ASSESSMENT#2

REFLECTIVE PRACTICE ASSIGNMENT – CASE STUDIES & QUESTIONS

Sydney light rail budget surpassed $3 billion, auditor-general's report finds

Executive Summary:
Purpose of the Report: This report assesses the financial aspects and transparency issues of
the Sydney CBD Light Rail Project, examining the accuracy of cost reporting and public
disclosure. Initiated by the New South Wales auditor-general, the audit aims to provide an
objective evaluation of the project's budget and address concerns about public
transparency.
Summary of Findings:
The audit reveals the actual cost of the Sydney CBD light rail project is $3.147 billion,
exceeding the State Government's announced figure of $2.9 billion. Additional costs of
$153.84 million were identified, linked to early works and a small business assistance
package. Transparency concerns arise from inconsistent and inaccurate updates by
Transport for NSW (TfNSW). The report critiques the failure to publish project benefits and
delays in finalizing an integrated bus service plan.
Lessons Learned:
The report highlights the significance of accurate and transparent financial reporting in
major infrastructure projects. Real-time updates to project costs, benefits, and related
information are essential for public trust and accountability. Cost inaccuracies underscore
lessons for future projects in initial budgeting, periodic reassessment, and proactive public
communication.
Key Concerns Raised:
1. The discrepancy between the announced cost & the audited figure raises questions
about the accuracy of initial budget estimates and the importance of comprehensive
financial oversight.
2. The lack of consistent and accurate updates on project costs, along with the absence
of published information on benefits, hampers transparency & public understanding
of the project's financial aspects.
3. The delayed finalization of the integrated bus service plan, expected to yield
significant savings, highlights the risks associated with incomplete planning and
underscores the need for thorough pre-project assessments.
4. Transport NSW disputes the auditor-general's findings, maintaining that the project's
cost is still believed to be "under the $3 billion mark." The government insists that
certain costs raised by the auditor-general are outside the project's context.
Introduction:
The Sydney CBD Light Rail Project, a pivotal transportation initiative, has recently come
under scrutiny following revelations by the New South Wales auditor-general. The purpose
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of this report is to comprehensively examine the financial intricacies of the project,
specifically focusing on discrepancies in cost reporting and concerns raised about public
transparency. The findings of the auditor-general's report reveal that the true cost of the
project exceeds the initially announced budget by $150 million, sparking debates and
controversies surrounding its management.
Cases Summaries:
1. The Sydney CBD light rail project's actual cost is $3.147 billion, surpassing the State
Government's initial announcement of $2.9 billion, raising questions about financial
accuracy.
2. The auditor-general's report identifies "omitted “costs of $153.84 million, including
early works and a business assistance package, criticizing Transport NSW for not
transparently reporting these directly related expenses.
3. Limited transparency in reporting project costs is highlighted, with inconsistent
updates hindering public understanding. The report also criticizes the failure to
publish information on project benefits.
4. Transport NSW's anticipated annual savings of $8-10 million by reducing bus services
lack a finalized & endorsed plan, raising concerns about the project's financial
viability.

Structure of the Report:

