Project Advisory

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 US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts.

Megaproject Planning and Management: Essential Readings contains the seminal articles from the growing body of research on megaproject planning and management along with an original introduction by the editor, Bent Flyvbjerg. The leading and most cited authority in the field, Flyvbjerg has used crowdsourcing and 25 years of experience to cherry-pick from several hundred articles and books the writings that define the field. This volume will be an indispensable source for those wishing to speak with authority about how megaprojects are prepared, delivered, and fought over. The target audience is students, academics, practitioners, and media pundits alike, as well as communities affected by megaprojects.

The overarching question of this article is how can we develop a critical understanding of the social place of highways and automobility in the case of a non-capitalist European context such as socialist Albania? Socialism was a period of modernisation for Albania. Part of this modernisation project was the production of a modern built environment, especially infrastructures and urban spaces. Within this context during socialism thousands of miles of new roads were constructed in the country. The remarkably limited use of roads, combined with their systematic building and maintenance, kept this infrastructure’s materiality in a relatively good condition for many decades. Since the early 1990s, though, the end of the regime has signified a period of booming mobility and automobility. Postsocialism and the wider context of neoliberalism have been marked by state withdrawal from many of its previous roles, and the maintenance of basic infrastructures has become increasingly dependent on international aid. Nevertheless, the roads are currently being socially reappropriated and reconfigured, as people embrace automobility, which was a very limited practice during socialism. This article explores the kind of socio-material relationships that road construction and the roads themselves generated in socialist Albania and how these
are linked to postsocialist spatial practices.

Back cover text: Megaprojects and Risk provides the first detailed examination of the phenomenon of megaprojects. It is a fascinating account of how the promoters of multi-billion dollar megaprojects systematically and self-servingly misinform parliaments, the public and the media in order to get projects approved and built. It shows, in unusual depth, how the formula for approval is an unhealthy cocktail of underestimated costs, overestimated revenues, undervalued environmental impacts and overvalued economic development effects. This results in projects that are extremely risky, but where the risk is concealed from MPs, taxpayers and investors. The authors not only explore the problems but also suggest practical solutions drawing on theory, experience and hard, scientific evidence from the several hundred projects in twenty nations and five continents that illustrate the book. Accessibly written, it will be the standard reference for students, scholars, planners, economists, auditors, politicians and interested citizens for many years to come.

The article first describes characteristics of major infrastructure projects. Second, it documents a much neglected topic in economics: that ex ante estimates of costs and benefits are often very different from actual ex post costs and benefits. For large infrastructure projects the consequences are cost overruns, benefit shortfalls, and the systematic underestimation of risks. Third, implications for cost–benefit analysis are described, including that such analysis is not to be trusted for major infrastructure projects. Fourth, the article uncovers the causes of this state of affairs in terms of perverse incentives that encourage promoters to underestimate costs and overestimate benefits in the business cases for their projects. But the projects that are made to look best on paper are the projects that amass the highest cost overruns and benefit shortfalls in reality. The article depicts this situation as ‘survival of the unfittest’. Fifth, the article sets out to explain how the problem may be solved, with a view to arriving at more efficient and more democratic projects, and avoiding the scandals that often accompany major infrastructure investments. Finally, the article identifies current trends in major infrastructure development. It is argued that a rapid increase in stimulus spending, combined with more investments in emerging economies, combined with more spending on information technology is catapulting infrastructure investment from the frying pan into the fire.

As megaprojects have become ubiquitous, their real benefits and costs have come under increased scrutiny. We interviewed Bent Flyvbjerg, who has extensively studied megaproject development. Flyvbjerg has found systematic problems in the development process: by intentionally misrepresenting information and deliberately disregarding risks, proponents instigate projects that result in fewer benefits and higher costs than promised.

The Supplementary Green Book Guidance on Optimism Bias (HM Treasury 2003) with reference to the Review of Large Public Procurement in the UK (Mott MacDonald 2002) notes that there is a demonstrated, systematic, tendency for project appraisers to be overly optimistic and that to redress this tendency appraisers should make explicit, empirically based adjustments to the estimates of a project’s costs, benefits, and duration. HM Treasury recommends that these adjustments be based on data from past projects or similar projects elsewhere, and adjusted for the unique characteristics of the project in hand. In the absence of a more specific evidence base, HM Treasury has encouraged departments to collect data to inform future estimates of optimism, and in the meantime use the best available data. In response to this, the Department for Transport (henceforth DfT), has contracted Bent Flyvbjerg in association with COWI to undertake the consultancy assignment "Procedures for dealing with Optimism Bias in Transport Planning". The present Guidance Document is the result of this assignment.

