Sydney 2019: Preparing for Australia’s next wave of infrastructure delivery

Today, the country faces new challenges as population growth, urbanization, and technology disruptions create the need for a step-change in infrastructure prioritization, design and productivity.

On 6th September McKinsey’s Global Infrastructure Initiative (GII) hosted a roundtable discussion with over 40 Australian industry leaders to discuss the emerging themes from McKinsey Australia’s new report on Australia’s Infrastructure Innovation Imperative. Participants engaged in frank discussions about how to future-proof, prioritize, fund, design and deliver the next wave of Australia’s infrastructure. The following insights from the report and the roundtable emerged:

  1. Innovate across six dimensions. Consistent with the report, participants aligned on the opportunity for the Australian industry to innovate across six dimensions: Future-proof new assets/investments; rethink project selection and prioritization; drive value through design; innovate the commercial framework; enhance industry capacity and capability; and boost productivity through technology. Cross-cutting themes included supporting government to define a long-term vision, learning from and replicating our past successes, and collaborating across the public and private sectors to build the future.
  2. Create a vision and roadmap for future-proofing Australia’s infrastructure. Emerging technologies are advancing faster than initially expected, and complex risks—from cybersecurity to climate resilience—continue to intensify. Ensuring infrastructure projects deliver their intended benefits requires analyzing potential future states in planning processes, designing and building flexible assets, and identifying diverse revenue streams over an asset’s life cycle. Government has a vital role to play in catalyzing change by co-creating and communicating a vision and roadmap—with private sector input—and implementing a supportive regulatory environment and common standards.
  3. Rethink project selection and prioritization. Projects should be selected and prioritized, based on the vision and roadmap to meet projected future needs, recognizing that such choices will inevitably be influenced by political considerations. Projects should not be considered in isolation and metrics, such as benefit-cost ratio and net present value, should be not be applied with rigidity. Adopting de-biasing techniques could help avoid optimism and pessimism bias and ensure focus on a project’s underlying strategic objectives. Limiting announcements of future major projects to the goal of the project—as opposed to the specifics—could be helpful in enabling strategic option analysis to be completed objectively.
  4. Drive value through design. Increasing project complexity and the resulting cost and time overruns, highlight the need for a more innovative approach to project design. Many stakeholders are frustrated by the effect of procurement processes to lock in a design early in the process, and the ineffectiveness of traditional “value engineering” techniques in achieving anything more than incremental impact. Involving designers and contractors earlier in an iterative, agile design process could help deliver step change in through-life asset cost and de-risk projects. Building in maximum flexibility in design and in the contract can go a long way to optimizing value over the lifecycle as major projects take years to deliver and are used for generations. Such steps will enable assets to adapt to new technologies, changing user patterns, and new business models.
  5. Innovate the commercial framework. MGI research suggests that contractors and suppliers consider contractual structures and incentives to be the principal hurdle to achieving better outcomes on projects—transaction complexity and regulatory burden adding unnecessary costs and delays that prevent high productivity. Government has a vital role to play in setting the stage for a more collaborative approach to risk, thereby incentivizing collaboration, innovation, and productivity gains. Moving away from bespoke contracts and standardizing contracts, where possible, would be a good start. The key challenge is to increase collaboration in a way that retains necessary financial incentives and, where constructive, clarity of risk ownership, features which have underpinned much of Australia’s infrastructure success.
  6. Enhance industry capacity and capability. Modern infrastructure and capital projects will demand new skill sets in every phase—and by every actor involved. The Australian industry is already short on capability and capacity of suitably qualified and experienced personnel to plan and deliver the next wave of infrastructure. Government and industry need to invest in upskilling the existing workforce, increasing the talent pool, attracting new market entrants, and training the future workforce. The United Kingdom offers a good example where Crossrail institutionalized skills training and apprenticeship and developed a system for capturing lessons and refining best practices. Another important lever could be the disaggregation of “megaprojects” into smaller packages, creating a healthier tier 2 and 3 contractor pool, and enabling all players to develop talent.
  7. Boost productivity through technology and data. McKinsey’s research indicates that using existing technology could unlock a 15 percent productivity improvement in major projects. Pursuing opportunities to use technology and data analytics to improve performance—from design through to delivery and operation—is an essential part of the 21st Century infrastructure. Additionally, applying robotics to reduce low-value work on sites, increasing pre-fabrication and modular, and using new materials can all improve outcomes. Systematically using AI and machine learning to derive insights from project data can help identify productivity opportunities, best practices and potential pitfalls.
  8. Reframe the culture of the industry. Externally and internally, the infrastructure construction industry is not positively positioned, thereby making it difficult to attract and retain talent. An opportunity exists to reframe and rebrand the industry, highlighting the positive societal impact of delivering and maintaining infrastructure, and the exciting technology opportunities presented by new digital tools, modular, robotics, etc. New behaviors will be required across the industry, requiring stakeholders across the public and private sector to embrace greater collaboration, with less reliance on contract variations and a less litigious approach across the supply chain. There is opportunity for this work to be done at an industry level and an organizational level.