The California High-Speed Rail, which was supposed to have been completed in 2018, is ongoing and still has a long way to go. The costs incurred by the project are higher than anticipated and are projected to increase with time. This paper looks at the costs, the risks involved, and the measures that the authority responsible for the project can take to ensure that the project succeeds. The research proved that cost overruns are caused by poor planning, poor contract management, poor oversight, and poor managerial skills. The project is at risk because many people, including the taxpayer, the local government, and the federal government, have lost confidence in the project, with some calling it “a train to nowhere.”
Introduction
Construction continues on the California High-Speed Rail system. Due to the fast speed of electronic passenger trains, the system is expected to completely revolutionize regional transportation (Wheeler et al., 2021). For instance, a trip from San Francisco to Los Angeles and Anaheim via Central Valley will take less than three hours. This venture is owned and operated by the California High-Speed Rail Authority. Voters in California were presented with the proposal to create the rail system in 2008, and after receiving approval, the building began in 2013. Voters also gave the go-ahead to issue a $10 billion bond to fund the rail project (Hardiman, 2020). Beginning with an initial outlay of $3.5 billion, the government provided crucial funding for the rail’s construction (Hardiman, 2020). The funds were earmarked for paying for necessities like food and labour. On schedule for completion in 2022, the first operational section between Bakersfield and San Jose Diridon Station is scheduled to open in 2027, while the entire first phase between Anaheim and San Francisco is scheduled to begin operation in 2033 (Deakin, 2017). The second phase of the rail’s development, which will bring it to San Diego and Sacramento, is still in the planning stages. The California High-Speed Rail Authority expects the expenses to be $77 billion, up from the initial projections presented to voters in 2008 of $33 billion, which ranged from $53.4 billion to $68.4 billion (Deakin, 2017). This paper aims to examine the project and offer suggestions for mitigating costs and minimizing risks.
Project risk and Cost Analysis
Analysis of projected costs
There have been delays in the project over the past few years, and the original deadline of 2022 for completion of the passengers on the rail has been pushed back. As the building has progressed, project managers have requested additional funding, claiming that the initial budget was inadequate. Some voters who authorized the rail system’s development now argue that the money would be better spent on something else. People argue that the project has only helped California by providing employment opportunities (Gilmore, 2007). Due to the problem with cost overruns, the previously established project dates have also been advanced.
Continued cost overruns are a direct result of incompetent management. In project management, a cost overrun occurs when actual project expenses are higher than those projected at the outset (Brueggen and Luft, 2013). The entity in charge of the project reportedly needed more land secured where the rail was to pass before the building began. The authority also needed to have a plan for moving the utilities, and it did not consult with anyone who would have had a say in the matter. A total of $600,000,000 in extra expenses was tacked on to the price tag for the three Central Valley projects because of mistakes made due to a lack of knowledge or attention to detail (Dandy et al., n.d). Managers usually make sure that everything is in order, but in this case, they need to know what they are doing. Therefore the budget for the project ballooned dramatically.
Poor management by those in charge is blamed for the project’s ballooning budget (“Cost Overruns, Poor Oversight Plague California Bullet Train,” 2018). When outlining the project and presenting it to the public, the authorities needed to consider its potential consequences. Considering how much has already been spent, it is clear that the authorities failed to adequately weigh the benefits against the risks associated with this massive undertaking. Since it has never fully appreciated the gravity of the crisis, it is now spending taxpayers’ money to fix problems it initially overlooked. To exercise oversight of a project implies investigating it to foresee possible difficulties.
In many cases, this knowledge aids project managers in becoming ready for particular difficulties. Avoiding budget overruns requires planning for the worse, even if the expected problems never materialize (Flyvbjerg and Budzier, 2019). The end of a project is a possible consequence of insufficient supervision. Many people whose tax dollars are being used to fund this endeavour believe that the money and other resources would be better used elsewhere. Among those who say they support the project, only 31% said they would be prepared to keep paying for it.
Poor planning meant that work began on the project before the authorities had fully considered all of the limitations. In order to get desired results, careful planning is required. Frustrations from a lack of planning can ultimately lead to the project’s cancellation. The project manager determines the endeavour’s scope and resources, duration, budget, milestones, and deadlines (Ulusoy and Hazır, 2021). The planner’s level of realism is fundamental at this point since the project’s funder or those directly impacted by the project must understand what they agree to. For instance, it is crucial to set reasonable expectations for the budget (Megahed, 2022). The cost projections given by the planners for the California High-Speed Rail project were inaccurate. Much error went into the estimate, and now it is double what it was. Taxpayers and voters who approved the project were told it would cost $33 billion, but the current estimate is $77 billion, with the chance of it climbing to $98 billion (Leslie, 2022). The most likely reasons for this kind of mistake are a lack of study by the planners or a reduction in the amount proposed to win support for the project through the popular vote. The deadlines for deliveries must also be specified practically. Planners for the California high-speed rail project messed up the projected completion dates. Initially scheduled for completion in 2018, the project’s timeline has been moved back to 2022. In a nutshell, the corporation is having so much trouble because the planners of the California High-Speed Rail project were unrealistic in their expectations (Godawatte, 2021). Unfortunately, Californians had such high hopes for the rail project as it would have boosted the national economy and assisted the state’s residents.