"Over budget, over time, over and over again" appears to be an appropriate slogan for large, complex infrastructure projects. This article explains why cost, benefits, and time forecasts for such projects are systematically over-optimistic in the planning phase. The underlying reasons for forecasting errors are grouped into three categories: delusions or honest mistakes; deceptions or strategic manipulation of information or processes; or bad luck. Delusion and deception have each been addressed in the management literature before, but here they are jointly considered for the first time. They are specifically applied to infrastructure problems in a manner that allows both academics and practitioners to understand and implement the suggested corrective procedures. The article provides a framework for analyzing the relative explanatory power of delusion and deception. It also suggests a simplified framework for analyzing the complex principal-agent relationships that are involved in the approval and construction of large infrastructure projects, which can be used to improve forecasts. Finally, the article illustrates reference class forecasting, an outside view de-biasing technique that has proven successful in overcoming both delusion and deception in private and public investment decisions.

This article presents results from the first statistically significant study of traffic forecasts in transportation infrastructure projects. The sample used is the largest of its kind, covering 210 projects in 14 nations worth U.S.$59 billion. The study shows with very high statistical significance that forecasters generally do a poor job of estimating the demand for transportation infrastructure projects. For 9 out of 10 rail projects, passenger forecasts are overestimated; the average overestimation is 106%. For half of all road projects, the difference between actual and forecasted traffic is more than ±20%. The result is substantial financial risks, which are typically ignored or downplayed by planners and decision makers to the detriment of social and economic welfare. Our data also show that forecasts have not become more accurate over the 30-year period studied, despite claims to the contrary by forecasters. The causes of inaccuracy in forecasts are different for rail and road projects, with political causes playing a larger role for rail than for road. The cure is transparency, accountability, and new forecasting methods. The challenge is to change the governance structures for forecasting and project development. Our article shows how planners may help achieve this.

Do different types of megaprojects have different cost overruns? This apparently simple question is at the heart of research at the University of Oxford aimed at understanding the characteristics of megaprojects, particularly in terms of how they are established, run and concluded. In this study, we set out to investigate cost overruns in the Olympic Games. To do so, we examined the costs of the Games over half a century, including both summer and winter Olympics. We looked at the evolution of final reported costs and compared these to the costs established in the Games bids, submitted to the International Olympic Committee (IOC) up to seven years before the Games occurred. In so doing we established the largest dataset of its kind, and documented for the first time in a consistent fashion the costs and cost overruns for the Olympic Games, from 1960 to 2012. We discovered that the Games stand out in two distinct ways compared to other megaprojects: (1) The Games overrun with 100 per cent consistency. No other type of megaproject is this consistent regarding cost overrun. Other project types are typically on budget from time to time, but not the Olympics. (2) With an average cost overrun in real terms of 179 per cent – and 324 per cent in nominal terms – overruns in the Games have historically been significantly larger than for other types of megaprojects, including infrastructure, construction, ICT, and dams. The data thus show that for a city and nation to decide to host the Olympic Games is to take on one of the most financially risky type of megaproject that exists, something that many cities and nations have learned to their peril. For the London 2012 Games, we find that: (1) With sports-related real costs currently estimated at USD14.8 billion, London is on track to become the most costly Olympics ever. (2) With a projected cost overrun of 101 per cent in real terms, overrun for London is below the historical average for the Games, but not significantly so. (3) The London cost overrun is, however, significantly higher than overruns for recent Games since 1999. London therefore is reversing a positive trend of falling cost overruns for the Games.

As megaprojects have become ubiquitous, their real benefits and costs have come under increased scrutiny. We interviewed Bent Flyvbjerg, who has extensively studied megaproject development. Flyvbjerg has found systematic problems in the development process: by intentionally misrepresenting information and deliberately disregarding risks, proponents instigate projects that result in fewer benefits and higher costs than promised.

Back cover text: This book aims to enlarge the understanding of decision-making on mega-projects and suggest recommendations for a more effective, efficient and democratic approach. Authors from different scientific disciplines address various aspects of the decision-making process, such as management characteristics and cost-benefit analysis, planning and innovation and competition and institutions. The subject matter is highly diverse, but certain questions remain at the forefront. For example, how do we deal with protracted preparation processes, how do we tackle risks and uncertainties, and how can we best divide the risks and responsibilities among the private and public players throughout the different phases of the project? - Presenting a state-of-the-art overview, based on experiences and visions of authors from Europe and North America, this unique book will be of interest to practitioners of large-scale project management, politicians, public officials and private organisations involved in mega-project decision-making. It will also appeal to researchers, consultants and students dealing with substantial engineering projects, complex systems, project management and transport infrastructure.

