Standards engender productivity. They reduce waste, improve communication, and reduce risks. By not counting the full social, environmental and financial cost of their projects, the engineering and architecture community is unnecessarily increasing the financial risk of their firms and of their, and their clients’, infrastructure projects. Making comprehensive cost benefit analysis part of infrastructure planning and design is a way of being transparent about environmental and societal risks that may become financial risks.
Architecture, Engineering and Construction (AEC) firms love standards (and acronyms). For good reason. Standards are guidelines designed to improve productivity by reducing re-work and facilitating information sharing through the exchange of documents.
Standards can be set as goals or can develop as best practices. Economists are less enamored with standards but nonetheless cost benefit analysis has been around for over a hundred years with little change and standards first appeared around 1936-1946. Standardization continues today with national governments specifying the data values to be input, the methodologies to be used, and the form of the output to qualify for scarce government funds.
In infrastructure, Building Information Modelling (BIM) software is used to plan, design, construct, operate and maintain infrastructure. BIM allows the addition of further information to Computer Aided Design (CAD) such as “time, costs, manufacturers’ details, sustainability and maintenance information, etc.) to the building model.”
Infrastructure projects have large impacts on the economy, the environment and, not least, people. Large infrastructure projects can also be a big gamble for AEC firms. BIM can help ensure legal, regulatory and even community standards are met and BIM can also minimize re-work by detecting clashes and ensuring efficient hand-offs between planning, design, and construction stages. BIM is being used by AEC firms to make sure that the drawings, schedules and information they get from other contractors are interpreted consistently and hence correctly.
Often infrastructure projects are sold on their sustainability benefits or how the infrastructure contributes to resiliency. Always there are public and quality of life benefits associated with infrastructure as this is why we build it. For many AEC firms sustainability, resiliency and environmental services are areas of strategic growth. These firms are more and more being hired to assess impact on ecosystems through environmental assessments. These firms are being asked to minimize the negative externalities of their projects while at the same time maximizing the positive spin-offs and public benefits. They are using standards such as the Envision™ Sustainable Infrastructure Rating System “a holistic framework for evaluating and rating the community, environmental, and economic benefits of all types and sizes of infrastructure projects.”
Using systems such as Envision and BIM, AEC firms have protocols and processes to minimizing external impacts such as noise, water and air pollution, and habitat disturbance during construction but the construction period is usually a small fraction of the life of an infrastructure assets that may last 20, 50, or 100 years. Understanding the potential impacts, both good and bad, of infrastructure projects is critical.
Environmental and Social Risks Are Becoming Financial Risks
One of the biggest risk facing infrastructure projects is the risk of delay. Project delays can be caused by not anticipating risks, regulatory delays, or stakeholders’ perceived negative consequences. If an AEC frim is designing an infrastructure project and has not developed a plan to deal with wetland loss it may have angry birders on its case. When peoples’ hackles are raised environmental, and social (non-monetized) risks can quickly become project and financial risks with real dollar impacts.
This is why so many companies in industries with active opponents or sensitive stakeholders are using shadow prices. For example, “Many companies in Canada in a variety of sectors are using a shadow carbon price (SCP).” “For the companies surveyed, the main driver for using a SCP is to prepare, both from a risk and opportunity perspective, for the expected future scenario where carbon pricing will become more widespread (within and across jurisdictions) due to regulatory requirements and policy regimes, and the price of carbon will increase over time.” (Shadow Carbon Pricing in the Canadian Energy Sector, Sustainable Prosperity).
Sensors and Sensibilities
There are trends whereby cheap technology allows infrastructure’s impacts to be measured. This is being demanded by infrastructure stakeholders who want infrastructure proponents to prove the public benefits and have a solid plan for internalizing, or mitigating, negative effects.
The Harvard Business Review article a few years ago (“The Big Idea: Leadership in the Age of Transparency” by Christopher Meyer and Julia Kirby, April 2010) captured the trend to more sensors, the growth in the size of companies and projects, and heightened sensibilities. They also beautifully captured how businesses such as AEC firms (and investors) should respond. Corporations should take responsibility for externalities. The demands to plan, build and operate responsibly are dramatically increasing. A framework that monetizes externalities allows AEC firms to respond rationally and in ways that are simultaneously defensible to all stakeholders.
Using shadow prices, internalizing externalities, or valuing the environmental, social as well as the financial risks are all ways for AEC firms to address the obligation to fully assess the impacts and returns associated with their infrastructure projects.
More on standards from the Impact Infrastructure blog:
- UK government suggestion that infrastructure proponents value resiliency and the risks of climate change are accounted for
- The benefit of standardization is that investors can compare projects. Small projects can be bundled together to meet investors’ objectives. And, projects can be designed to meet stakeholders’ objectives
- WCX Standards Committee work to address the lack of standards and consistency and was a problem that was inhibiting the growth of the US market for “investable infrastructure”
- Building Information Modeling (BIM) provides increased “clarity of project intent for all stakeholders—better informing decision making and reducing risk”
- The world’s infrastructure deficit is $1.0 trillion/year. A response? A transformation in the professionalism of project management. The second priority is “to streamline the system for slicing risk unrelated to a project’s commercial viability”
- Cost benefit analysis and risk analysis were useful but a comprehensive SROI accounting framework was needed. ii was created in March of 2012 to help develop a standard that could be used for measuring sustainability
- First of four-part blog post on CBA-BIM. The concept and benefits of CBA-BIM
- Standards and the Canadian Impact Infrastructure Exchange (CIIX) Symposium
- Canadian Impact Infrastructure Exchange (CIIX) to pilot in three Ontario communities and will perform a comprehensive sustainability analysis of the proposed infrastructure plan (or design, depending on project stage) ensuring high ESG standards.
by: John C. Parker
For over 30 years Mr. Parker has led teams of economists analyzing infrastructure projects and policy alternatives. Mr. Parker has worked in the economic consulting, energy, risk management software, and financial services sectors. Mr. Parker has a unique ability to direct others and to build, use, and explain quantitative models. Through quantitative benefit cost analysis and risk analysis he can help people better understand their markets, competitors, pricing, prospects, and internal processes. Prior to joining Impact Infrastructure, Inc., Mr. Parker was a Vice President with HDR Corporation. There he was head of HDR’s Canadian operations and also let a department of 14 economists doing custom consulting projects on infrastructure projects of all types and sizes. In this time Mr. Parker led teams on over 60 projects understanding the true value projects. Engagements included: buildings, land, waste, transportation (air, rail, road, and active transportation), water, energy (gas, renewables, coal, and hydro generation, gas and electricity transmission), and transit (bus, commuter rail, subway and light rail rapid transit).