As countries seek to recover from the ongoing COVID-19 pandemic, infrastructure spending is seen as a solution for stimulating economies worldwide. Infrastructure is often called the “backbone” of a healthy economy. Done right, infrastructure stimulus investments can not only hasten economic recovery from the effects of COVID-19, but can also accelerate progress in addressing other issues, such as social needs and the effects of climate change.
As public debt levels have increased dramatically through the COVID-19 crisis, governments must stretch stimulus investments as far as possible. Historically, cost-benefit analysis (CBA) has been used as a basis for sound project appraisal and project prioritisation. However, in a best-case scenario, CBA provides only a limited view on the potential outcome of investments—and in a worst-case scenario, it can be downright misleading.
The inaccuracies associated with CBA have recently been the focal point of discussion and research in both academic and industry sectors. Most of the lesser criticisms of CBA emphasise that such tools are limited as they typically include only easily measurable costs and benefits, while ignoring the wider social impacts of infrastructure solutions, which we believe should feature heavily in infrastructure prioritisation.
Other criticisms are more severe and call for reform while arguing that current CBA is inaccurate since it fails to consider variability and systematic biases that affect project outcomes. The inaccuracy of CBA was recently highlighted by Flyvbjerg and Bester (2022)1, who argue that cost and benefit estimates are inaccurate and biased and thus cannot be used to provide evidence around the worth of project investments.
Government infrastructure investments are significant, but governments often fall prey to prioritising in a flawed manner. This prevents infrastructure from achieving its maximum potential impact, resulting in lost opportunities for the communities these projects are designed to serve. This negative impact is compounded by the opportunity loss of better options that do not proceed or which are allocated fewer resources.
To overcome the weaknesses associated with CBA, this paper explores current approaches to project prioritisation and proposes several alternative strategies organisations can use to enhance the effectiveness of their infrastructure investments. While there is a way to go before all infrastructure investments are properly prioritised, adopting these strategies can position governments to make less biased, more informed resource allocation decisions.