New Zealand Infrastructure Sector
Infrastructure sector of New Zealand faces significant challenges that require a complex approach towards meeting strategic goals outlined in the Infrastructure Action Plan. Some of the challenges include substantial infrastructure deficit, which, according to various estimates, ranges from $100 to $200 billion. The sector is facing problems of efficiency and predictability that stem from insufficient productivity and asset management. Constraints on supply chain, and shortage of skilled labor pose additional challenges. In addition to strategic documents released by the Government, development of a 30-year National Infrastructure Plan has been announced that will address issues facing the sector and actions that need to be taken to resolve them.
New Zealand currently spends around 5.8% of GDP on building public infrastructure. This includes roads, water networks, hospitals, schools, and defence facilities, but doesn’t include privately provided infrastructure like electricity generation and telecommunication. The data in the graphs below was retrieved from New Zealand Infrastructure Commission infrastructure pipeline and encompasses projects planned for the next 5 decades.
Most of infrastructure projects in New Zealand are planned for in the regions of Auckland and Canterbury with respective population of 1.8 million and 670 thousand people.
Largest number of infrastructure projects in New Zealand are conducted in the Water sector, followed by Housing, Transport, and Community Facilities sectors.
Estimated Project Value range and share of projects by the amount of budget is presented in the table above. While there is a large gulf between projects with small budget and relatively simple project governance structure and large-scale complex projects, the latter with project budgets exceeding 150 million NZD are not within the scope of the research project.
National Infrastructure activity is forecast to increase year-on-year, reaching $16 billion in 2026. Efforts by the New Zealand Government and forecasted infrastructure activity present an opportunity to address challenges faced by the sector. With increased investment into the sector, there is a request for improvement of risk management processes in infrastructure projects, particularly the primary and arguably the most critical stage - risk identification. A collaborative approach by stakeholders could be the way to develop more sophisticated risk identification tools and gather more comprehensive data to register and collect risks using knowledge-based risk management methods for the accumulation of information that serves as a driver of efficiency improvement and leverages successful implementation of infrastructure projects across the sectors.
New Zealand Infrastructure Survey conducted in 2023 by a market research company Ipsos indicated that less than a third (29%) of New Zealanders are satisfied with the national infrastructure. The level of public approval of infrastructure has dropped by 17% from year 2019. The decline in public approval of national infrastructure suggests that infrastructure project management has potentially experienced decline in efficiency of planning, delivery, and maintenance of the projects as weel as communication of infrastructure improvements to the public.
One of the aspects of the successful delivery of infrastructure projects is properly identifying and addressing risks that impact the outcomes of the projects. Undefined risks pose a substantial threat to the successful completion of infrastructure projects, often leading to cost overruns and schedule delays. Without robust response strategies, unidentified risks can quickly escalate, causing detrimental effects on the outcomes of the projects. Lack of risk predictability can result in reactive as opposed to proactive decision-making, allocation of resources, and adjustment of the project's scope, which contribute to a reduction in project efficiency and increased budget and schedule overruns.
Many infrastructure projects in New Zealand experience budget and schedule overruns. Some of the reasons behind their occurrence include errors in initial project planning, design and scope changes, improper communication and coordination. Some high-profile examples of budget overruns include:
1. The City Rail Link project has seen budget increase from $3.3 billion to $5.5 billion
2. Transmission Gully Motorway budget increased by nearly $500 million to $1.25 billion
According to a report by McKinsey, construction projects across asset classes, some of which are related to infrastructure, typically incur 20% schedule overruns and up to 80% budget overruns. While the construction industry and infrastructure sector, in particular, are considered conservative, these numbers have likely not changed drastically over the last several years.
The reseach project addresses the risks of budget and schedule overruns as well as other types of risks to infrastructure projects by evaluating risk identification stage of the risk management process in order to identify common sources of risk and risk identification methods to improve early detection of potential project risks.