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 development pervasive misinformation about the costs, benefits, and risks involved. A consequence of misinformation is massive cost overruns, benefit shortfalls, and waste. Second, the paper 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 the competition's, that gain approval and funding. This results in the "survival of the unfittest," where often it is not the best projects that are built, but the most misrepresented ones. Finally, the paper 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.

Risk, including economic risk, is increasingly a concern for public policy and management. The possibility of dealing effectively with risk is hampered, however, by lack of a sound empirical basis for risk assessment and management. This article demonstrates the general point for cost and demand risks in urban rail projects. The article presents empirical evidence that allow valid economic risk assessment and management of urban rail projects, including benchmarking of individual or groups of projects. Benchmarking of the Copenhagen Metro is presented as a case in point. The approach developed is proposed as a model for other types of policies and projects in order to improve economic and financial risk assessment and management in policy and planning.

Out-of-control information technology (IT) projects have ended the careers of top managers, such as EADS CEO Noël Forgeard and Levi Strauss’ CIO David Bergen. Moreover, IT projects have brought down whole companies, like Kmart in the US and Auto Windscreen in the UK. Software and other IT is now such an integral part of most business processes and products that CEOs must know their IT risks, which are typically substantial – and overlooked. The analysis of a sample of 1,471 IT projects showed that the average cost overrun was 27% — but that figure masks a far more alarming “fat tail” risk.  Fully one in six of the projects in the sample was a Black Swan, with a cost overrun of 200%, on average, and a schedule overrun of almost 70%. This highlights the true pitfall of IT change initiatives: It’s not that they’re particularly prone to high cost overruns on average – it is that there are a disproportionate number of Black Swans. By focusing on averages instead of the more damaging outliers, most managers and consultants have been missing the real risk in doing IT. In conclusion, the article outlines ideas as to what can be done to avoid Black Swans.

This working paper focuses on the plans to construct a skyscraper in St Petersburg, Russia, known originally as Gazprom-City and recently renamed into Okhta Center, and on the controversy that developed around these plans. The paper uses the skyscraper debates as a lens to discuss a particular “aesthetic politics” of St Petersburg, the meaning of “world cities” and “global architecture” in Russian and international contexts, post-Soviet forms of political and corporate governance, the mobilization of civic opposition to such projects and the ability of such urban protests to translate into a more unified and politically oriented opposition than has been possible in other contexts in Russia.

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.

Because of the prominent position of urban rail in reducing urban transport-related problems, such as congestion and air pollution, insights into the costs of possible new urban rail projects is very relevant for those involved with cost estimations, policy makers, cost-benefit analysts, and other target groups. Knowledge of the differences in costs per kilometre, including explanations of differences and their breakdowns is currently lacking in the literature. This paper aims to provide a first stage insight into how cost per kilometre varies across urban rail projects. The methodology applied is a simple cost comparison across projects where the data collected are comparable. We conclude that capital costs per route-kilometre of urban rail vary highly between projects. Looking at European projects and excluding outliers, the total capital costs per route-kilometre (including stations and rolling stock) lie mainly between US$50-100 million (2002 prices). Including US projects, the range is US$50-150 million. The main reasons for the high variation in the route-kilometre costs are differences between projects as regards the ratio of underground to above-ground construction, ground conditions, station spacing, type of rolling stock, environmental and safety constraints and labour costs. We warn, however, that the observations used to reach the conclusions are too few to obtain results with statistical significance. Our results must therefore be seen as a first step towards collecting more data so that a more succinct statistical analysis can be conducted. Another conclusion is therefore that this area has future research potential.

A major source of risk in project management is inaccurate forecasts of project costs, demand, and other impacts. The paper presents a promising new approach to mitigating such risk, based on theories of decision making under uncertainty which won the 2002 Nobel prize in economics. First, the paper documents inaccuracy and risk in project management. Second, it explains inaccuracy in terms of optimism bias and strategic misrepresentation. Third, the theoretical basis is presented for a promising new method called "reference class forecasting," which achieves accuracy by basing forecasts on actual performance in a reference class of comparable projects and thereby bypassing both optimism bias and strategic misrepresentation. Fourth, the paper presents the first instance of practical reference class forecasting, which concerns cost forecasts for large transportation infrastructure projects. Finally, potentials for and barriers to reference class forecasting are assessed.

