Why is it so hard to stop a destination project going wrong?

Why is it so hard to stop a destination project going wrong?

Westminster Council recently published its review of what went wrong with The Mound in Marble Arch, prompting the architect, MVRDV, to respond with a lengthy blog about the project from their perspective. Croydon Council also published its review of what went wrong with the refurbishment of Fairfield Halls. They are all candid, readable documents that collectively provide a study in the way that ambitious destination projects can so easily go off the rails.

These are not isolated incidents. It prompted some reflection on the broader tendency we have to persevere with risky destination projects, long past the point that we know they are going wrong.

The Public, a Will Alsop-designed arts centre in West Bromwich, first went over-budget, then failed to find a sustainable business model, and was eventually turned into a sixth form college. Sheffield’s National Centre for Popular Music was similarly ‘rescued’ by Sheffield Hallam University, who now use it as a Student Union. From inception to opening, the price tag for Kengo Kuma’s V&A Dundee went from £45 million to £80 million. Hastings Pier, by dRMM won the Stirling Prize in 2017 and promptly went bust 6 weeks later. As I write this, The Factory, in Manchester, is three years behind schedule and £76 million over-budget.

This is not just a UK phenomenon. Building for the Arts by Peter Frumkin, Chicago University’s Set in Stone, and Guido Guerzoni’s Museums on the Map all provide a catalogue of case studies of cultural projects that broke budgets and took on too much risk.

What is it about the sector that so incentivises people to underestimate capital costs and overestimate future revenue? A sector so familiar with white elephants is accustomed to asking that question. A related question that we seldom ask is this: why are we so reluctant to terminate a project even after the warning signs start flashing?

Central to this problem is our susceptibility to the ‘sunk cost fallacy’ and our unwillingness to abandon projects once they’ve started. At any major milestone – whenever a ‘go / no-go’ decision must be made – we should only consider best estimates of future costs and revenues. But we don’t. We also tend to consider the money already spent and we imagine that as money that might be ‘wasted’ if the project is aborted. This is starkly illustrated by recent audits of The Mound and Fairfield Halls, as well earlier autopsies of the Garden Bridge and London Stadium. It is all too clear that promoters would sooner soldier on against the odds than write-off all that earlier investment.

Our preoccupation with the past shapes our view of the future. ‘Failure is not an option’, says the old cliché. Except it is. And it’s often the best option – especially if the decision is taken early enough, when stopping a project is not perceived as failure.

Even where the financial folly of persevering is known, other non-financial factors come into play. Politics, pride, emotion, fear. We are all complicit in the blame culture that makes the sunk cost fallacy so alluring. Finishing the project at least harbours the hope that it might be so wildly successful that everyone will forget how expensive it was (e.g. Wembley Stadium, Tate Modern). Destinations are show business, after all – it might still be ‘alright on the night’. Completing the project – budget be damned! – means honours and ribbon-cutting ceremonies. Cancelling a project means audits, investigations and our favourite national pastime: the blame game.

When Welsh Government pulled the plug on the Circuit of Wales – a £400 million racetrack in The Valleys – it was clobbered for the £9 million already spent. Nobody was praised for saving the taxpayer from exposure to £100 million of downstream risk. Shakespeare’s Globe deserves credit not criticism for sensibly shelving a proposed £30 million extension, as does the Humber Bridge Board for stepping back from The Lift.

Every complex capital project faces a ‘go or no-go’ reckoning. But arts and cultural projects are more vulnerable than most to the sunk cost pitfall. They are headline-grabbing projects that leave little place to hide. They are politically sensitive. And as predominantly public goods, they often face a soft budget constraint.

The ‘soft budget constraint’ (SBC) arises when an organisation manages to extract a bigger subsidy after a project has started than was anticipated beforehand. The idea was formulated by Janos Kornai and it became a lens through which we understood how Soviet economies functioned – or, more precisely, malfunctioned. It helped to explain a systemic weakness of the command economy: a built-in propensity for funders to double-down on projects that were going wrong. Western countries were mostly spared this fate by relying on private finance, which is quick to cut its losses on bad projects. Judge for yourself, however, if the following ‘symptoms’ of the SBC syndrome are typical of any cultural project you know:

  • An incentive for decision-makers to embark on irresponsible investments
  • Wanton spending
  • Failure to accurately gauge risk
  • No incentive to make savings
  • Managers, who pay less heed to financial management than they do to fostering good relations with their funders and (eventually) rescuers

Sound familiar?

Key to reducing the likelihood of costly white elephants is thus to ‘harden’ the budget constraint that organisations face – to stop more projects earlier, before they become money pits. Funders need to be tougher and more willing to call time on projects that are going bad. And we all need to be more forgiving of the ‘risk money’ that doesn’t pan out. These things happen. There is no shame in ‘dreaming big’ on the drawing board – we just need to wake up before it turns into a brick-and-mortar nightmare.

The sunk cost fallacy is so seductive in this sector that I secretly take as much satisfaction from the projects we’ve helped to stop as the ones we’ve helped to deliver. I have nothing but admiration for those clients who have had the guts to say – with no regret or recrimination – it’s time to stop. That kind of courage is rare.

Those clients all share some common characteristics on which it is worth reflecting. Their management has a sober, grown-up respect for process that, yes, feels maddeningly bureaucratic at times, but will also be the difference between failure and success. Their options appraisals are real, not cosmetic. Their programmes are carefully sequenced, with detailed consideration of financial exposure at every key decision point. They have strong, diverse Boards who welcome different points-of-view. And they create a corporate culture in which everyone, from top-to-bottom, is acutely sensitive to the fact that they only hold these places in trust – they know in their bones that it’s not their money they are spending, it’s ours.

Photo credit: Andrew Davidson / CC BY-SA 4.0

Related Thinking.