Underestimating Costs in Public Works Projects:Error or Lie?

Abstract

This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth $90 billion (U.S.), it is found with overwhelming statistical significance that the cost estimates used to decide whether important infrastructure should be built are highly and systematically misleading. The result is continuous cost escalation of billions of dollars.The sample used in the study is the largest of its kind, allowing for the first time statistically valid conclusions regarding questions of cost underestimation and escalation for different project types, different geographical regions, and different historical periods. Four kinds of explanation of cost underestimation are examined: technical, economic, psychological, and political. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, i.e., lying. The policy implications are clear: In debates and decision making on whether important transportation infrastructure should be built, those legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust the cost estimates and cost-benefit analyses produced by project promoters and their analysts.

Uncertainty in environmental impact assessment predictions: the need for better communication and more transparency

“…It does not need much stretch of the imagination to see that the alternatives can be presented in such a way that the most favourable alternative, from the developer's point of view, appears to be the best, or possibly the only, choice (intentionally or unintentionally). Flyvbjerg et al (2002) discuss whether the systematic underestimation of costs in public projects is a result of errors or lies. Costs were underestimated in 90% of the 258 transportation infrastructure projects in their study.…”

Confidence Calibration in a Multi-year Geopolitical Forecasting Competition

“…Overconfidence affects the judgments of physicians (Oskamp 1965), entrepreneurs (Cooper et al 1988), bridge players (Keren 1987), government planners (Flyvbjerg et al 2002), investors (Statman et al 2006), and basketball players (Jagacinski et al 1977), to name but a few examples. Research has identified overconfidence in tests of declarative knowledge, bets, and predictions of the future (Ben-David et al 2013, Massey et al 2011.…”

Caracterização da gestão de fatores de risco em projetos de infraestrutura

“…In the study conducted by Flyvbjerg et al (2002) when examining transport projects found that 90% had the cost overruns. Meng (2012) found, as a result of his research that 35.6% of projects are not completed on time and that 88.2% have some type of defect.…”

“…In this research, the analysis units chosen were economic infrastructure projects whose risk management processes, and subsequent performances, are far from the desired (McKim et al, 2000;Flyvbjerg et al, 2002;Shenhar & Dvir, 2007). In this way, five cases have been selected and evaluated by the technique of synthesis of cross cases (Yin, 2015).…”