The fiasco with KLIA2: Time to get a handle on cost

Updated: Saturday February 8, 2014 MYT 8:05:37 AM

Time to get a handle on cost

BY JAGDEV SINGH SIDHU

A DELAY in finishing off big projects makes news and it’s often an embarrassment when a project is bogged down and completed beyond the original deadline.

It reveals poor planning and execution, but the one aspect that really slips the minds of many is whether the project is completed within the original budget.

The fiasco with KLIA2 reveals that it fails on both counts. Costs have ballooned because the specifications of the project have changed but the end result is the project is woefully late in being completed, and more importantly, its final cost is way above initial budget estimates.

But many government projects have had the curse of cost ballooning cast upon them. Delays are common too.

In that respect, KLIA2 is not alone. The cost of building the new palace too had spiralled. The same happened with the construction of Bakun Dam, KLIA and even the North-South Expressway.

Tons of research done by academics suggests that poor planning, execution and control is to be blamed.

With public funds or monies by government-linked companies being spent on a number of large-scale projects that eventually run foul with their cost and delivery time, one wonders what can be done to change that.

Research indicates that the more developed a country or region, the lesser the average cost overrun will be. Developing countries are the biggest culprits when it comes to cost overruns in projects.

Developed countries seem to have a better grasp on efficiencies and processes. Such countries have invested in ways to ensure that, although impossible to remove cost overruns completely, it is minimised.

Therefore, it’s interesting to see some of the changes to thew way things are normally done taking shape in Malaysia.

That’s why the concept of a project delivery partner (PDP) is worth watching. In appointing a project delivery partner, the Government can make sure that the cost of building a project, like in the case of building the MRT network, is fixed.

Any cost overrun will be borne by the PDP and hence cost overruns will not become the burden of taxpayers, directly or indirectly.

The risk of cost overruns then falls on to the contractor. It will force the company undertaking the project to plan and execute effectively and to ensure that there are no unplanned hiccups.

Failure to keep costs under control then will come out of their own pocket and shareholders will be livid should that happen. Get it right and it’s big profit. Well, that’s the price to pay for bagging a lucrative contract.

The issue of keeping costs under control and ensuring taxpayer money is well spent has also seen the Government shift its budgetary focus towards outcome based budgeting.

Starting the pilot project with three ministries, the Government is aiming for a more efficient allocation of resources. In short, it’s designed to minimise wastage while getting the best results.

Helping control budgets and getting the most for taxpayer money will not only improve productivity and growth, but also skim a layer from the budget deficit that has become an issue with economists of late.

With more emphasis on limiting the waste of money, maybe GLCs too should ensure that its procurement policies and award of contracts should follow suit and improved upon to make sure shareholder returns are not whittled away at the expense of political patronage.

Getting a handle on costs is important for the Government and companies in current times. Spending extravagantly when many people have tightened their belts is not something that will go down well with taxpayers. It’s time that future projects involving taxpayer money are planned and executed properly.

Business editor (features) Jagdev Singh Sidhu is looking at trimming his expenses

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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