How to harvest infrastructure developers’ billion dollar blindspot

Seeing infrastructure differently

Infrastructure owners and developers are needlessly wasting billions of dollars each year. Why? Because the secret to high value, low risk infrastructure is hiding in plain sight. Intentional design offers a cheap, quick path to profitable innovation in the sector. Only a shift in mindset stands between investors and vastly better infrastructure outcomes.

Investment in infrastructure is ramping up. Australia’s growing population, changing needs and maintenance backlog demands ongoing infrastructure spending. In the next few years alone, state and federal funding will exceed AU$40 billion per year [1]. Private sector investments in roads, social infrastructure and renewable energy further expand spending.

Considerable growth in investment in gas and hydrogen assets is likely to follow, along with the accelerating shift to sustainable, resilient and digitally-enabled infrastructure.

Finance is not a problem

Access to finance at low interest rates is not a problem. The level of public debt that’s accrued from borrowing to fund economic stimulus (post-GFC and post-COVID) is, however, of concern. Federal government debt is forecast to hit AU$1.7 trillion (or 55 per cent of GDP) over the next decade [2]. States and many businesses are similarly challenged by debt. In this context, every dollar must be spent wisely, waste avoided, and benefits maximised.

It’s little wonder that infrastructure investors are asking “How can we de-risk our investments and ensure that assets that remain valuable over time?” It’s a crucial question to which the infrastructure sector is struggling to offer a convincing answer.

Australian infrastructure is expensive

In Australia, costs of new infrastructure are high by world standards. For example, a 2-lane undivided road costs 53 per cent more than in Canada, and up to 78 per cent more than in the European Union [3]. And 98 per cent of construction projects incur cost or schedule overruns [4]. Why is this allowed to persist?

The high costs are generally attributed to a lack of innovation. But this claim must be balanced against the innovations in project delivery and financing models for which Australia is admired [4]. ‘Green’ buildings are also becoming the norm, following practices pioneered in the USA and UK.

Today, the engineering and construction sectors are innovating using digital technology. Safety and business process automation are two areas in which progress is being made [5]. While important, these achievements are nonetheless marginal in comparison to the cost-reduction challenge.

Innovating by design

There are many impediments to innovation in infrastructure [4,6]. While they are real, they are not insurmountable nor beyond the control of project developers. Indeed, the more significant impediments can be addressed through ‘intentional design’ [7].

Intentional design of infrastructure is not network level planning nor detailed engineering design. It is a more strategic and innovative style of front-end project design that bridges planning and engineering.

Many examples prove that intentional design substantially reduces project costs and risks. For example, a global mining company discovered how to cut at least 10 per cent from the AU$1.4 billion cost of their port expansion project. Similarly, the designers of the LBJ Freeway in Texas were able to cut 30 per cent off the estimated US$2.875 billion project cost [3]. Further examples demonstrate how social licence risks can be eliminated.

The essence of intentional design

In simple terms, the aim of intentional design is to “create infrastructure assets that people love and want to pay for”.

Putting intentional design into practice involves:

  • multiple stakeholders
  • collaborating in systems and design thinking to
  • develop a more useful understanding of investor and user needs and
  • better contextualise the siting and function of assets to
  • drive smart solutions around more realistic objectives that
  • eliminate risks and optimise short and long-term value.

Very often, projects are simplified and risks avoided without diminishing functionality. This contributes to capital and operating cost savings that far outstrip those achieved via cost engineering.

The costs of conducting intentional design are immaterial in the scheme of things. The time required is also minimal. Vast improvements in the design of an infrastructure asset can occur within a few days.

Conclusion

A solution exists to improve innovation that could save billions of dollars annually. But infrastructure developers are generally ignoring this solution. So infrastructure owners and investors need to address one question:

Are we willing to challenge our thinking to deliver lower-risk assets offering higher returns?

Investors must ask why intentional design isn’t a routine practice. Why is it not embraced when design practices are recognised as the #1 solution to innovation deficiencies [4]. What false assumptions and unhelpful narratives are preventing a step change in return on investment? Infrastructure developers also have to ask themselves why they are ignoring an easy route to competitive advantage? Surely now, more than ever, these questions must be answered.

The why, what and how of intentional design and sustainable infrastructure is set out in the book Insight Trading – Collaborating to transform the infrastructure that shapes society.

[1] Infrastructure Partnerships Australia – Government Infrastructure Funding

[2] Phillip Coorey (2020) Backing for $1.7trn debt budget, Australian Financial Review, 7 October.

[3] McKell Institute (2016) Pipe Dreams Reducing the Cost of Public Infrastructure in Australia, Sydney.

[4] Ishaan Nangia et al (2019) Australia’s infrastructure innovation imperative, McKinsey & Company, Melbourne

[5] Alexandra Cain (2020) The 10 most innovation property, construction and transport companies, Australian Financial Review, 1 October.

[6] Colby Gallagher (2018) A clear lack of innovation in Australia’s construction industry and what can be done about it, medium.com, 9 June

[7] Nicholas Fleming (2016) Intentional design unlocks valuable innovation for engineers, Innergise Pty Ltd, Melbourne.

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