Jim Letourneau's Blog

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Mega Project Timing

My rule of thumb for determining the cost of large scale engineering projects is to multiply the current cost estimate by 1.5. My reasoning for this is straightforward, the costs of materials and labour are steadily rising.

Today we find an 18 month old cost estimate for the Mackenzie Valley gas pipeline project coming in at $7.5 billion. Although some analysts are predicting a double from the original estimate of $5 billion I’d expect the project to exceed $11 billion based on my rule of thumb. It takes great effort just to get to the cost estimate stage so we’ll have to wait many months to see what the revised cost estimate is (and then we will multiply it by 1.5).

A common issue with mega projects like the Mackenzie Valley pipeline is that nobody in their right mind would pay to have them built several years ago when they would be cheaper to build. When the demand is greatest for a pipeline project, the costs go through the roof.

Cost questions dog Mackenzie pipeline project