Posted by: olymponomics | August 14, 2012

Proving the Olympo-sceptics wrong? Not so fast Boris….

The Mayor of London has been quick to sermonise to all those who were critical of preparations for the Olympics and highlighted doubts about the long-term impacts. Others have denounced the naysayers too, as part of the wave of national euphoria that has swept across Britain. Given some of things I have written about risk and mega-events over the past few years, you might think that I am ripe for such contrition — though I am too small a fish to fry to be one of the people who Boris sees fit to save from public embarrassment by choosing not to name them (a nice rhetorical device that!). However, I am of an evidence-based disposition, and while I had a teary eye at numerous points during the Games and found the whole experience a triumph of the better nature of humanity and a celebration of Britain as a post-modern nation, it is far too early to tell whether London 2012 should be considered a policy success. Specifically, the economic costs and benefits of the Games will require proper and rigorous examination over a long time frame that differentiate between core and peripheral Olympic costs, account for the opportunity costs of public investment, distinguish between short- and long-term impacts, and which evaluate structural shifts in tourism, skills and employment, economic output and sporting participation. Declaring London 2012 a policy success now is premature, even though the event and the national experience was undoubtedly a triumph. Still, if anyone should be embarrassed, it is those who take figures from consultants’ projections at face value without subjecting them to proper scrutiny or being explicit about the underlying assumptions and meanings (note that a number of the figures about economic impacts being banded about were commissioned by official Olympic sponsors). There is nothing wrong with saying London’s Olympics was outstanding, a success in operational terms, an excellent case study in risk management, and a significant cultural moment where Britishness experienced a significant revival, but it is important not to reinvent history for the sake of political expediency. The costs did overrun from the original forecasts (even if the vast ‘contingency’ fund allowed these to be absorbed without damaging news headlines), and the economic legacy remains unclear. It is not a bad thing to be optimistic about the future, but to dismiss scepticism about the cost, planning and impacts of major events such as the Olympics is profoundly anti-scientific and presumptive, and in some instances is at odds with the objective facts.

Posted by: olymponomics | August 13, 2012

As the dust settles from London 2012….

With the Olympic Park now empty, ahead of the start of the Paralympics in less than a fortnight, there is time for interim reflections on London 2012. I’ll be writing more about how it is possible to mark London’s scorecard for Olympic organisation in the coming days (something that will have to be done way into the future), but in the meantime I have had a post published by the Harvard Business Review blog about the Olympics as a story of risk management.

 

Posted by: olymponomics | August 7, 2012

Talking Olymponomics on Business Daily on the BBC World Service

I recently did an interview with Business Daily for the BBC World Service about the economics of hosting the Olympic Games, which aired today. Even amidst the euphoria of Britain’s unprecedented gold rush, there remains great uncertainty over the long-term economic legacy of London 2012: will it offer an escape from economic stagnation or is it just another extravagance to be charged against the credit card of UK PLC, left for future generations to pay off? While there might be short-term boosts gained from spending on infrastructure and venues, and from increased consumption related to the event (despite some evidence that other forms of consumer and tourist spending are crowded out by such mega-events), the long-term economic legacy will remain unclear for some time to come.

Posted by: olymponomics | August 5, 2012

More on Olympic liminality

Further to my earlier discussion, one of the remarkable features of the Olympic Games as a liminal moment or space is how social and political elites (i.e. the Royals, the Prime Minister, Cabinet Ministers, Heads of State, the Mayor of London and other luminaries) flock to pay their respects (in the best seats of course) to the extra-ordinary feats of competitors. I choose the word extraordinary deliberately because most of the sports people taking the Olympics stage do not have the wealth or the celebrity status of others in the world of sports and entertainment (such as our vastly overpaid and over-pampered premiership footballers) and their exceptional achievements are the product of gruelling training regimes and personal commitment, often overcoming financial hardship as well (relying on funding at a level that your average premiership football might easily spend at a casino on Friday night). This breakdown is social hierarchy, as ordinary people doing extraordinary things take centre stage, is both compelling and inspiring, but on the same level the visible presence of elites (and their relentless pursuit of hand-shaking diplomacy, and hospitality) is a reminder of the ever-presence of political and economic power, and that once the Games are over normal service will be resumed.