This report analyzes the Sydney CBD Light Rail Project, covering actual and additional costs,
transparency issues, and the incomplete bus service plan. It discusses Transport NSW's
dispute of the auditor-general's findings and highlights historical cost discrepancies,
revealing a pattern of financial challenges. The conclusion provides insights into broader
audit implications and outlines areas for improvement in future infrastructure projects.
Question 1. Discuss four (4) different cost estimation methods in project cost planning.
The discussion should provide the description and pros and cons of each method.
Answer:
1. Analogous Estimation:
 Description: Analogous estimation, also known as top-down estimation,
relies on historical data from similar projects to estimate the costs of the
current project. It involves comparing the new project to past projects with
similar characteristics, complexities, and scope.
 Pros:
 Quick and straightforward, requiring minimal detailed information.
 Useful in the early stages of a project when detailed information is limited.
 Cons:
 Accuracy heavily depends on the similarity of the current project to past
projects.
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  May not account for unique factors affecting the current project.
2. Parametric Estimation:
 Description: Parametric estimation involves using statistical relationships
between historical data and project parameters to calculate cost estimates.
This method utilizes cost per unit metrics (e.g., cost per square foot) to derive
project costs based on specific project attributes.
 Pros:
 Provides a systematic and data-driven approach.
 Can be more accurate than analogous estimation when historical data is well-
defined.
 Cons:
 Accuracy relies on the availability of accurate historical data.
 May not account for unique project characteristics not captured in the
parameters.
3. Bottom-Up Estimation:
 Description: In bottom-up estimation, costs are estimated by breaking down
the project into detailed work packages or tasks. Each task is individually
estimated, and the cumulative sum provides the total project cost. This
method is more time-consuming but offers a detailed and accurate estimate.
 Pros:
 Provides a detailed breakdown of costs for each task.
 Allows for a granular understanding of the project, aiding in risk
identification.
 Cons:
 Requires a significant amount of time and resources.
 May be impractical for early project stages or large projects.
4. Three-Point Estimation (PERT):
 Description: Three-point estimation involves calculating an expected,
optimistic, and pessimistic estimate for each task. The weighted average of
these estimates is then used to determine the overall project cost. PERT aims
to account for uncertainty and variability in task durations.
 Pros:
 Incorporates risk and uncertainty into the estimation process.
 Provides a more realistic view of project timelines and costs.
 Cons:
 Relies on subjective judgment for determining optimistic, pessimistic, and
expected values.
 Complexity may increase with the number of tasks.
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Relevance to Sydney CBD Light Rail Project: Given the complexities of the Sydney CBD Light
Rail Project, a blended approach to estimation methods would have been advantageous.
Analogous estimation could offer quick initial estimates, while parametric estimation might
refine predictions using historical data. Bottom-up estimation would be essential for
detailed planning, given the project's size and complexity. Additionally, three-point
estimation could provide a more realistic assessment, accounting for uncertainties and
delays experienced in the project.
Question 2. For each cost estimation technique explained in question 1, describe each
scenario in the project case (Sydney light rail) where these techniques can be effectively
used. Discuss your rationale linked directly to the case.
Answer:
I. Analogous Estimation:
Scenario: Applying Analogous Estimation to Project Phases:
 In the early stages of the Sydney Light Rail Project, analogous estimation
could have effectively estimated costs for phases with similarities to
completed projects, such as track construction or station infrastructure
development in urban transit projects.
Rationale:
 Analogous estimation is suitable when historical data from similar projects is
available, as in the Sydney Light Rail. Identifying comparable projects could
offer a quick cost estimate for specific phases, but limitations arise if the
project's uniqueness is not adequately considered.
II. Parametric Estimation:
Scenario: Cost Estimation based on Project Parameters:
 Parametric estimation in the Sydney Light Rail Project's planning phase could
have calculated costs based on parameters like track length, station numbers,
or land acquisition. This method enables a systematic analysis of cost drivers.
Rationale:
 Parametric estimation is effective when a clear correlation exists between
project attributes and costs. In the Sydney Light Rail, parameters like track
length or station numbers could establish cost relationships, enabling a
nuanced and data-driven budgeting approach.
III. Bottom-Up Estimation:
Scenario: Detailed Costing for Major Components:
 Bottom-up estimation could have been used for critical components of the
Sydney Light Rail Project, like station construction or rail track installation.
Breaking down these elements into detailed work packages would have
yielded a comprehensive & accurate cost estimate.
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Rationale:
Bottom-up estimation is ideal when detailed information is available. For the
Sydney Light Rail, applying this method to major components could have
ensured a more accurate budget, given the project's complexity and size.
IV. Three-Point Estimation:
Scenario: Timeline Estimation for Project Phases:
 PERT could have estimated durations for uncertain phases, like legal disputes
in the Sydney Light Rail. Applying PERT to the sub-contractor court case could
have improved predictions, enhancing overall planning.
Rationale:
 PERT suits uncertain tasks. In the Sydney Light Rail, amid delays and legal
issues, using PERT for critical phases would provide a realistic timeline
assessment, enhancing planning and risk management.
Question 3. Based on the literature on project management, explain four (4) factors that
affect the precision of cost estimates.
Answer:
 1: Project Scope:
The clarity and comprehensiveness of the project scope greatly affect cost
estimate precision. A well-defined scope outlines project boundaries,
deliverables, and objectives, facilitating accurate resource identification.
Project management literature highlights that a vague scope can lead to
changes, unexpected work, and inaccurate cost estimates. Thorough scope
definition reduces ambiguity, contributing to more precise cost estimates.
2: Availability & Quality of Historical Data:
 The availability and reliability of historical data from similar projects are
crucial for estimating costs. Accurate historical data serve as benchmarks,
enabling project managers to draw on past experiences for more informed
predictions. Project management literature emphasizes leveraging historical
data to enhance cost estimate accuracy. Reliable data help identify patterns,
trends, and potential risks, contributing to more precise budgeting.
3: Expertise & Experience of Project Team:
 The competence and experience of the project team, particularly in cost
estimation, directly impact estimate precision. Skilled team members with
domain knowledge make more accurate judgments, assess risks effectively,
and account for unforeseen challenges. Project management literature
emphasizes the importance of a knowledgeable team, ensuring a deeper

