Time and Time again, we often hear about and see news about various projects that are getting taken on … often with outrageous price tags attached to them. Most of the time, the price tag is mentioned merely as a footnote to the project or touted as the headline about how grand the project actually is.
At the more local level, a 6.4km stretch of road comes in at a hefty $156 Million (AUD) … $24 Million per kilometre. When we get to other or more exotic projects, the costs are just as impressive.
Solar Farms cost between $350,000-$500,000 thousand per acre. [1]
Windfarms can cost $1.3-$2.2 million per MW. [2]
James Webb Telescope … 10 Billion, initially given a $1 Billion Budget. [3]
F-22 Raptor Unit cost between $206-$216 Million … per airframe [4].
Now … even I know not everyone is after a space telescope or a military fighter plane, but the dollar costs associated with them are interesting … particularly when you look at where and why money gets spent the way it does.
But firstly, why even look at how much something truly costs to make happen? I mean who cares right? Take a dart-board … guess a number and multiply by pi … instant cost estimation!
I should say right here, I’m no project manager and if you want a qualified opinion, this probably isn’t the place to get it. But time and time again, we constantly hear about a project … or government project cost overruns … by people who we’d expect to know their stuff … by people we expect to treat our money with some form of respect.
“How can they be so bad at it? I could do better! It can’t be that hard right?”
Well … having given things a token try for an idea that is brewing behind closed doors, I can say that that its not really about things being ‘difficult’, but more to do with things you could easily overlook.
So, if you think getting something new or exotic done is about a napkin sized drawing, a trip down to the hardware store and a weekend with the power drill … for a few hundred bucks and a six pack … this article will not support your belief. Think you can get family to come around and knock it out of the park in one afternoon … sorry, but you’re wrong.
Here are just a few things to think about.
The work … before the work
Designing something on paper is pretty straight forward. Anyone with the right education or appropriate field of knowledge can figure out how to design something that can achieve its functional purpose.
But taking things forward is much, much more difficult.
Taking care of the soft work is something that most people can take care of. Whether it’s on a notepad, laptop, iPad … choose your weapon, being creative … ‘doing the math’ is one thing, but bringing something to life … that’s where things start to get serious!
Want to build something? Where you gonna do it?
As someone who lives in an apartment building, you can probably imagine there is very little [no] scope to pillage common space to do work with cold steel, and its relatively frowned upon to try and do any sort of welding work on your balcony. If you have a house … a garage … a shed … you’re in a better place, but you’re still going to be limited to what ‘you’ can do.
You want space? Start looking at a warehouse! Rent should [unverified] be in the order of about $200/sqm. Need 300sqm? You’re now talking about $60,000 per year in rent. Wanna buy that warehouse instead? Factoring in a 6.5% rental yield for commercial real estate … $924,000 … just to get your private playground.
Need Tools? Cha-Ching!
Need Plant? Cha-Ching!
Need Help? Cha-Ching!
Payroll? Cha-Ching!
The money just to taxi onto the proverbial runway is out of reach for 99.999% people! So much for the backyard inventor.
Related: Why is it so hard to start a Business?
Tools and Testing
In the same way that a butter knife is not a screw driver, Tools, and Tooling bring their own costs to the party.
Ideally, everything could always be rented off the shelf. If and when you need something that is going to have ongoing use … an asset into the future, you buy.
But what about the situation where the tools don’t exist? Now you need to get those tools made. What happens when you need precision parts, where tolerance needs to be tight? Molds and supporting tools come with hefty price tags.
What happens when there are consequences to failure? Testing, testing, testing and more testing. More test units and products, each of which contributes to overall capital expenditure before ever getting close to going to market.
Volume
The entrepreneurial rule of thumb is to always, look for or identify something simple, cheap and something that you can sell over a million units of. Ya know … a fidget spinner! (genius)
As the opening examples listed at the top of the article hint at – we’re not looking at high volume trinkets. We’re more interested in industrially, or scientific style projects here … ones with eye boggling price tags.
When volume is low, the entire capital and operation expenditure going into it, needs to be factored in. Off the top of my head, there is no better example than the airline industry. In contrast to the automotive industry where cars have a lifespan of 7 years, and sales volumes of tens or hundreds of thousands of units … aircraft need to remain serviceable for decades.
New technologies that offer better production and efficiencies to reduce the cost to the airline and the traveller, cost big bucks that always gets spread out over the minimum volume needed to make profit, before generating further profit before the next major advance.
