expected to be completed by 2035.
Pitched by its developers as “jade carved out of the ocean,” the city tries to reimagine futurism from an ecological point of view, including applying the “most advanced 3-D multi-layered urban planning concept” with lush green surroundings, vehicles underground that remove automobile pollution, low energy consumption, and recycled rainwater. Phase 1 development includes a transportation hub, an exhibition center, and clubhouse, a man-made beach, coastal commercial streets, luxury hotels, waterfront apartments, villas, and even an international school. Eventually, the city will include an international shopping “paradise” and premium hospitals. Villas surrounded by ocean water, seaside bungalows, vertical greeneries, sky gardens, and building facades covered with vegetation? Forest City is not just a dream city–it’s a veritable utopia, or so it would appear.
However, the final construction of the project is being delayed due to friction between the Malaysian government and Country Garden regarding China’s aggressive economic expansion in Malaysia, substantially increasing its cost. In fact, according to authorities, almost 80% of the city’s unit buyers are Chinese–rather than Malaysian– and official signage and schools are in mandarin exclusively. Although the city was built to house over 700,000 residents, the political strife has resulted in fewer than 5,000 units signed and huge profit losses for its developer. Like other massive megaprojects which started with the best of intentions, the project has spiraled out of control, with construction delayed or halted, increasing cost and schedule overruns.
Successful Megaprojects Depend Upon Accurate Cost Estimation
We used to think a megaproject was large when it exceeded $10 billion. Now it’s common to see megaproject budgets easily exceed $100 billion. Within the next 5 years, due to inflationary pressure, we will likely see the first $1 trillion megaproject.
But it’s important to realize that due to the sheer size and complexity of these construction projects, when they go wrong, communities and in some cases national economies, are devastated. In fact, many of these megaprojects, which were developed ostensibly to be eco-friendly, have sparked or further contributed to habitat and wildlife devastation.
In many cases, the primary cause of the problems that cause cost and schedule overruns for megaprojects can be attributed to poor planning —specifically, failure to develop an adequate cost estimate for the project. Ultimately, what these cautionary tales illustrate is that failure to adequately plan and/or control risks in construction result in budget and schedule creep that can destroy projects–no matter how large or small.
Learn more about how cost estimating services can help you nail your next project.