Five Things You Should Know About Project Cost Overruns

The Five Things You Should Know about [hashtag#Programme and hashtag#Project] Cost Overrun by Prof. Bent Flyvbjerg, Atif Ansar, Alexander Budzier, Søren Buhl, Chantal Cantarelli, Massimo Garbuio, Carsten Glenting, Mette Skamris Holm, Dan Lovallo, Daniel Lunn, Eric Molin, Arne Rønnest, Allison Stewart and Bert van Wee.

Make no mistake programme and project cost overrun is caused by human, psychological and political bias to underestimate costs. For example, the 2017 business case for the Cross River Rail project was estimated to cost $5.4 billion with a 90% probability that budget would not be exceeded. This has recently been revised to cost $19 billion, which represents a 252% cost overrun.

It also represents 213% outlier over the average cost median overrun of other rail projects (39%) from across the world. Source: “How Big Things Get Done”, Bent Flyvbjerg and Dan Gardner. No wonder authors Brett Tetlock and Dan Gardner say in their “Superforecasting”, the average [forecaster] was roughly as accurate as a dart-throwing chimpanzee.

When undertaking ex-ante investment appraisal, Bent Flyvbjerg and Dirk Bester have found “most cost-benefit analysis assume that costs and hashtag#benefit estimates are more or less accurate and unbiased. Yet most estimates because of the planning fallacy and Hofstadter’s law are highly inaccurate and biased.”

Like Bent Flyvbjerg and Dan Gardner say in “How Big Things Get Done”, ‘If anything, the biggest is at least as exciting as the accolade of being the first, the highest or the longest [capital] project. It always gets you into the news!”

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