Rethinking infrastructure project selection

Rethinking infrastructure project selection

With demand for infrastructure growing rapidly, we need to think hard about how we spend our limited investment resources and ensure that the right infrastructure projects are selected – those that will improve Australia’s productivity, global competitiveness and economic prosperity. Here we argue that Australia’s future productivity is at stake if we don’t rethink how we select our projects. We need to shift the balance from new, large-scale construction projects to also assessing demand management, capacity enhancement and asset management strategies to ensure we have more productive, high-quality infrastructure.

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A building under construction

Breaking the cycle of new construction

High quality and efficient infrastructure is a major driver of national economic growth and productivity. At first glance Australia appears to have a positive infrastructure environment. Announcements about transport projects frequent the media, while cranes in our city skylines indicate a flurry of development. However with a closer look, it is evident that the quality of our infrastructure assets is falling, we are facing increasing levels of transport congestion and our pace of innovation in the communications and technology space is far behind our peers1. If this doesn’t change then our national productivity, global competitiveness and standards of living are at risk.

This unenviable situation can be attributed to a range of causes including a double whammy of public infrastructure underspending2 and project selection process that leans towards new construction. While the benefits of increasing infrastructure spend are widely accepted, these investments need to be directed to the ‘right’ projects, and underpinned by a selection process that gives full consideration to all potential options.

 

“Well before the business case for a project is commissioned, the problem identification phase should include a full and documented assessment of demand management, capacity enhancement and asset management investments. In doing so, consideration of technology advancements that support these options is essential.”

Paul Foxlee
National Sector Leader, Transport & Infrastructure

Is our project selection process going wrong?

The traditional selection processes used for infrastructure planning and prioritisation are subject to detailed assessment frameworks. The approach to developing business cases is evidence based with detailed economic analysis, gateway reviews and specialised independent infrastructure agencies contributing to a transparent governance process. However, are we selecting the right projects? Or just selecting pre-determined solutions that are, more often than not, large new-build or expansion projects? Infrastructure Australia’s Infrastructure Priority List (February 2017) provides a good example of this observation. Some reasons why the selection process leans towards new builds might include:


Business case development

The role of the business case appears to be becoming more about justifying pre-determined projects and less about considering and analysing alternative solutions to address the problem. By the time governments begin the business case process, the decision around the solution has, in some cases, already been made and often it is a new-build solution. A more critical time in the assessment of alternative solutions may come when long term transport plans or long term infrastructure strategies are being determined.


Limitations of assessment guidelines

Existing methodologies and tools including relevant guidelines, such as the Australian Transport Assessment and Planning (ATAP) guidelines, that are used to assess demand and undertake economic appraisals are biased towards the selection of new projects. While the theory and general principles can be applied to both ‘build’ and ‘non-build’/ technology-based initiatives, a lack of proven examples for non-build initiatives means that practitioners must invest significantly more time, resources and political capital to demonstrate that the implemented approach is consistent with the recommended approach.

Similarly, the strategic demand modelling tools used by transport planning agencies to assess demand and the impacts of new initiatives are not suited to new technology-led initiatives. For example, the network wide Intelligent Transport Solutions (ITS).


Political influences

Adding to the problem is the issue that infrastructure planning and delivery, more often than not, is politically influenced. Political leaders now understand the importance of being ‘seen’ to deliver on infrastructure. Projects that announce new jobs, ribbon-cutting or new project unveilings tend to come out in front of projects that do not. It would be naïve to think that we can completely remove politics from infrastructure. Nevertheless, there is a pressing need to focus on evaluating all available options prior to justifying such ‘pre-determined projects’. This includes a full and upfront assessment of evidence-based data, including technology considerations and cross-agency collaboration.

 

 

 

 

“Building new infrastructure can unlock further productivity but we risk overlooking opportunities to squeeze more efficiencies from our existing assets.”

Stan Stavros
National Head, Infrastructure Project Group, KPMG Australia

Where should we shift our focus?

The role of demand management and supply side enhancement

Given our fiscal constraints, our focus needs to shift from just delivering large new build ‘mega’ infrastructure projects to also making sure that we are fully investigating and investing in demand management and capacity enhancement opportunities, as well as properly assessing the asset management requirements. Such a shift makes good financial sense (as these responses are more likely to cost less than new builds) and will ensure that we are improving the productivity of existing infrastructure. This approach also has positive impacts on asset quality.


Demand management

Rather than continuing to build new capacity to meet peak demand, adopting approaches to smooth out the peaks should be considered. For example encouraging changes in travel patterns/behaviours and imposing road user charging are effective demand management strategies. New technologies can help provide us with ways of implementing demand management.
 

GPS will allow us to track distance travelled and time-of-day usage to aid trip planning and ultimately reduce congestion. Advances in ICT that support increased take up of remote working also have the potential to lower the need for travel, particularly during peak periods.

Even a marginal decline in peak period travel has the potential to significantly enhance network wide performance. For example modelling by KPMG for Infrastructure Victoria3 demonstrates that a 5 percent reduction in traffic in the morning peak period can result in doubling the travel speed. For context, a five percent reduction in traffic is similar to that seen during school holidays.

Another effective demand management example can be found on the High Occupancy Toll (HOT) lanes in United States which utilise advanced technology to determine a demand responsive fee to help manage vehicle flow and speed.


Capacity enhancement 

At the same time, we need to look for opportunities where incremental investments can deliver significant capacity enhancements. For example, new signalling systems that allow trains to run closer together, smart traffic lights that help improve the flow of traffic across the whole network, or better maintenance analytics that prevent system outages and reduce system downtime are critical to getting more out of existing infrastructure. Major improvements can be achieved by doing more with less – and in turn help enhance our economic growth and prosperity.
 

The smart, synchronised traffic lights in Singapore (the Green Link Determining (GLIDE) system)4 maximises the vehicle throughput and smooths the traffic flow based on demand. The traffic lights across the road network allocate ‘green time’ and synchronised traffic lights provide ‘green wave’ based on demand to minimise the number of stops by vehicles.

Other examples include advances in Vehicle to Vehicle and Vehicle to Infrastructure communication technologies which can make platooning on freeways feasible and enhance the effective capacity of our expressways by around 60%.5

In rail, Electronic Train Control Systems enable trains to travel at higher speeds and closer together. Lifting the travel speeds just a few percent can bring large productivity gains and economic benefits.


Greater focus on asset management

Investing in more sophisticated asset management techniques has long term benefits for sustaining the quality of existing infrastructure. For example, by embedding assets such as bridges with digital sensors, governments and operators can measure their use and stress, helping to predict wear and tear, support maintenance planning and better inform budgets compared to traditional asset management methods. In turn, the productivity losses from speed restrictions or road/track closures can be avoided (or kept to a minimum). Asset management investments, particularly those with demonstrated technology benefits should be assessed as stand-alone options at the project selection phase, and not simply considered as a secondary piece of analysis on a ‘pre-determined’ project.

What needs to change?

If we return to the essential reason for infrastructure investment – to build a more globally competitive and productive future for Australia – we must rethink the way we select projects. Australia has the opportunity to break its addiction to new, construction based infrastructure projects and genuinely consider all available alternatives if we can:

  • ensure investment decisions focus on the productivity growth outcomes of a project
  • assess lower cost, demand management and capacity enhancement solutions on an equal footing with construction options,
  • make changes to project selection processes (business case guidelines) to ensure that technology based options are fairly evaluated
  • invest in more sophisticated asset management techniques.

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