Budget overruns delay their returns

Article Excerpt

Building and maintaining infrastructure is an important undertaking for many cities and countries. Sewage and water-supply systems, for example, keep diseases such as E. coli from spreading. Big infrastructure projects can also be hugely important to economies. The Panama and Suez canals, for example, contribute significantly to their countries’ GDP. Private infrastructure investors would normally look for returns of at least 15% per year. But large infrastructure projects carry considerable risks. Studies show that as many as nine out of 10 projects go over budget. Rail projects go over budget by an average of 45%, and their demand is overestimated by 51%. One example is the Channel Tunnel that connects the U.K. and France. “The Chunnel” cost $7.48 billion to complete—a whopping 80% over its estimated budget. Time overruns are also a major problem. Boston’s Central Artery Tunnel Project is one of the U.S.’s most notorious construction projects: By the time of its completion in December 2007 (nine years longer than initially expected),…

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