Logistics
Okay, building something is one thing. But things are not always going to be built on site! In fact, that would be the rarity.
Being able to assemble something is one thing, but only after it’s delivered.
First it has to arrive … another cost that needs to get factored in … something worth considering at the design stage. For road transport … can parts fit onto a 1000 x 1200 pallet?
Can’t break it down that far? Will it fit into a shipping container? Are parts or machines just going to be allowed to rattle around or will they need load bearing infrastructure to travel with them?
Cha-Ching!
Scaling up
So now that your invention works, and you’ve made the first few to validate your concept … lets assume that every component got to be outsourced to third party manufacturing.
What happens if the business case to scale up – stacks up?
How much does labour cost? Skilled workers in a tight labour market … $100k each? Payroll starts to stack up (or so I imagine)
What about owning all that machinery and tooling?
Failures & Corrections
Unfortunately, not everything works the first time! Things go wrong! Having one unit is not always going to be enough.
What about destructive testing? NASA made their commitment to safety pretty clear when they tested the SLS tank to the point of failure [5]. Just a cursory look at the photo shows clear dollar signs.
The materials, labour, countless man-hours to build, the test facility, instrumentation … millions … tens-of-millions of dollars just to find out how far you can push the limits before things go ‘pop’
And that is a deliberate case. What about the cracks that show up when they shouldn’t? what about the flawed design that made it to market that needs to be fixed?
Replacing failures is more to do with identifying the cause of a fault, creating a fix and then rolling that out. But it should be noted that it would be rare to be able to correct a single fault in isolation.
Fixing one part, that is part of a greater system means, that the smallest change in one place, integrates with everything else around it.
Related: The Nuclear Fusion Fantasy
Scope Creep
Perhaps one place where money goes pouring down the drain is in scope creep. We all know it or have come across it.
It where once something has started, some bright spark comes up with the idea … ‘how about we put this in!’ or ‘how about we make that work like this!’, while everyone else’s blood starts to boil whilst thinking … ‘its too late to change it … work has already started!’
Changing the proverbial mission once its started is something that soldiers are used to. Its called ‘being ****** around’. But doing it in the middle of a large-scale project, is the fastest way to bring any sort of physical work to a grinding halt, while all the soft work has to start again to accommodate changes that were never discussed on day 1.
Governments seem to be great at this sort of stuff!
Maintenance and Upgrades
… and if all of that wasn’t enough … there is maintenance and upgrades.
Let’s face it, more and more often, what you see or think of today isn’t going to be the final vision or final version. The first incarnation of any vision is likely going to change. In fact, version 1 shouldn’t even be the attempt for perfection.
Often, version 1, will be the hodgepodge smashing together of bits and pieces just to prove that it can be done. Version 1 will already have allowances for upgrades to get it closer to the final vision. Version 1 may have so much load bearing chewing gum and sticky tape that the majority of it will end up being replaced.
Speaking of things needing or planning on being replaced. As long as anything does some form of mechanical work … parts wear out. Here too things need to be replaced with other consumable items … just yet another ongoing cost that needs to be predicted into the future.
The final word
… urghh … I’m the first one to look at price tags and ask, ‘how?’
Here’s the thing, not everything out there is as exotic or as sexy as one of Elon Musk’s, NASA’s or some cutting edge military project that costs exorbitant amounts of cash.
More often than not, it will be something far less attractive and far less exciting like … a road, a rail line … a bridge … a recycling plant, that would make the vast majority of people question how the hell they could cost so much to get going.
I’m not in the business of defending decisions or price tags, but as a pragmatist and realist … just daring to take a look into anything worth doing, only shows that … anything worth doing aint easy … nor is it cheap!
- https://8billiontrees.com/solar-panels/solar-farm-income-per-acre/
- https://www.windustry.org/how_much_do_wind_turbines_cost
- https://usafacts.org/articles/how-much-did-nasas-james-webb-space-telescope-cost/#:~:text=The%20Webb%20telescope%20was%20initially,through%20the%202021%20fiscal%20year.
- https://veteranlife.com/military-news/f-22-raptor-cost/#:~:text=With%20these%20figures%2C%20the%20F,is%5D%20approximately%20%2488%20million
- https://www.nasa.gov/exploration/systems/sls/nasa-engineers-break-sls-test-tank-on-purpose-to-test-extreme-limits.html