Underestimating Costs in Public Works Projects: Error or Lie?

By Bent Flyvbjerg, M. Holm, Søren L. Buhl. 2002

1,682 citations recorded by the source corpus.

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 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.

Subfields: Building and Construction, Management Science and Operations Research, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/83aea43e78a5918c9a52e5722c487a4899c96386

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Citations in the corpus

Should We Build More Large Dams? The Actual Costs of Hydropower Megaproject Development (2014, background): “Following convention, cost overrun is the actual outturn costs expressed as a ratio of estimated costs(1); cost overruns can also be thought as the underestimation of actual costs (Bacon and Besant-Jones, 1998; Flyvbjerg et al., 2002).”
Cost overruns in transportation infrastructure projects: Sowing the seeds for a probabilistic theory of causation (2016, positive): “Evidence of this can be seen when a Normal Distribution (based upon the original works of Flyvbjerg et al ., 2002) was assumed for predicting the cost contingency for the Edinburgh Tram System in the United Kingdom.”
Rethinking Construction Cost Overruns: Cognition, Learning and Estimation (2014, background): “Flyvbjerg et al, suggest that overruns are chiefly due to ‘strategic misrepresentations’, i.e. outright lying (Flyvbjerg et al. 2002) and ‘optimism bias’ (Flyvbjerg 2007).”
CZECH TECHNICAL UNIVERSITY IN PRAGUE (2005, background): “In practice, the construction costs and time are often underestimated: (Flyvbjerg et al., 2002) show that final construction costs of tunnel and bridge construction projects are, on average, 34% above original estimates made at the time of decision to build.”
Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining and Preventing Executive Disaster (2009, background): “Flyvbjerg, Holm, and Buhl (2002), op. cit.”
Constructing the Olympic Dream: A Future Perfect Strategy of Project Management (2003, background): “Typically, such projects achieve high rates of failure in meeting stated objectives, leading some to question the viability of alliancing (see Koza and Lewin 1999, Flyvbjerg et al. 2002).”
Cost Overruns and Demand Shortfalls in Urban Rail and Other Infrastructure (2007, methodology): “The labor with developing such checks and balances has been begun elsewhere (Bruzilius et al., 1998; Flyvbjerg et al., 2002, 2003, 2005; Flyvbjerg & COWI, 2004).”
Characteristics of Cost Overruns for Dutch Transport Infrastructure Projects and the Importance of the Decision to Build and Project Phases (2012, background): “The study by Flyvbjerg et al. (2002, 2003a, 2004) can be considered the leading piece of research into cost overruns because of the large number of projects included, the variety of project types, the long time period and the wide geographical coverage.”
Value for money tests and accounting treatment in PFI schemes (2003, background): “Flyvbjerg et al. (2002) discussed the evidence on `̀ strategic misrepresentation’ (which they subtext as lying) in cost estimates for public works projects.”
Public Private Partnerships: The Worldwide Revolution in Infrastructure Provision and Project Finance (2004, background): “They also embody the checks and balances and incentives (public perusal, performance specifications, clarity of rules and the involvement of risk capital) recommended by Flyvbjerg et al. (2003) as a solution to the problems of conventional procurement.”
Policy and Planning for Large-Infrastructure Projects: Problems, Causes, Cures (2005, neutral): “One might add that many projects do not proceed that probably should, as a result of losing out to projects with `better' misrepresentation (Flyvbjerg et al, 2002).”
What Causes Cost Overrun in Transport Infrastructure Projects? (2004, background): “For results from a separate study of political explanations of cost escalation, see Flyvbjerg et al. (2002).”