 

Posted by: olymponomics | August 5, 2012

Olympic moments of cultural climax: musings on liminality

Despite being of an evidence-based inclination when it comes to the study of major events such as the Olympics, when I started out on this line of research way back in 2001, I did a lot of reading around cultural anthropology and was very taken with the work of Victor Turner especially (and for a public policy scholar did the unusual of reading a lot around studies of symbols, rituals and rites of passage). An event such as the Olympics, and its production of moments of cultural climax such as yesterday’s gold medal rush for Britain, is notable for offering a unique place in space and time for collective experience (a theme also prominent in Maurice Roche‘s excellent work on mega-events and modernity) and the suspension of political disbelief. Turner’s idea of liminality is apt here, in highlighting the sense of ‘betwixt and between’ of such moments, ambiguous periods of cultural meaning that are subject to communitas (i.e. a sense of togetherness and belonging, as part of a shared collective experience) and the breakdown of social hierarchies. Such periods of liminality are disorienting to participants (in the British sporting context this might be due to the surprise at sporting success!), making possible new perspectives and ways of seeing. It seems to me that a significant part of the media discourse in response to last night’s Gold rush is focusing on the transitional qualities of these events, both for participants but also for British sport and society more widely (all part of Britain’s wider search for a post-imperial identity, returning to one of the underlying themes from the opening ceremony).

Perhaps more than anything, the tremendous emotional response of the public to the Olympics (whether this feeling is transient or not – and liminal moments tend to be by nature) demonstrates the Pierre de Coubertin’s unique vision in creating the ideology of Olympism, which has a clear humanist tradition in its spirit of endeavour, commitment and  achievement — perhaps why even the most unsentimental of sceptics are touched by these moments in the sporting arena. At the same time, one must always remember that such liminal moments of heightened collective experience also provide opportunities for the expression of power and the manufacturing of mass acquiescence, lest we forget the Berlin Olympics of 1936, such that the question is always left hanging of to what ideological ends these climactic moments play to.

Posted by: olymponomics | July 31, 2012

Why wearing red could help to win Olympic gold

One of my oldest and best friends Tom Stafford (such a good friend that he has perpetrated complex and long-term practical jokes at my expense, such as concealing the fact he was completing a PhD – this man knows how to concoct a conspiracy with the help of a network of double agents and informers, don’t trust him!), has a great article about how the colour competitors wear can influence their chance of winning. This dates back to a study of taekwondo, boxing and wrestling at the Athens 2004 Olympics. The nice twist that Tom observes is, however, that the effect of the colour was not on the competitors (despite our association of the colour red with traits such as aggressiveness and dominance in the natural world) but on the referees who were scoring the events.

 

Stories of empty seats are building up for London 2012, presenting LOCOG with its first major PR crisis of the Games as initial euphoria subsides. This should not be a surprise. Empty seats were also an issue at Beijing, with corporate sponsors not taking up tickets being identified as a factor again. The same issue was experienced at Athens in 2004In January, I wrote:

Ticketing is a common problem for organizers seeking to maximise revenue from corporates. The run-up to the Sydney 2000 Olympics encountered similar controversy over the number of tickets available to the public. Most telling about both these cases is that the harm done to organizers’ reputation, and public attitudes towards the Games, was entirely self-inflicted. It also suggests that ticketing is often not considered a critical risk, but can nevertheless be a major problem for event organizers.

LOCOG will no doubt try to ride out the PR storm, using the standard defence that corporate sponsors are essential for financing of the Games, but public attitudes towards the Games can quickly shift as it starts to understand the process through which tickets are allocated. The more things change, the more they stay the same. Hopefully organizers of future Olympics will resolve this problem, but it seems unlikely given that it is an obvious and recurring issue.

Much like the economic impact of the Olympics, the size of the global TV audience for the Games tend to be vastly over-estimated and subject to little verification (for a notable exception, see the studies from Futures Sport + Entertainment who put the number for the Beijing Olympics at just under a billion total viewers (with an average audience of 593 million viewers). FIFA’s estimates of viewers for the Football World Cup are prone to similar over-estimation, inflating the worth of the event to advertisers and providing some sort of political legitimacy for host governments and organizers. This contrasts, of course, with the under-estimation of costs. For London 2012, there have been predictions, from LOCOG and crisis-prone cabinet minister Jeremy Hunt, of more than four billion viewers  - remarkable given that just around 1.2 billion households in the world are estimated to own a television. In view of this, and the evidence from Beijing, such estimates seem fanciful – revealing the degree to which hype about mega-events can often override hard facts and scientific evidence.

