With the recent news about the Ever Given cargo container ship blocking the Suez Canal, the large artificial waterway has gotten a lot of attention recently. It also reminded me that I had once read that the cost growth for the development of the Suez Canal, which was initially opened in 1869, had experienced a twenty-fold cost growth from early estimates to the cost to actually complete the project. The source for this piece of information is Oxford Professor Bent Flyvbjerg’s excellent book Megaprojects and Risk: An Anatomy of Ambition. He provides the table below of what he calls “spectacular” cost overruns.
The source that Flyvbjerg cites for his Suez Canal cost growth data point is a book titled Strategy for R&D: Studies in the Microeconomics of Development. The chapter that discusses the Suez Canal focuses on cost growth in military systems. The information about nonmilitary projects is provided to demonstrate that “predicting how much something will cost that is to be produced a long time in the future is always a hazardous activity.” The book then states that “the earliest cost estimate for the Suez Canal, a half-century before it was actually built, was low by a factor of twenty; the year before digging actually began, the estimate was still low by a factor of three.”
Based on this information, I take issue with stating that the cost overrun to develop the Suez Canal was 1,900%. An estimate 50 years before the project was built is not something to base cost growth upon. A better measure is the “factor of three” which is still an alarming 200% increase. The history of cost growth for all types of projects is stunning enough without resorting to exaggeration.