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 understanding of project complexities for accurate resource and cost
assessments.
4: Project Management Risk:
 Risk management throughout the project life cycle significantly impacts cost
estimate precision. Unaddressed risks can lead to cost overruns, emphasizing
the importance of effective risk management. Project management literature
highlights the need to anticipate uncertainties and include contingency plans
in cost estimates. Proactive risk identification and mitigation contribute to
more accurate cost estimates by addressing potential challenges and
uncertainties.
Question 4. Discuss four (4) specific factors that could have appeared (or already
appeared) in the Sydney light rail project and affected the precision of cost estimates.
Support your arguments with evidence and references linked to the project. Students
should describe the scenario where these factors occurred.
Answer:
 Incomplete scope definition contributed to mispricing and omissions, leading
to budget adjustments. This factor negatively impacted the precision of cost
estimates, emphasizing the importance of thorough scope definition for
accurate budgeting.
 The lack of adequate historical data for parametric estimation can hinder
the precision of cost estimates, especially in large and unique projects.
Project managers must recognize when parametric estimation might be less
applicable due to the project's distinct characteristics.
 Inadequate risk management can lead to unforeseen events, such as legal
disputes, impacting project costs. A robust risk management approach is
crucial for enhancing the precision of cost estimates.
 Changes in project scope, if not adequately managed and communicated,
can lead to cost overruns. It emphasizes the importance of scope control
throughout the project life cycle for precise cost estimation.
Question 5. At the project planning phase, the existence of the factors discussed in
question 4 is uncertain; they should be treated as potential risk events and need to be
managed. Use risk management theory to design a risk management plan to manage
these risk events to reduce the mispricing outcome. The risk management plan should
include the risk assessment, risk response strategy, etc. Discuss your rationale. Students
can suggest certain assumptions when assessing risk events.
Answer:
Risk Management Plan for Sydney Light Rail Project: Mispricing Risk
1: Risk Identification:
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  Potential Risk:
1: Incomplete scope
2: Inadequate historical data for parametric estimation
3: Risk management
4: Changes in project scope
Assumptions:
 Stakeholders may not fully understand the project scope initially.
 Limited availability of historical data for large-scale and unique projects.
 Unforeseen challenges may arise, impacting cost and schedule.
 Scope changes may occur due to external or internal factors.
2: Risk Assessment:

Risk Level High Moderate

High Impact Risk 1:Incomplete Risk 4: Changes in
Scope Project Scope
Moderate Impact Risk 2: Inadequate Risk 3: Challenges
3: Risk Historical Data in Risk Response
Management Strategy:
 Risk 1: Conduct
thorough stakeholder engagement and establish a robust scope definition process.
Mitigation Actions: Regularly update stakeholders on project scope, conduct
workshops for clarification, and document changes formally.
 Risk 2: Develop a detailed risk assessment plan and seek industry insights. Mitigation
Actions: Collaborate with industry experts, gather data from comparable projects
globally, and establish contingency budgets.
 Risk 3: Implement a proactive risk management plan. Mitigation Actions: Identify
and assess risks early, establish a risk register, allocate contingency funds, and
regularly review and update the risk management plan.
 Risk 4: Implement a formal change control process. Mitigation Actions: Clearly
define change control procedures, require formal documentation for any scope
changes, and assess the impact on budget and schedule before approval.
4: Risk Monitoring & Control:
Regular Monitoring:
 Establish a risk management team responsible for ongoing monitoring.
 Regularly review the risk register, update risk assessments, and reassess the
effectiveness of mitigation strategies.
Contingency Planning:
 Establish contingency plans for each identified risk.
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  Regularly review and update contingency plans based on the evolving nature of the
project.
Rationale:
 This risk management plan is designed to proactively address uncertainties during
the project planning phase. Thorough risk identification, assessment, and response
strategies are crucial for managing mispricing risks. The assumptions provide a basis
for understanding the context and potential challenges. Continuous monitoring
ensures the plan remains effective in addressing emerging risks and helps in
maintaining project control and minimizing the impact of mispricing on the Sydney
Light Rail Project.
Conclusions:
The Sydney Light Rail Project highlights key lessons in project management and financial
transparency. Precise cost estimation in initial budgeting is crucial, emphasizing meticulous
planning for project scope and complexity. Comprehensive scope definition is essential to
prevent cost overruns. Open communication and transparent reporting are vital for
maintaining stakeholder trust, credibility, and public confidence. Proactive risk
management, including contingency plans for challenges, is imperative. Continuous
monitoring, regular assessments, and adjustments throughout the project life cycle are
crucial for accurate financial information. Accusations of cost cover-ups emphasize the need
for public accountability and governance. Establishing robust transparency mechanisms is
vital for sustained public trust. Applying these lessons to future projects can optimize
outcomes and mitigate risks.
References:
Douglas, N. and Cockburn, D., 2019, September. Australian Light Rail and Lessons for New
Zealand. In Australasian Transport Research Forum 2019 Proceedings (Vol. 30).
Terrill, M., Coates, B. and Danks, L., 2016, November. Cost overruns in Australian transport
infrastructure projects. In Proceedings of the Australasian Transport Research Forum (Vol.
16, p. 18).
Reich, B.H. and Wee, S.Y., 2006. Searching for Knowledge in the PMBOK® Guide. Project
Management Journal, 37(2), pp.11-26.
Sydney light rail budget passes $3 billion. (2020). ABC News. [online] 11 Jun. Available at:
https://www.abc.net.au/news/2020-06-11/sydney-light-rail-cost-over-three-billion-auditor-
reportfinds/12343834?
utm_campaign=abc_news_web&utm_content=link&utm_medium=content_shared&utm_s
ource=abc_news_web.
Zwikael, O., 2009. The relative importance of the PMBOK® Guide's nine Knowledge Areas
during project planning. Project Management Journal, 40(4), pp.94-103.

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Kerzner, H., 2017. Project management: a systems approach to planning, scheduling, and
controlling. John Wiley & Sons.

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