One of the explanations for the price increases is careless contract management. Contract management aims to improve the project’s economic and operational outcomes by overseeing the drafting, negotiating, and fulfilment of all contractual obligations (Kimmons, 2017). For example, the California high-speed rail project negotiates contracts with a wide variety of vendors, including the landowners through whose property the rail would be built. The firm ran into trouble getting a right-of-way through the Central Valley, which caused the delay. The time and money spent securing those rights may have been put toward other aspects of the project instead. As securing the right-of-way across the Central Valley was not initially planned for, the project authority had to make do with what was at hand. Overruns resulted from the large sum of money set aside to address the Central Valley crisis. Overruns in the Central Valley have tallied over $600 million. The authority did its due diligence in obtaining the right-of-way for the rail line, it showed up to begin construction, and it was confronted with lawsuits, all of which had to be settled before work could continue. Construction is now underway in the Central Valley.
Analysis of the project risks
There is a substantial probability of failure for the project. The people of California and their current governor are among many who have lost faith in the enterprise. According to a recent poll, 69% of respondents want to see the project scrapped, while only 31% favour it (Vartabedian, 2018). As it is, the project is costing an outrageous $44 billion. Many people are worried about the project’s future because of the $77 billion expected to cost shortly and the $98 billion it could cost. The large expenditures incurred during construction will need to be recouped after the project is completed, but this will require a significant increase in resources allocated to the endeavour (Tong, Linderman and Zhu, 2022). To make up for the fact that the high-speed train will not be run on government subsidy, the government will surcharge the taxpayer for each passenger. The rail has already cost the government a significant amount of money during construction, and future maintenance and operations are expected to cost even more. There needs to be more appreciation for it. When considering whether or not to construct a high-speed rail system, California looked to other countries that already had one (Sun, 2022). It was enticing to consider the project’s potential rewards. There will be immediate benefits, like the creation of new jobs, and long-term ones, such as the facilitation of trade between the places linked by the train’s improved accessibility.
Cali’s current governor, Gavin Newsom, has acknowledged the difficulty of building a train line from Sacramento to San Diego and San Francisco to Los Angeles (Brown et al., 2021). There is clarity about where the rail is supposed to go, so there is a significant possibility that its construction will be halted. The route was overlooked during the design phase since it was anticipated that landowners would gladly allow the rail to run through their property. Preparing a corridor for the train line will incur substantial costs. The state government is understandably concerned about securing the necessary permits to build the rail line because it already cost $600 million to map out the rail route only in Central Valley (McCurdy, 2019). Landowners who do not want the rail built across their property will file several lawsuits as the route is mapped out. Some have even dubbed it a “train to nowhere” due to its apparent doom.
By that time, Donald Trump will have been elected president of the United States of America, and he shows no signs of being enthusiastic about constructing a high-speed rail system in the country (Liang, 2022). His description of the train project as a “green disaster” indicates that he thinks environmental concerns would undermine the plan. His opinion is shared by many, who worry that the train will ruin the area’s natural beauty. Numerous people oppose the rail project because of the widespread destruction of land and because they do not believe it contributes to the goal of sustainable growth that the country strives to reach (van Zanten and van Tulder, 2021).
The likelihood of losing money is great because so few people are invested in the project. In addition to labelling it a “green disaster,” Trump also asked that California pay back the $3.5 billion in federal funding for the project. Now that the federal government is demanding repayment of its rail construction funding, the state will have to explore alternative funding options if it wants to complete the project (Singla, Shumberger, and Swindell, 2021). Most government officials are likewise against building the rail due to its prohibitive price tag. Representative Kevin McCarthy (R) of California is one of the government authorities against the proposal. Governor Gavin Newsom’s implication that the rail would travel no discernible route prompted Congressman Kevin McCarthy to express his relief that the “train to nowhere” would soon end (Daniels, 2018). It will be challenging for the state government to get funds if neither the federal government nor the people are enthusiastic about the project’s continuation.
