We are conditioned to accept that as projects such as High Speed 2 (HS2) are progressed, the cost estimates will rise. This, of course, invalidates a cost-benefit analysis – unless benefits are also magically inflated, a not uncommon concurrence.
In the meantime, the costs have infiltrated government policy and funding commitments – that is, the dodgy numbers pervert good decision-making. And, of course, when the work is under way it becomes challenging to establish robust budgets to which engineers and architects will adhere. The absence of detailed public costings generates scope creep. For example, the Jubilee Line Extension was announced as a £1.2 billion project, but with extravagant, award-winning architectural designs for its stations (for example) it is little wonder that the project eventually cost over £3.5 billion.
However, cost escalations on investment proposals are a fallacy. The term ‘escalation’ presupposes that valid detailed estimates were constructed in the first place - and the absence of such rigour is apparent in the Department for Transport's admission that its prevailing HS2 cost numbers were simply a ‘high-level desk-based exercise’.
Highly-detailed bottom-up estimates, subject to public scrutiny and, therefore, public accountability, would introduce incentives to planners to put their reputations on the line. Itemising costs would also allow scrutiny of risks and uncertainties on individual items. The optimism bias of project proponents – well documented by Bent Flyvbjerg – can be discouraged by mandating the production and public scrutiny of detailed bottom-up cost estimates.
It is not so much that there is a ‘black box’ in the original cost estimations; it is that there is no genuine cost estimation in the first place. ‘Cost escalation’ is therefore not a valid term. Exposing detailed cost estimation will introduce accountability to planning and policy.