Quality Control and Due Diligence in Project Management: Getting Decisions Right by Taking the Outside View

By Bent Flyvbjerg. 2013

206 citations recorded by the source corpus.

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.

Subfields: Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/d30cbf1186c2429c67c0c897e2bb9ebd6843b62b

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Finance

1. Joana G. Geraldi
2. Verena Stingl
3. Bent Flyvbjerg

In Management Science and Operations Research

1. Joana G. Geraldi
2. Verena Stingl
3. Giorgio Locatelli
4. Mauro Mancini
5. N. Todeschini
6. Bent Flyvbjerg
7. Bert van Wee
8. T. Harland

Citations in the corpus

• Generation IV nuclear reactors: Current status and future prospects (2013, background): “GTHTR300C Wrong forecasts of the future demand (Flyvbjerg, 2006) and of benefits and costs deriving from a given project (Flyvbjerg, 2013).”
• What you Should Know about Megaprojects and Why: An Overview (2014, background): “This lack of learning may explain why managers who see their projects as unique perform significantly worse than other managers (Budzier & Flyvbjerg, 2013).”
• Golden Rule of Forecasting: Be conservative (2015, unknown): “Another study found that first-year demand forecasts for 62 large rail transportation projects were consistently optimistic, with a median overestimate of demand of 96 percent (Flyvbjerg, 2013).”
• Top Ten Behavioral Biases in Project Management: An Overview (2021, methodology): “This was the object of later publications (Flyvbjerg, 2006; Flyvbjerg, 2013; Flyvbjerg et al., 2004; Flyvbjerg et al., 2009; Flyvbjerg et al., 2016).”
• Errors, lies and misunderstandings: Systematic review on behavioural decision making in projects (2017, background): “, 2013; Meyer, 2014), and overoptimistic plans and forecasts (Flyvbjerg, 2013; Kutsch et al., 2011; Son and Rojas, 2011).”