Posted by: olymponomics | July 25, 2012

Why Olympic costs overrun

This article was cross-posted at the LSE Politics & Policy blog:

As recently as March, the Public Accounts Committee criticised the organizers of London 2012 for its rising security bill: “It is staggering that the original estimates were so wrong.” The more things change, the more they stay the same. “Olympic balance-sheets, like other budgets” wrote the organizers of the London 1908 Olympic Games “are in the habit of proving their healthy existence by a vigorous growth.” This maxim has long been known in planning for the world’s largest sporting event. The final report of the first modern Olympics in 1896 reflected that the initial estimates had “vastly underrated” the cost of restoring the ancient Panathenaic Stadium in Athens, rising some 57% from 585,000 to 920,000 Drachmas. Famously, the bid estimates of the Montreal 1976 Olympics were put at a modest C$120 million, but suffered an eventual cost overrun of 1,250% – leaving huge debts which took the city thirty years to pay off. All this after the Mayor of Montréal Jean Drapeau had famously declared “The Olympics can no more have a deficit than a man can have a baby.” Despite an increasing concern on the part of host cities with managing risk, the problem of cost over-runs does not seem to have been resolved in recent times.

In Olympic Risks I document the systematic occurrence of cost overruns at Olympic Games since 1976, and explore some of the reasons why initial forecasts turn out to be so wrong. This research is the first to combine systematic analysis of Olympic cost overruns over time and an examination of their causes. Between 1976 and 2012, the average cost overrun from the estimates presented in the bid book to the final cost was more than 200%. This far exceeds the average cost overrun on other major projects identified in existing studies. It is also despite considerable efforts on the part of the International Olympic Committee over the past decade to make the evaluation of bids more rigorous via the technical requirements of its candidature process.

There are many explanations of cost inflation in major projects, ranging from ‘optimism bias’ or ‘group think’ in decision-making, deception on the part of planners, poor project management, and failures of the political system itself to provide oversight. Through an investigation of the factors behind each Olympic cost overrun, from Montreal in 1976 to London in 2012, a number of common themes emerge.

1. The bid process

The IOC’s Olympic Games Study Commission has itself expressed concern that the competition for the right to the host the Olympic Games, awarded through a secret vote of the membership of the IOC, encourages ‘showcasing’ by applicant cities in their submissions. Indeed, bid books have been described by Richard Pound, former Vice President of the IOC, as being the ‘most beautiful fiction’. A feasibility study conducted for the British Olympic Association ahead of London’s bid itself expressed the need for ‘escaping from the world of realism’ when considering what a bid might look like. The short-term interest in securing the event can lead to under-estimation of the commitment required. As a consequence, the version of events that are presented in bid dossiers often have little resemblance to the real thing.

2. Scope creep

One of the most prominent causes of cost overruns in project management is ‘scope creep’ (i.e. uncontrolled growth in project specifications). This can result from inadequate definition of the project scope or poor controls in management (it can also result from drift in the preference of planners). For example, changes to the design of the stadium roof led to cost pressures for the main stadium for London 2012. Another crucial source of scope creep is unanticipated exogenous shocks, such as fluctuations in steel prices. Subsoil exploration – that is, drilling – has been a recurring theme in Olympic construction. Designs of the velodrome for Montreal had to be modified due to the discovery of weak and unstable subsoil which had been missed by earlier geological studies – further pushing costs upwards. Unexpected findings about the soil profile of the site for the Athens 2004 Olympics led to a last minute change in design of the foundations for the stadium roof. A £25 million increase in the cost of the velodrome for London 2012 was similarly attributed to changes in design that resulted from ‘complex foundations and ground conditions’.

