The world has a seemingly insatiable appetite for metro rail with an estimated $400bn1 of schemes in prospect. Delivering these complex schemes is increasingly challenging and there have been some high profile failures in the recent past. We looked at a range of rail programmes across the globe and asked what differentiates the best from the rest.
Rapid urbanisation is a global mega-trend, driven by powerful economic and demographic forces. 1.5 million people are added to the urban population each week. We anticipate that most future growth will be in Asia and Africa and that this will put huge pressure on urban transport networks in these regions.
It will tend to be the medium sized cities that bear the brunt of this influx of new citizens. Many of these cities have so far missed out on the investment in metros and urban transport that the largest economic centres have enjoyed. They are now embarking on ambitious new schemes or adding new lines and capacity to existing ones.
The scale of the forecast spend is staggering. $87bn in China alone by some estimates. Chinese cities will have to compete for resource with European cities modernising aging infrastructure as well as other regions of high growth, particularly the Middle East and the rest of Asia.
Metro programmes have never been easy to deliver; by their very definition, they are constructed in metropolitan areas, already congested with infrastructure. The trend towards higher density cities, increases the technical challenges. Cities that are running out of room, face costly choices as new metros displace or route around existing infrastructure. The bigger basements of our taller buildings push metros deeper underground, raising the capital and operating costs. The challenge of vertical people movement is added to the horizontal one.
Demand for metro travel has also become harder to predict. The evidence of the past does not necessarily provide a reliable predictor of the future. Technology is changing the way societies work and play. Increasing numbers of people find ways to work from home or outside of the traditional working day. Technology may change the way we travel too. Driverless cars will offer different individual choices and could create radically different patterns of travel. Passenger expectations for wait and journey times as well as overall experience are growing all the time.
London’s Oxford Circus saw a 30% increase in passenger numbers over five years to 92 million in 2015, but will this historic trend hold in the future?
Modern metro schemes are no longer purely about transport. The cold, hard commercial reality for many metros is that fares barely cover running costs. This puts pressure on owners to see new schemes as commercial opportunity spaces and to integrate them with retail and other real estate. Programme owners need to be property developers as well rail operators.
The political pressures can go well beyond finding transport solutions too. Metros are a way for a city to announce itself on the world stage and the desire to make an iconic statement inevitably creates a tension with engineered efficiency. Politicians of all persuasions see metros as catalysts for economic growth and even social engineering. A modern, cosmopolitan city needs to offer its citizens mobility. That mobility connects resources and markets, making a city attractive to business.
Programme owners facing one, let alone all of these factors of complexity would be well advised to take them seriously. The evidence suggests that the challenges are too frequently ignored. Over-confidence, complacency even, during the early stages of developing a metro will lead to problems.
It is not surprising that these challenges mean, more often than not, these schemes suffer significant cost and schedule escalation. In more extreme cases these can overwhelm one or more of the programme participants who then cannot continue. This can be costly in terms of time as well as money. Legal teams pick over the carcass of a programme and salvage what they can, usually so that it can be brought back to life in a different form.
75% of urban rail programmes have cost escalations of at least 33%.
Only 2 out of 22 programmes achieved the forecast ridership.
High profile failures hit the news. Metronet’s contract to maintain, renew and upgrade London’s Tube infrastructure collapsed in 2008. More recently in 2016, Qatar Rail terminated its contract part way through construction with the Samsung led SOQ consortium, delivering stations on the Doha Metro project. In these cases, the owner had already committed substantial funds before the failures came to light and had to proceed with delivering a sub-optimal programme.
Even Hong Kong, no stranger to some of the world’s most iconic infrastructure, made a sudden announcement in 2014 that its high-speed rail link into Mainland China would be delivered years late and over-budget. The warning signs that these programmes are at risk are very often visible in the fabric of the programmes, long before the spectacular blow-outs that thrusts them into the public eye.
With a weight of evidence tracing failures in programme delivery right back to the decisions made in the early stages of programme development, the Infrastructure Programmes Authority in the UK has started to increase focus on this area, through its reviews of public sector programmes against a framework for project initiation. Implicit in their approach is the suggestion that programme owners routinely underestimate the capabilities that they need to manage the level of complexity in their programmes.
It would be a mistake to believe that bringing the delivery team in earlier will necessarily address the gap. The capability to deliver a large, complex but defined, metro programme is very different to that needed to define it in the first place. Those leading the development have to deal with a broader range of variables with fewer resources than their delivery counterparts. They are responsible for taking the strategic decisions that will largely determine the success or failure of the programme and they are required to do this in a volatile and uncertain environment where the very need and nature of the programme may be in doubt. They must bring structure to the mixing-pot of financing, business cases, rail operations, customers, design, planning, public engagement, politics, governance and organisational design. The owners that get these programmes right recognise that these skillsets are not easily found in their existing businesses, and they structure deals with advisors and partners to fill the need. Only the few that have a continuous stream of new metro projects, are blessed with being able to grow such capabilities internally.
The prize for those that get programme development right is not just avoiding failure but the opportunity to realise significantly better outcomes. Our research into rail programmes across the world suggests that the best performing programmes deliver infrastructure at lower cost than their peers.
Our analysis suggests that the success of these leading programmes could be attributed to the way in which they make decisions during the development stages. They adopt a number of approaches that help them keep control of capital costs and delivery timelines.
One such approach is to be selective in the timing of investment. They phase delivery of long-term masterplans, deciding what to build now and what to safeguard for future construction. This defers spend and maximises the utilisation, with new elements coming on-line in step with rising passenger demand.
A second area where the leading programmes distinguish themselves is in the design process itself. Those who make good decisions about what to specify and what to allow the supply chain to optimise, tend to have lower construction costs. A switch to a cost-led design process once the overall parameters of the scheme had been defined, allows programmes to optimise the design of stations, depots and other assets. All of this is underpinned by a structured scope and estimate development processes that creates a clear line of sight from business requirements right through the design.
The challenges of successfully delivering even the most well thought-out metros in today’s global cities are not to be underestimated. There are too many examples of failure to be ignored.
Understanding risk has long been seen as the key to unlocking success so it is surprising how many programmes stumble over emerging risks that should have been better understood at the outset. Perhaps it is overconfidence or pride that prevents project owners from seeking advice. The unfortunate reality is that getting a firm grasp of risk in the delivery of these complex schemes is hard, even for seasoned project owners.
The impact of risk on the outturn costs and timelines can be significant, so failing to properly assess risk can have serious consequences. Attempting to measure progress against overly optimistic forecasts can render even the most experienced of delivery managers ineffective. The resulting loss of credibility of the delivery organisation can be long lasting, both with customers and with investors.
While the failures often make the headlines, there are programmes that have mastered these complexities. These outliers hold important clues to how metro schemes can outperform expectations. We have boiled success down to three critical factors:
Senior Manager, PwC United Kingdom
Tel: +44 (0)20 7804 1849