I was at a social event recently when the subject of HS2 cropped up. The debate was ignited by Count Binface’s recent Clacton by-election manifesto commitment to rename HS2 to ‘FFS1’ but suffice it to say, no-one in the room seemed willing to argue for the continuation of HS2. The overwhelming sentiment was that the programme should simply be ‘binned’ (no pun intended): Put down that pickaxe and spade, and just walk away.

The next conversational ripple was a nod to the sunk cost fallacy: Too much has been spent on HS2 already to simply walk away.  “Just think how much money we’d be writing off.” The latest figures from the National Audit Office indicate a spend-to-date of £46.8bn. So sunk cost considerations are not unreasonable – and very typical of big programmes-gone-wrong, but they ignore the much bigger issue.  You cannot simply walk away. Exiting a big programme doesn’t just mean writing off the spend-to-date: The embarrassing part is the additional cost incurred in exiting – further (and substantial) active spend simply to fail.

Just think what would be involved in stopping HS2: The contractual implications alone are mind-boggling, and then add in the questions of what to do with land that has been purchased but is no longer required, infrastructure that has been built but not connected to anything, works in progress that have to at least be made safe. Over 100 million cubic metres of earthworks have taken place, 45 viaducts and 132 bridges have been started, four tunnels have been bored, and 46 miles had been excavated. The implications are huge.

The HS2 programme has actually produced an estimate of how much it would cost to exit: The range is £33bn-£58bn, but – no surprise here – there are a couple of very big buts in amongst the many smaller buts.

The first is the uncertainty in the estimates. For example, the estimate just for “civil asset remediation and make-safe works” is “£13bn to £25bn”; two arbitrary figures on either end of an even more arbitrary range, emanating from a programme with a very long and very unhappy history of underestimating costs.  Doesn’t exactly inspire confidence, does it?

Then there is inflation to factor in, combined with timeframe to exit. The indicative timeframe could be anywhere between five (not a chance) and 15 years (maybe still optimistic), so the cumulative impact of inflation could easily add £16bn to the exit costs. That will compound the estimating issue: If the £58bn figure turns out to be underestimated, so too will the inflation impact on whatever the true figure turns out to be.

What it all adds up to is literally £47bn spent + £58bn to exit + £16bn of inflation = £121bn. That’s more than the current estimated spend-to-completion – £102bn.  So HS2 could now cost more to scrap altogether than to complete. The bottom line is that the HS2 programme has passed the point of no return. Whatever form the outcome eventually takes, given all of the compromises and concessions to date, HS2 in some form will have to complete. It is trapped, not by sunk costs, but by exit costs.

Think this only happens in multi-billion pound UK Government infrastructure programmes? Look at the corporate world – even your own programme – and you’ll find the same effect. Take as an example the multi-million pound, 5-year contract for the Software-as-a-Service platform that the organisation still hasn’t implemented two years after the contract was signed, and from which there is no easy exit.  Exit costs frequently outpace sunk costs less than 12 months into the programme.

So what does all of this mean for the governance of a typical high-stakes corporate programme? It’s not really about the sunk costs, it’s about the exit costs, and there are three aspects to managing them: