15 Government uses estimates as the basis for setting both cost and schedule targets, as well as measuring performance in meeting them. It wants to announce the likely cost and schedule of a programme early on to demonstrate action, as well as to be transparent in the use of public funds and show that a programme is affordable. However, the precision and accuracy of estimates are highly dependent on the stage that a programme is at.
16 Estimates made at the concept stage will necessarily be based on high-level information, which becomes more detailed as the scope of the programme is developed. The relative lack of information at a programme's early stages means that any estimate will be highly uncertain and contain many areas of potential risk. For example, assumptions will need to be made about elements such as ground conditions, which cannot be known until detailed surveying takes place, and knowing how something will be built might require a certain level of detailed design to understand. Early costs will also likely lack input from suppliers. In many programmes we have reviewed, governments have not sufficiently recognised the inherent uncertainties and risks in early estimates, and has used them to set budgets and a completion date. We then see situations where forecast cost and schedules exceed early estimates as these uncertainties and risks crystallise.
17 In addition, the use of early estimates as delivery targets can incentivise delivery bodies and suppliers to attempt to meet unrealistic expectations, which then drive behaviours that are detrimental to the successful delivery of the programme. These behaviours include overambitious attempts to find savings and meet risky schedule targets (see our section on schedule, paragraphs 21 to 25, and our section on savings, paragraphs 26 to 29). A better understanding of the nature of estimates would allow for a more informed and transparent discussion of financial and schedule risks, which would better guide programme management.
18 Even when plans are more detailed and contracts in place, a programme's cost and schedule estimates will still contain risks and uncertainties. It is not always possible to see that bodies have arrangements in place that allow them to distinguish between cost and schedule increases resulting from better estimates being produced, and those caused by poor performance in delivery.
19 Recently, some bodies have begun to use ranges to publicly communicate the likely cost and delivery date of a programme, rather than using a single cost or date target. For example, the current estimated cost of Phase One of High Speed Two is £35 billion to £45 billion, with services between Old Oak Common and Birmingham starting between 2029 and 2033.4 Ranges are typically wide in the earlier stages where the greatest uncertainties exist and should narrow as information about the programme becomes more certain.
20 While using ranges publicly is an encouraging development, they have been used internally within programmes in the past. The top end of a range would inform the single cost/date targets used previously. Because programmes have often exceeded these targets, there remains a need to interrogate what a range is based on, and what risks and uncertainties could cause a programme to exceed the range.
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4 Full Business Case, High Speed Two, Phase One,The Department for Transport, April 2020. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/879445/fullbusiness-case-hs2-phase-one.pdf