McKinsey: Australia’s infrastructure innovation

By Georgia Wilson
Business Chief APAC, takes a look at how Australia can drive infrastructure innovation within the country...

“For 30 years, Australia has helped lead innovation in infrastructure planning, financing, and delivery. New challenges now create a need for change in prioritisation, design, and productivity,” commented McKinsey in a recent insights report. 

Being among the most advanced economies in the world when it comes to effective collaboration between the public and private sectors to deliver transport, energy and social infrastructure. McKinsey details that the country “has also become a leader in private infrastructure investment, as managed funds seek opportunities in a sector that makes a major contribution to the Australian economy in jobs, growth, and exports [...] however, challenges—especially around Australia’s ability to meet infrastructure demand—are set to intensify in the future. Australia’s population is projected to grow to 40.6 million in 2050, largely driven by growth in two major cities, Sydney and Melbourne.” 

In order to meet the demands that will come out of this rapid urban population growth, “Australia is investing in transport, utilities, and social infrastructure at an unprecedented scale, with investment in projects with value greater than US$35.8bn climbing from around US$18.6bn in 2016 to an estimatedUS$55.1bn in 2020.”

When it comes to technology-led disruption within mobility, McKinsey explains the challenges faced in Australia include:

  • A clear need to reassess traditional commercial models
  • Stagnating productivity
  • Expected skill shortages
  • The impact of major concurrent projects on city residents 

“In the face of such emerging issues, there is an urgent imperative for participants in Australia’s infrastructure sector to innovate across six dimensions,” explains McKnisey.

These six dimensions include:

  • Future proofing new assets and investments: “technology, digital, and data analytics are disrupting urban mobility, leading to uncertainty around future investments—and opening up new possibilities for constructing and operating infrastructure assets,” noted McKinsey. Who is seeing new trends - such as electric and autonomous vehicles, vehicle charging infrastructure, curb modifications, smart-city technology, the future of work, and increased regulation and awareness of climate impact is resulting in a clear uptake of these solutions. “Delivering this vision will mean developing scenarios around the impact on transport infrastructure demand and translating them into future-proofed strategic prioritisation of capital and resources at the portfolio and project levels.” added McKinsey.
  • Rethink project selection and prioritisation: “current project development and assessment processes do not facilitate rapid, needs-based prioritisation,” commented McKinsey. “Meeting future infrastructure needs will also mean being more ‘shovel ready’ by going to market with the right projects more quickly.”
  • Drive value through design: “increasingly complex projects expand the difficulties in preventing cost overruns and delays, highlighting the need for a more innovative approach at the project design stage,” added McKinsey, who explains that currently, decisions are often taken from a capital works perspective rather than a whole-of-life optimisation frame. “There can often be a lack of integrated perspective and ownership, leading to poorly considered decisions that destroy project value [...] ways forward include combining an agile approach with design-to-value methodology; using a rigorous framework for progressive, continuous, and stage-gated design; and industrialising aspects of the design process.”
  • Innovate the commercial framework: As the scale, risks and costs of bidding associated with transport-infrastructure projects increase, McKinsey suggests “contractors and suppliers consider contractual structures and incentives to be the principal hurdle to achieving productivity on projects—transaction complexity and regulatory burden add unnecessary cost and delays and prevent high productivity. Additionally, multiple, concurrent construction projects can cause significant disruption for communities. To address these issues, stakeholders could consider streamlining the regulatory burden, increasing collaboration in contracting, reforming the tender process to promote competition, and bundling contracts to take advantage of economies of scale.”
  • Build industry capacity and capability: Currently within Australia there are capability and capacity shortages when it comes to the personnel needed to plan and deliver new infrastructure projects. Following analysis of three potential future scenarios, McKinsey found that “Australia could potentially need an additional 260,000 to 385,000 infrastructure construction workers over the coming years, if the projected pipeline materialises. There is an immediate need for more skilled workers, likely to be exacerbated by the coming ramp-up of mining production—potentially leading to labour inflation.”
  • Boost productivity through technology: “Stagnation in construction productivity results in high costs for taxpayers and significant project margin erosion for contractors globally,” highlights McKinsey, who believes that improving onsite execution via optimisation practices could help boost productivity by 10%. “This focus is fundamental and needs to underpin all efforts in boosting productivity. However, we do not believe it will be enough; the sector will need technology to help it make the change necessary to bridge the productivity gap.” 

To find out more and read the full McKinsey insight report, click here!

For more information on business topics in Asia Pacific, Australia and New Zealand, please take a look at the latest edition of Business Chief APAC.

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