Posted by: olymponomics | July 22, 2012

Cost overruns of Olympic proportions

Optimism bias in Olympic budgeting is a problem that is well known (see for example the discussion of bid books in the chapters that I contributed to the edited volumes Terrorism and the Olympics and Mega-Crises). Indeed, this is a problem that dates back to the revival of the modern Olympics, where the cost of restoring the ancient Panathenaic Stadium for the Athens 1896 Olympics was severely under-estimated, coming in at 57% above the predicted cost. In Olympic Risks I analyse the size and frequency of cost overruns at Summer Olympics since 1976, finding the average cost overrun to be more than 200% in nominal terms. I also have conducted a more detailed study of the cost overrun in planning for the London 2012 Olympics. There are a number of factors behind the systematic recurrence of cost overruns in Olympic planning, but key are the bid process itself, which requires commitments when decision-makers are subject to high levels of uncertainty over the future shape of the Games, and the potential for scope creep in plans (ranging from drift in the technical design of venues to changes in the security requirements for the events). At the same time, cost overruns can also be attributed to failures to manage risk (often as risks and technical guidance are disregarded or controls are poorly implemented) and to potential for moral hazard given that the host government is required to act as backer of last resort for the Games, according to the terms of the host city contract.

Posted by: olymponomics | July 13, 2012

Questions about G4S, the government and securing the Games

The private firm at the centre of the row about Olympic security, G4S, has been widely criticised and some of the stories that are appearing from people who received training depict a chaotic process, but a number of questions remain about whether this situation was predictable and avoidable, and whether the government should have known that the assurances being given to it were unreliable. Indeed, this dates back to the under-estimate of the number of private security staff required for the Games in the original bid to the IOC. As far back as 2008 there were fears about a shortage of police manpower for securing the Games, so one would have thought that similar questions might have been asked about the private security industry. But, important questions remain unanswered.

  • Did the government not know that there was a shortage in the private security industry? As far back as April 2011, LOCOG itself reported concern about “A gap in the number of Security Industry Authority licensed private security guards” (p.81). The government is responsible for regulating the private security industry and so must keep a record of the number of individuals licenses as security guards, and from this should have been able to establish whether there was capacity in the sector to cope with the increased numbers required for London 2012 (which had risen from 6,500 in the bid to more than 20,000 according to some reports).
  • Indeed, it is hard to believe that the government was not aware of the issue given that in 2011 it created a special exemption through the ‘Bridging the Gap’ (BtG) programme to deal with this issue: “The BtG initiative was developed to ensure that there are sufficient numbers of qualified people in place to support the security operation at the London Olympics.” The Home Secretary was responsible for the terms of this exemption (intended to provide security training to full-time students to make up the shortage in the industry). Further, the Home Office is a stakeholder in the BtG programme. While G4S might be receiving a hammering from the media and politicians at the moment, the problem needs to be put in wider context.
  • Why were penalty clauses not inserted into contract with G4S? One of the questions arising from this situation is why proper controls were not put in place to ensure that the firm delivered the services set out in the contract. This highlights the problem of ‘moral hazard’ all the more because the two actors involved in the contract (LOCOG and G4S) were not exposed to the risk, and government has had to step in to solve the problem when it was not even a party in the original contract — although it clearly was a stakeholder.

In short, given that the Olympics is the largest peacetime security operation that the UK has faced since the war (perhaps ever) and given the unprecedented demand on the private security industry, and given that all this was well known, it is surprising that more questions were not asked about the capacity of the private security industry to deliver the required number of licensed guards (even after special exemptions had been put in place). This is perhaps indicative of an ideological belief (on both sides of the political aisle) in the power of the market to deliver public services, when the reality is that labour markets often work imperfectly and slowly, especially in a specialist sector such as security when the stakes are so high.

Posted by: olymponomics | July 11, 2012

Private security and the Games

It has been revealed that the army has been put on standby to provide extra security staff because the firm with the contract for security at Olympic venues, GS4, has been unable to guarantee that it will be able to provide the number of security personnel it was originally contracted to. This highlights one of the risks of contracting out key services to private firms for major events such as the Olympics which have no room for failure or delay, and might also point to the potential difficulties of the police privatisation threatened by the head of GS4 no less. The problem of moral hazard is not just confined to contracts in the realm of security, however.

Posted by: olymponomics | July 11, 2012

“Olympic-geddon”

Predictably, the crescendo of Olympic risk talk gets louder as the start of the Games nears. The Financial Times reports that:

Ministers on Tuesday were scrambling to avert concerns that London was heading for “Olympic-geddon” amid growing fears that the capital’s transport infrastructure will buckle under the strain of hosting the games, which start in just over two weeks.

As stories accumulate of last minute difficulties with event readiness (such as immigration queues noted above and a potential shortage of private security guards), concerns about the potential consequences for the reputation of London and the UK come into increasing focus. Keeping the media happy is a crucial part of managing Olympic PR. Difficulties with transportation and results systems for the media at the Atlanta 1996 Olympics contributed to negative media coverage of the Games. The UK should have learned its own lessons after the disastrous logistics of the opening night of the Millennium Dome, which left a sizeable media contingent queuing for several hours at Stratford station.