Dan Lovallo and Daniel Kahneman must be commended for their clear identification of causes and cures to the planning fallacy in “Delusions of Success: How Optimism Undermines Executives’ Decisions” (July 2003). Their look at overoptimism, anchoring, competitor neglect, and the outside view in forecasting is highly useful to executives and forecasters. However, Lovallo and Kahneman underrate one source of bias in forecasting—the deliberate “cooking” of forecasts to get ventures started. My colleagues and I call this the Machiavelli factor.

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.

This paper explores how theories of the planning fallacy and the outside view may be used to conduct quality control and due diligence in project management. First, a much-neglected issue in project management is identified, namely that the front-end estimates of costs and benefits – used in the business cases, cost-benefit analyses, and social and environmental impact assessments that typically support decisions on projects – are typically significantly different from actual ex post costs and benefits, and are therefore poor predictors of the actual value and viability of projects. Second, it is discussed how Kahneman and Tversky’s theories of the planning fallacy and the outside view may help explain and remedy this situation through quality control of decisions. Third, it is described what quality control and due diligence are in the context of project management, and an eight-step procedure is outlined for due diligence based on the outside view. Fourth, the procedure is tested on a real-life, multibillion-dollar project, organized as a public-private partnership. Finally, Akerlof and Shiller’s recent discussion in economics of “firing the forecaster” is discussed together with its relevance to project management. In sum, the paper demonstrates the need, the theoretical basis, a practical methodology, and a real-life example for how to de-bias project management using quality control and due diligence based on the outside view.

Advisory report for Gizelle company in Netherlands.
Our research has helped decide on the import and sell their products or not.
We thoroughly explore the advantages and disadvantages of political, social, culture, law, and economical backgrounds as well.

En el Censo de Población de 1991 el Instituto de Estadística de Andalucía (IEA) incluyó una pregunta adicional, no contemplada a nivel nacional, relativa a los desplazamientos de naturaleza cotidiana realizada por trabajadores y estudiantes desde su lugar de residencia a los de trabajo o estudio, respectivamente. La explotación de dicha pregunta permitió por primera vez en nuestra región disponer de una información de indudable interés, que fue completada con la realización de un estudio sobre la movilidad por razón de trabajo en Andalucía. Diez años más tarde en el Censo de Población de 2001 se reconoce la importancia de esta variable al incorporarla por primera vez en todo el territorio nacional.

En colaboración con la Universidad Pablo de Olavide de Sevilla, el IEA ha vuelto a realizar un análisis de la movilidad por razón de trabajo, que permite conocer los cambios en la intensidad y las características de este tipo de movilidad cotidiana en nuestra Comunidad Autónoma.

Housing relocation or housing mobility is not uncommon in the United
States, with the average family relocating once every 6 years. As part of
this process, individuals and families take into account a variety of factors.
One of the important factors is that of transportation and its availability.
Various researchers have studied the impact of transportation
information on relocation choice. However, the need for a structured
methodology that incorporates various factors, such as transportation,
has been highlighted from a study of the current practice of relocation
counseling. The objectives of this paper are threefold: (a) to develop an
analytical hierarchy process to rank census tracts for relocation purposes
of individuals, (b) to present a prototype of the spatial decision
support system (SDSS) with an example, and (c) to evaluate the impact
of relocation choice of individuals by using a spatially unconstrained
approach. With data from the six-county northeastern Illinois region,
the SDSS is developed and showcased with the help of a sample application.
Two scenarios are tested for each respondent. The first is based
on only housing criteria, and the second compares all criteria in the analytical
hierarchy process matrix with each other. The improvements in
travel time determined from the results of the two scenarios are compared,
and the results are discussed to highlight the salient features of
the decision support system.

The paper gives a comparative analysis of the territorial development in the Belgrade metropolitan area and in the region of the Danube river basin in Serbia. An identification of main results is undertaken by application of a regional comparative analysis, shift-share analysis and Spider method. The paper shows that the consideration of the national share, industrial mix and regional share in total shift share of both regions indicate very strong process of deindustrialization. It is evaluated that allocative component of economic growth of Belgrade and Danube basin regions has positive value, reflecting the above-average sectoral productivity in these regions compared to the national average. The empirical results show that interregional differences in economic growth are almost entirely explained by the differences in regional specificities in terms of employment. Results are important for the increase of regional competitiveness and territorial distribution in this area. Key-Wor...