Hey Reader,
To fund or not to fund?
Major infrastructure decisions are often presented as binary: approve the project or reject it.
But when costs, approvals, funding contributions and delivery conditions are still evolving, neither choice may be responsible.
The better decision may be to:
- fund design but not construction;
- secure land and approvals before committing the full capital;
- proceed with an enabling stage;
- make later expenditure contingent on confirmed demand or co-investment;
- defer the project without abandoning it.
Not receiving all the funding upfront creates risk. But committing the entire project before the evidence is mature can create greater risk.
Cost escalation is the obvious example.
I know numerous projects that secured funding and then experienced substantial cost increases. COVID was exceptional, but the lesson is broader: funders may acknowledge that conditions have changed without increasing their contribution.
A funding agreement is not cost escalation insurance.
This means applicants need to be careful about the scope, timing and delivery commitments they make before key uncertainties have been resolved.
But staging also has consequences.
Why invest heavily in planning, design and customer engagement if the project cannot proceed without external support? How much early expenditure is reasonable? At what point does further preparation become stranded effort?
These are not simply project management questions. They are investment decisions.
I recently presented at a national water conference on this theme. Strong investment decisions do not pretend uncertainty has disappeared. They make the assumptions, risks and trade offs explicit and define what must happen before the next commitment is made.
The applicant’s dilemma
Applicants often feel pressure to present certainty because they fear unresolved issues will weaken the proposal or they might not get the full funds to deliver works.
This can lead to optimistic delivery dates, assumed contributions, understated approvals risk and a fully formed solution before the evidence is mature.
The result may be a compelling application built around commitments that later become expensive or impossible to unwind.
The funder’s dilemma
Funders are being asked to commit scarce public money while accepting risks they cannot fully control.
Their question is not only:
Is this project worthwhile?
It is also:
Is the commitment being requested proportionate to the evidence available, and can the applicant credibly deliver what it is promising?
The responsible answer may not be a complete yes or no. It may be a staged commitment with clear conditions.
This is where current funding rounds often let applicants down.
A practical decision statement
This can be used for internal approval and may also be useful when seeking external funding.
We recommend committing / are applying for [the immediate stage] now because [the supporting evidence].
We will seek the next commitment, when [the defined trigger] is met.
If that trigger is not met by [the relevant point], the project will be reassessed, reshaped or deferred.
An example:
Complete design and approvals now at a cost of $50k. Commit to construction only when a minimum 50% co-funding is approved, land access is secured and the cost estimate has been independently tested.
This approach does not eliminate uncertainty, it makes the decision more honest, more governable and easier for applicants, executives and funders to defend.
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Cheers, Simon.
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