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Rethinking infrastructure projects in an uncertain future

Rethinking infrastructure projects

With populations growing, citizen expectations shifting and technology disrupting everything, governments must consider multiple possible futures when planning, delivering and managing Australia’s infrastructure.

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Partner, Infrastructure & Projects Group

KPMG Australia

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When we think of infrastructure, we picture tonnes of concrete or steel, rail lines, roads, power stations or hospitals. We imagine things built to stand the test of time.

However, the infrastructure assets we create are simply enablers to help our communities to survive and thrive. A road is an enabler of the mobility of people and goods, a hospital is an enabler for the provision of health services, and our power stations enable the creation of electricity that is the life blood of our society.

The demands of our society (including population growth, ageing, urbanisation and consumer behaviour), combined with the massive disruptive impacts of technology, mean that the ways we can meet these critical community needs, is significantly changing.

No longer can we assume that the way we have planned, invested and managed infrastructure in the past will meet the demands of the future. No longer can we assume that building more (more roads, more hospitals etc.), is the best way to support the needs of our communities Our uncertain world means that it is vital to continually reassess and rethink our approach.

Uncertainty and our roads

The future use of our roads provides a useful example of how changes are creating significant uncertainty.

Will the increasing population continue the relentless need for more and wider roads? Or will technological change, such as autonomous vehicles mean that we need fewer vehicles – or at least use our roads much more efficiently?

Either of these future states are possible – but traditional approaches to dealing with one outcome are unlikely to the other – so a much more nuanced way of thinking is necessary.

Widespread disruption

While the road example shows how uncertainty could see investment put into the least effective solutions, similar issues are facing every aspect of our society, including for example:

Health: Advancement in predictive, and in-home/in-body healthcare may fundamentally change the role of, or way we interact with, general practitioners; the advancement in robotics, automation and telemedicine may materially impact on how we use our hospitals.

Energy: The increased ability for localised energy generation and storage – think localised solar and battery storage; or the development of alternative fuel sources (such as hydrogen).

Education: Changes in the importance of certain educational topics as the needs in the workforce continue to evolve and a range of current roles become obsolete or of less relevance; the increased ability for digital learning, use of virtual/augmented reality and the likely impacts on our university sector.

Agriculture: The use of technology to monitor, manage and enhance crop outcomes.

Justice and security: The use of facial recognition and digital identities to manage security and authorise access (physical or electronic).

The challenges for governments and investors

This environment of change and uncertainty presents significant challenges for governments and investors alike. While we have a critical need to invest or build today to meet the current (significant) needs of our communities, we cannot be certain we will receive the benefits over the next (typical investment horizon) 30-50 years.

The road example highlights the significant challenges for:

Government:

  • Should it plan for the building of more or expanded roads?
  • Will potential, but uncertain, changes enable existing infrastructure to meet community needs?
  • Would it introduce road pricing mechanisms to better manage demand and allow us to better utilise our existing infrastructure?
  • How does it best spend its (scarce) funds to maximise community outcomes? Should these instead be spent on the needs of other sectors?
  • What regulatory and policy levers should government use to complement and maximise the benefit derived from its infrastructure assets/investment?

Investors:

  • How is such potential uncertainty incorporated into future revenue expectations?
  • hat does the increased volatility do to expected investment returns?
  • Are there alternative assets/sectors that provide more certainty of return?

Multiple possible futures

This increased volatility and uncertainty requires governments and investors alike to look beyond the predictable future and to envisage multiple possible futures – including completely different ways to meet the needs of our communities.

Summary

In an environment that is reminiscent of the significant changes that arose from the introduction of the steam engine, electricity, or electronics, we are living in a world where we cannot assume that what we have done in the past will be the best option for the future. While it is impossible to predict which of the changes are real, which will be hype, and the scale of any potential change, the one certainty is that we are all facing significant uncertainty.

With communities crying out for investment to meet their critical current needs, but an uncertain and highly volatile future, this requires governments and investors alike to:

  • Re-think how we view and understand infrastructure assets and recognise that infrastructure is simply an enabler of critical community services, like mobility and health; and that new infrastructure assets are arising – such as data, and the use of data for better delivery of critical community services.
  • Look beyond the predictable future and to envisage multiple possible futures – including completely different ways to meet the needs of our communities.
  • Build awareness of the tidal wave of potential changes that are coming and ensure consideration of the impact these may have on what infrastructure we need and how we use it.
  • Incorporate flexibility into every aspect of infrastructure planning and design – and agility into the way the community services are provided.
  • Invest carefully so that our scare funds are directed to solutions that provide the best possible long-run outcomes, and so our investment community can continue to invest with confidence and in a manner that achieves the required returns.

If you’d like to explore these issues further, better understand what the multiple futures might look like and how you can position your organisation for it, please contact Adrian Box.

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