Mega-Projects' Cost Performance and Lock-In: Problems and Solutions (original) (raw)
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How common and how large are cost overruns in transport infrastructure projects?
Transport Reviews, 2003
Despite the hundreds of billions of dollars being spent on infrastructure development Ð from roads, rail and airports to energy extraction and power networks to the Internet Ð surprisingly little reliable knowledge exists about the performance of these investments in terms of actual costs, bene®ts and risks. This paper presents results from the ®rst statistically signi®cant study of cost performance in transport infrastructure projects. The sample used is the largest of its kind, covering 258 projects in 20 nations worth approximately US$90 billion (constant 1995 prices). The paper shows with overwhelming statistical signi®cance that in terms of costs transport infrastructure projects do not perform as promised. The conclusion is tested for dierent project types, dierent geographical regions and dierent historical periods. Substantial cost escalation is the rule rather than the exception. For rail, average cost escalation is 45% (SD=38), for ®xed links (tunnels and bridges) it is 34% (62) and for roads 20% (30). Cost escalation appears a global phenomenon, existing across 20 nations on ®ve continents. Cost estimates have not improved and cost escalation not decreased over the past 70 years. Cost estimates used in decision-making for transport infrastructure development are highly, systematically and signi®cantly misleading. Large cost escalations combined with large standard deviations translate into large ®nancial risks. However, such risks are typically ignored or underplayed in decision-making, to the detriment of social and economic welfare.
What Causes Cost Overrun in Transport Infrastructure Projects?
Transport Reviews, vol. 24, no. 1, pp. 3-18, 2004
Results from the first statistically significant study of the causes of cost escalation in transport infrastructure projects are presented. The study is based on a sample of 258 rail, bridge, tunnel and road projects worth US$90 billion. The focus is on the dependence of cost escalation on: (1) the length of the project‐implementation phase, (2) the size of the project and (3) the type of project ownership. First, it was found, with very high statistical significance, that cost escalation was strongly dependent on the length of the implementation phase. The policy implications are clear: decision‐makers and planners should be highly concerned about delays and long implementation phases because they translate into risks of substantial cost escalations. Second, projects have grown larger over time, and for bridges and tunnels larger projects have larger percentage cost escalations. Finally, by comparing the cost escalation for three types of project ownership - private, state‐owned enterprise and other public ownership - it was shown that the oft‐seen claim that public ownership is problematic and private ownership effective in curbing cost escalation is an oversimplification. The type of accountability appears to matter more to cost escalation than type of ownership.
Toward a Typology: cost overrun causes framework in infrastructure projects
The cost overrun of infrastructure projects potentially poses significant financial risks to the investment parties involved. Substantial cost overrun has been identified in infrastructureproject data from across 20 nations in five continents. Studies, in fact, show that the average cost overrun of infrastructure projects presents substantial fiscal risk (Flybjerg & COWI, 2004; Flybjerg et. al., 2009). Yet, over the last several decades, the magnitude of cost overrun of infrastructure projects has failed to improve, suggesting that no significant learning has occurred in mitigating its detrimental effects.
Policy and Planning for Large-Infrastructure Projects: Problems, Causes, Cures
Environment and Planning B: Planning and Design, vol. 34, no. 4, pp. 578-597, 2007
This paper focuses on problems and their causes and cures in policy and planning for large-infrastructure projects. First, it identifies as the main problem in major infrastructure developments pervasive misinformation about the costs, benefits, and risks involved. A consequence of misinformation is cost overruns, benefit shortfalls, and waste. Second, it explores the causes of misinformation and finds that political-economic explanations best account for the available evidence: planners and promoters deliberately misrepresent costs, benefits, and risks in order to increase the likelihood that it is their projects, and not those of their competition, that gain approval and funding. This results in the ‘survival of the unfittest’, in which often it is not the best projects that are built, but the most misrepresented ones. Finally, it presents measures for reforming policy and planning for large-infrastructure projects with a focus on better planning methods and changed governance structures, the latter being more important.
Policy and Planning for Large-Infrastructure Projects: Problems, Causes, and Curses
In Thomas L. Harper, Michael Hibbard, Heloisa Costa, and Anthony Gar-On Yeh, eds., Dialogues in Urban Regional Planning, vol. 4, New York: Routledge, pp. 223-248, 2011
This chapter focuses on problems and their causes and cures in policy and planning for large-infrastructure projects. First, it identifies as the main problem in major infrastructure developments pervasive misinformation about the costs, benefits, and risks involved. A consequence of misinformation is cost overruns, benefit shortfalls, and waste. Second, it explores the causes of misinformation and finds that political-economic explanations best account for the available evidence: planners and promoters deliberately misrepresent costs, benefits, and risks in order to increase the likelihood that their projects, and not those of their competition, that gain approval and funding. This results in the ‘survival of the unfittest’, in which often it is not the best projects that are built, but the most misrepresented ones. Finally, it presents measures for reforming policy and planning for large-infrastructure projects with a focus on better planning methods and changed governance structures, the latter being more important.
UNDERSTANDING MAJOR CAUSES COST OVERRUN FOR INFRASTRUCTURE PROJECTS A TYPOLOGY APPROACH
Cost overruns in infrastructure projects around the world is common which represents significant, but avoidable, economic losses. Historical data over the last several decades indicates that cost performance has not improved over time -no significant learning has occurred. Studies have identified a wide spectrum of various causes for cost overruns in infrastructure projects. According to , the two main causes of cost overruns are: optimism bias and strategic misrepresentations. Other studies have found that factors such as lack of experience, the size of the project, mistakes in design, overall price fluctuations, inaccurate estimations and scope changes have impacts on cost overrun .
European Journal of Transport Infrastructure Research, vol. 10, no. 1, pp. 5-18, 2010
Managing large-scale transportation infrastructure projects is difficult due to frequent misinformation about the costs which results in large cost overruns that often threaten the overall project viability. This paper investigates the explanations for cost overruns that are given in the literature. Overall, four categories of explanations can be distinguished: technical, economic, psychological, and political. Political explanations have been seen to be the most dominant explanations for cost overruns. Agency theory is considered the most interesting for political explanations and an eclectic theory is also considered possible. Non-political explanations are diverse in character, therefore a range of different theories (including rational choice theory and prospect theory), depending on the kind of explanation is considered more appropriate than one all-embracing theory.
In William L. Richter and Frances Burke, eds., Combating Corruption, Encouraging Ethics: A Practical Guide to Management Ethics, 2nd edition, Published in Cooperation with The American Society for Public Administration, Lanham, MA and Plymouth, UK: Rowman and Littlefield, pp. 52-58, 2007