Many believe it is too late to abandon the idea, even though most people are uninterested. There is no sense in cancelling the project because so much has been spent. People worry that if the project is terminated now, it will imply that taxpayers wasted more than $40 billion (Lerner, 2020). However, the money and other resources already invested will be well-spent if the project is completed. Workers at the rail would also suffer if the project were to be halted. Some of these people depend entirely on their salaries from their current work (Gray and Suri, 2019). Some people are intrigued by the prospect of a high-speed rail system. Some have cited the convenience of a high-speed rail to support its construction. People who fear flying or driving slowly may find this idea appealing. Though Governor Newsom does not appear to be too enthusiastic about the proposal, he has not ruled it out. Because of this, he felt compelled to let the public know that the project was improbable to be successful. He did not want to stop it; instead, he wanted to tell people the truth about the initiative so they would not be disappointed or frustrated.
Recommendations
The authorities should perform a cost-benefit analysis to determine whether or not the project should be continued now that there are doubts regarding its potential benefits. The report needs to consider the project’s short-term and long-term costs and potential benefits. It should also examine countries with high-speed rail systems and study the benefits communities enjoy and the country as a whole from having these systems in place. The federal government has to see evidence that the project will benefit the economy before it is willing to continue funding it. It must also show the community that the investment will be worthwhile by demonstrating how the project will improve their quality of life.
It would appear that the California High-Speed Rail Authority needs to be fixed. The proper authority must halt the project for a predetermined period to formulate a strategy before the project may resume. The incomplete nature of the project’s planning phase is likely to blame for its lack of progress so far. No matter how high the final cost estimate may be, the authority must still report it to the relevant parties. Open communication is also crucial here. Since they were never provided with all the information they needed to make an informed decision, the people have been left with false hopes and are now demanding that the project be scrapped. They would not feel remorse now if the truth had been told to them from the start.
The authority must discard the current timeline and create new, more practical ones. Instead of setting a longer date, the authority should look for a shorter target that the company is confident it can meet. Even though it is essential to set reasonable expectations, the company should not let the fact that it has plenty of time to finish the project come across as a lack of commitment to the deadline.
The authority must also consider the route taken by the train. Get in touch with the landowners and get the right-of-passage through their property. Landowners willing to donate land for the rail project should be compensated for their efforts. The government can only take land legally owned by an individual with compensation, even if the government claims that the owner will profit from the rail somehow. To prevent a repeat of the problems that arose in Central Valley, the land dispute must be resolved before the building can begin. It will prevent frivolous litigation, which can be expensive and cause further delays in the project.
Since taxpayers are also footing the bill for the project, the authority must answer to them as a stakeholder group. As it is, some public members believe that the authority is mismanaging funds and that the project is not contributing to the greater good of the community; therefore, establishing a system of accountability among those in positions of power is crucial. The federal government, which is currently demanding that money be allocated to the state government over the construction of the rail because it does not see how the project will benefit the country, can be persuaded to fund the authority if it is held accountable for its spending. Since it will have to explain to its stakeholders exactly how it used the money, it will be much more challenging to misappropriate it if it is held accountable for the funds. To instil trust in the project’s success and to provide some structure for its implementation, there must be a detailed strategy for spending all of the allocated monies. It must also demonstrate that the funds were applied appropriately to prevent unexpectedly high expenses.
The authority must consider sustainable development if it wants more people to back the project. In this section, the report analyzes how the project would affect local ecosystems. Finding an environmentally friendly method of producing the rail is a priority. Trump warned that the project would harm the environment, and many others share his concern that valuable natural resources will be lost during the rail’s construction. While it is impractical to expect no resource loss from the train line, the plan is to have as little impact on the land and its resources as possible.
Hiring contract managers will also be necessary, as this was a significant contributor to the cost overruns. These supervisors should have previous relevant work experience. They will know how to handle the situation to ensure that the contracts go off without a hitch because of their prior experience with similar circumstances. In light of concerns that the authority’s current contract managers may have something other than state residents’ and taxpayers’ best interests at heart, it may be time for the authority to consider hiring state employees instead. These contract managers will monitor things to ensure everyone follows the rules.
After the strategy stage is over, the actual execution can begin. At this point, the authority must make good use of the cash by staying within its budget. Not only should unnecessary procedures be abandoned, but staffing levels must also be adjusted to reflect the actual volume of work being performed. The authorities should ensure that two persons are not working on a project that only needs one person’s attention. Reducing the number of employees is one way to save money. Additionally, the authority must provide the affected employees with one month’s notice before the layoff date.
Conclusion
This study analyzed the risk and cost incurred due to the project risk and implementation of the high-speed rail project in California, which has been very costly to taxpayers and has taken far longer than anticipated. Poor planning was shown to be the root cause of the time and money spent on the project. It also needed to account for the cost of constructing a high-speed rail system. The study also provides some suggestions for enhancing the project’s final result. If the authority returns to the drawing board and creates a decent strategy, the project will benefit the inhabitants and the country.
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