I was wondering why the costs involved in public infrastructure mega-projects often seem to rise way beyond the original estimates?
The reason might involve the following:
Not running the project correctly and allowing costs to rise
Not estimating the costs correctly during planning
A study by Bent Flyvbjerg – an economic geographer and urban planner, who presently holds the chair as BT Professor of Major Programme Management at Oxford University’s Saïd Business School and is Director of the University’s BT Centre for Major Programme Management, has some thoughts on the estimating part.
In 2002 his team performed the first statistically significant study of cost escalation in transportation infrastructure projects. The study was based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods.
Here are some of the findings:
First; think for a minute about Cost Estimation. Incorrect estimates can be grouped into four basic types:
(Imperfect techniques, inadequate data, honest mistakes, inherent problems in predicting the future, lack of experience on the part of forecasters, etc).
(Balancing project stakeholder’s self-interests against the general public interest. It obviously suits the project team to press ahead and overspend, than to have a project canceled before it begins due to an unacceptably high initial estimate).
(Usually caused by a bias in the mental makeup of project promoters and forecasters. Politicians may like to build grand monuments, engineers like to build things, and local transportation officials sometimes like to build their empire with nice new infrastructure).
(Are forecasts intentionally biased to serve the interests of project promoters in getting projects started?).
Let’s jump straight to the conclusion of the report:
“We conclude that the cost estimates used in public debates, media coverage, and decision making for transportation infrastructure development are highly, systematically, and significantly deceptive. So are the cost-benefit analysis into which cost estimates are routinely fed to calculate the viability and ranking of projects”.
Underestimation cannot be explained by error and is best explained by strategic misrepresentation; that is, lying.
And the key recommendation is that “You should not trust the cost estimates presented by infrastructure promoters and forecasters”.
This is one more example of the things we, as Project Managers, need to be aware.