The government needs to exercise care to ensure that its new national infrastructure bank doesn’t become a charter for excessive risk taking, says Equib’s Bill Zuurbier.
The introduction of the government’s £12bn national infrastructure bank is a positive development for the industry, providing much-needed funding for critical infrastructure projects. However, to ensure the funding is used for financially viable projects, upfront investment in risk management activities will be vital.
As well as providing valuable public funding for infrastructure projects, the new bank will play an important role in helping the UK to deliver on its net zero by 2050 commitments. From its Leeds base, it will also support the government’s ‘levelling up’ agenda. Following Brexit, the bank is also a statement of the government’s commitment to bridging the funding gap and delivering a pipeline of key projects.
With public-private partnerships receiving significant negative publicity in recent years, the bank could prove a valuable means of incentivising private sector investment. In particular, it could provide vital funding for a number of exciting ‘shovel-ready’ projects, such as the Swansea Bay Tidal Lagoon project, which hasn’t yet got off the ground due to a lack of funding.
However, with government-led initiatives often taking time to get up and running, steps should be taken to ensure that the bank’s introduction doesn’t involuntarily lead to a dip in infrastructure investment. With a lack of detail about how it will work in practice or timescales for getting investment underway, it could delay a number of important projects coming to fruition.
Another cause for concern is that the national infrastructure bank could become a charter for excessive risk taking. Rather than focusing solely on funding a large volume of new projects, care must be taken to ensure that those selected deliver value for money. Another potential risk is that the funding allocated might be used for technologies that are not yet proven, leading to time and cost overruns.
Through front-end investment in risk mitigation measures, project managers can ensure that potential projects are financially viable before they are given the go ahead. Such activities are often a time-consuming and costly undertaking, sometimes causing project managers to avoid communicating them to stakeholders altogether.
However, ignoring real-world risk can often be expensive in the long run, increasing the risk of projects exceeding time and cost estimates. For example, an investment of £10m to review the risks associated with the use of a new technology could be far more cost effective than launching in and potentially wasting far more money over the duration of the project. However, while it can be tempting to get carried away with the latest technologies, a more cost-effective approach is to tap into those that are already proven and have a track record of optimising project results.
At the start of projects, project managers should seek the support of risk management experts in performing an in-depth risk assessment, considering worst, most likely and best-case scenarios. This can help to ensure that each party involved in a project is aware of their liabilities and is able to price their activities accordingly. For each risk identified, one of five key principles should be used to manage it to a tolerable level - eliminate, transfer, mitigate, accept or exploit. It’s also vital to ensure that stakeholders are fully on board with the mitigation measures chosen.
In order to make the most of the national infrastructure bank, project managers must also ensure that history is not allowed to repeat itself when it comes to mega project delivery. While many major projects are ‘one of a kind’ in nature, it’s important to recognise that many share commonalities, for example, unique benefits that must be effectively communicated to stakeholders. The use of cost-benefit analysis can help to facilitate this process by converting a project’s expected benefits into a cash equivalent.
Over the coming months and years, infrastructure investment will play a vital role in securing economic growth, and the national infrastructure bank could also help to generate knock-on future investment from the private sector. By front-loading spending in risk mitigation activities and learning lessons from past projects, the sector can ensure this valuable funding is used wisely.
Bill Zuurbier is chairman of risk management consultancy, Equib.