The phenomenon of scope creep is also observed in budgeting (re)classification. Much of the growth in the official budget for London 2012 can be linked to this, in the redefinition of certain items as core Olympic costs after the bid had been won. Specifically, £1 billion of expenditure on infrastructure for the Olympic Park was re-integrated into the budget while the costs of tax liabilities on capital spending and security, which had been omitted from previous estimates, were consolidated into the budget. These omissions, combined with the addition of a sizeable programme contingency – amounted to more than £4 billion, far more than the increases in costs due to changes in technical scope.

3. Risk, moral hazard and fantasy documents

One of the most important factors in Olympic cost overruns is a failure to identify and manage risk. This is despite the increasing attention of Olympic organizers to risk in planning. The Public Accounts Committee found that London’s bid budget had not followed the government’s own guidance on budgeting procedures for major projects ‘despite HM Treasury having been consulted and the bid agreed across Government’. Specifically, £738 million of private sector finance for the Olympic Village was included ‘despite not being supported by robust analysis’. When the global financial crisis hit the private sector withdrew from the project, only returning later once the level of risk attached to the project had subsided. This points to the problem of moral hazard in major events where the government is required to act as backer of last resort (for the Olympics this is enshrined through the host city contract), which enables the private sector to transfer risk to the state but seek to accrue profits. Private developers returned to the Olympic Village project once the volatility in the financial markets had calmed down.

The final aspect of Olympic planning that gives rise to the under-estimation of risk is the illusion of control created through the use of detailed planning documents and complex budgeting methods. The numbers presented in bid books often take on a fictional character, having little resemblance to the final cost as plans for the event take shape and as uncertainties of scope diminish. In the case of London 2012, the application of a series of technical methodologies (which included a probabilistic budget assessment and financial audits) were unable to prevent revisions of technical scope and drift in political and bureaucratic decisions (such as growth in the security budget). This points to the possibility of viewing Olympic planning in the same way as Lee Clarke’s characterization of disaster plans as ‘fantasy documents’, where organisations fantasise about their ability to cope with disaster. In this, planning manuals and protocols are often used to ‘express uncertainty in terms of risk’ and to provide reassurance about manageability to an external audience. This has many parallels with the role of bid books in securing the support of host governments and citizens as well as the IOC. Most of all, this highlights the gap between the organisational rhetoric of planning, and how it characterises routines and controls, and reality on the ground.

Source: For more detailed analysis of bid budgets see Chapter 4 of Olympic Risks, and for an analysis of the budget for London 2012 see ‘Why costs overrun: risk, optimism and uncertainty in budgeting for the London 2012 Olympic Games’, Journal of Construction Management and Economics 30(6): 455-462. An overview of cost overruns incurred at Summer Olympics since 1976 is also presented in ‘Mega-Events and Risk Colonization: Risk Management and the Olympics.’ LSE Centre for Analysis of Risk and Regulation Discussion Paper, No. 71, March 2012.

About the author: Dr Will Jennings is Senior Lecturer in Politics at the University of Southampton and a Research Associate at the Centre for Analysis of Risk and Regulation at the London School of Economics and Political Science, he specialises in research on risk and mega-events as well as the quantitative analysis of politics, policy and society.

Posted by: olymponomics | July 25, 2012

Olympic planning and moral hazard

Later today (at 2pm) I have an article published on the LSE Politics & Policy blog about why Olympic costs overrun — reprising themes from my book and various articles that I have written about risk and mega-events over the years (some with Martin Lodge), and is something I have been thinking about in the context of the Olympics and mega-events for some time. One of the features of cost overruns as a topic (or ‘optimism bias’ in planning as some call it, while Peter Hall’s famous work talks about ‘great planning disasters‘) is that it has a timeless quality that means that it probably was an issue that exercised the minds of the builders of the Pyramids and no doubt will continue to surprise and upset decision-makers well into the future despite the development of complex methodologies of project management, risk analysis and budgeting.

As an addendum, I wrote the article a couple of weeks ago, just before the great brouhaha about the failure of security contractor G4S to supply the expected number of guards for London 2012. What is interesting are the clear parallels with the problem of moral hazard experienced in financing of the Olympic Village (as private developers withdrew from the project at the time of the credit crunch and new investors were only found following the subsequent stabilisation of the global economy). This is a ‘principal-agent’ problem that arises from a failure to formulate or enforce binding contracts, with the situation worsened by the host government’s role as backer of last resort for the Games.

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