Posted by: olymponomics | July 3, 2012

Talking about the Olympics on NPR later….

I’ll be talking about the Olympics on ‘To the Point’ on NPR/KCRW just after 19:00 GMT tonight.

Posted by: olymponomics | June 12, 2012

Farmyard animals and the opening ceremony for London 2012…

The sheer spectacle of the opening and closing ceremonies of the Beijing 2008 Olympics was always going to be hard to live up to for the organizers of London 2012. As some of the details of the opening ceremony have started to be made public, these offer entertaining parallels between the planned use of farmyard animals (precisely, 12 horses, 10 chickens and 70 sheep) and fictitious proposals for the opening ceremony in one of the episodes of the ABC satire, The Games, that ran before the Sydney 2000 Olympics. As it was, Sydney’s opening ceremony still involved farming paraphernalia such as hay bales…

Posted by: olymponomics | June 9, 2012

Another round-up of risk tales…

With less than two months to the opening ceremony of the London 2012 Olympics, the level of risk discourse relating to the event has gone into over-drive. Here are a selection of media stories over the past few days highlighting ongoing issues with event preparations:

 

Posted by: olymponomics | June 9, 2012

The contracting state and Olympic risks

It has been reported that the firm at the centre of the diamond jubilee row over the use of unpaid stewards on work experience has a £850,000 contract with LOCOG to provide fire marshals at Olympic venues. Aside from the moral issues about the use of unpaid labour for private profit (which are worryingly reminiscent of some of the debates about poor relief in Victorian times), this highlights an inherent problem concerning the reliance of the modern state on the market to provide goods and services rather than direct use of public services (it also points to some of the potential consequences of opening up other sectors such as the police and the health service to private competition). The market is not constituted in such a way to provide an allocation of resources that is optimal to citizens as consumers. The withdrawal of private developers for the Olympic Village for London 2012 at the height of the global financial crisis is an example of the problem of moral hazard in the state contracting out to private firms – who are unwilling to bear risk (handing that back to the state), but still expect to collect the profits. CPUK apparently won its Olympic contract due to its competitiveness on price, whereas its rivals offered more highly trained fire-fighters. Contracting out to private contractors creates a tension between cost-cutting and service-orientation, with potential consequences for risk. This ‘survival of the unfittest‘ is precisely the problem that Flyvbjerg identifies in the selection of contractors for large scale infrastructure and construction projects: with the most optimistic bid having the highest change of winning. Contracting out is not a panacea for better service delivery and is a potential source of risk — privatising profits at the same time as socializing risk. It can also raise questions about the suitability of firms, and investigation of their record for good governance.

Posted by: olymponomics | June 7, 2012

Ambush marketing for the Olympics? Why bother?

The potential for ‘ambush marketing’ is typically a major headache for the organizers of major events such the Football World Cup and the Olympic Games. Perhaps the most famous example was Nike’s promotional campaign at the Atlanta 1996 Olympics which overshadowed the official sportswear sponsor, Reebok. Organizers go to great lengths to prevent businesses who are not official sponsors associating themselves with the event. The first example of protective legislation in the Olympic context was passed for Sydney 2000 (drawing upon legislation from the Australian Bicentennial celebrations in 1988 that had provided safeguards in relation to the commercial use of symbols, words and phrases).

However, recent survey evidence about the companies who are believed to be official Olympic Games partners for London 2012 suggests a fair level of confusion on the part of the British public — with several brands (including HSBC, British Gas, Virgin Atlantic, Mastercard and Pepsi) believed to be official partners despite having no formal link to the event. This highlights first of all that eye-catching ambush marketing ‘stunts’ are not necessary for firms to benefit from the illusion of perceived association with major events. It is also suggestive of a cognitive tendency of (some) individuals to view events such as the Olympics as necessarily related to global brands and commercialism, inhibiting the effectiveness of specific marketing and advertising campaigns – as the public struggle to distinguish between difference messages in the face of an abundant supply of advertising and marketing promotions.

Posted by: olymponomics | June 5, 2012

Mt. Vesuvius and the 1908 London Olympics

It has become conventional wisdom that the eruption of Mt. Vesuvius in 1906 led to the transfer of the 1908 Olympics from Rome to London. This claim appears from time to time. Indeed, I am sure I have repeated it in some of the early articles that I wrote about the Olympics and risk. However, an article by Matthew Llewellyn in The International Journal of the History of Sport sets the record straight on this matter. It notes a lack of progress with preparations at the time of the IOC meeting in 1905 and that the political context — and specifically that financial support had not been forthcoming from Italian government — was the motivation behind withdrawal of Rome from hosting the Games. The eruption of Mt. Vesuvius was used to distract attention from the lack of government support. Perhaps the most convincing evidence for this version of events is the fact that the secretary of the British Olympic Association wrote to Baron Pierre de Coubertin in January of 1906 regarding the possibility of London hosting the Games (requesting an estimate of costs), whereas Mt. Vesuvius erupted in April.

The full citation is: Llewellyn, Matthew P.(2011) ‘A British Olympics.’ The International Journal of the History of Sport 28(5): 669-687.

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