arXiv subjects

Bent Flyvbjerg

Publications and source records attributed to Bent Flyvbjerg.

At least 37 records · Page 2Linked to original sources

arXiv2016

Does Infrastructure Investment Lead to Economic Growth or Economic Fragility? Evidence from China

The prevalent view in the economics literature is that a high level of infrastructure investment is a precursor to economic growth. China is especially held up as a model to emulate. Based on the largest dataset of its kind, this paper punctures the twin myths that, first, infrastructure creates economic value, and, second, China has a distinct advantage in its delivery. Far from being an engine of economic growth, the typical infrastructure investment fails to deliver a positive risk adjusted return. Moreover, China's track record in delivering infrastructure is no better than that of rich democracies. Where investments are debt-financed, overinvesting in unproductive projects results in the buildup of debt, monetary expansion, instability in financial markets, and economic fragility, exactly as we see in China today. We conclude that poorly managed infrastructure investments are a main explanation of surfacing economic and financial problems in China. We predict that, unless China shifts to a lower level of higher-quality infrastructure investments, the country is headed for an infrastructure-led national financial and economic crisis, which is likely also to be a crisis for the international economy. China's infrastructure investment model is not one to follow for other countries but one to avoid.

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arXiv2016

The Oxford Olympics Study 2016: Cost and Cost Overrun at the Games

Given that Olympic Games held over the past decade each have cost USD 8.9 billion on average, the size and financial risks of the Games warrant study. The objectives of the Oxford Olympics study are to (1) establish the actual outturn costs of previous Olympic Games in a manner where cost can consistently be compared across Games; (2) establish cost overruns for previous Games, i.e., the degree to which final outturn costs reflect projected budgets at the bid stage, again in a way that allows comparison across Games; (3) test whether the Olympic Games Knowledge Management Program has reduced cost risk for the Games, and, finally, (4) benchmark cost and cost overrun for the Rio 2016 Olympics against previous Games. The main contribution of the Oxford study is to establish a phenomenology of cost and cost overrun at the Olympics, which allows consistent and systematic comparison across Games. This has not been done before. The study concludes that for a city and nation to decide to stage the Olympic Games is to decide to take on one of the most costly and financially most risky type of megaproject that exists, something that many cities and nations have learned to their peril.

econ.GN↗

arXiv2015

The Principle of the Malevolent Hiding Hand; or, the Planning Fallacy Writ Large

We identify and document a new principle of economic behavior: the principle of the Malevolent Hiding Hand. In a famous discussion, Albert Hirschman celebrated the Hiding Hand, which he saw as a benevolent mechanism by which unrealistically optimistic planners embark on unexpectedly challenging plans, only to be rescued by human ingenuity, which they could not anticipate, but which ultimately led to success, principally in the form of unexpectedly high net benefits. Studying eleven projects, Hirschman suggested that the Hiding Hand is a general phenomenon. But the Benevolent Hiding Hand has an evil twin, the Malevolent Hiding Hand, which blinds excessively optimistic planners not only to unexpectedly high costs but also to unexpectedly low net benefits. Studying a much larger sample than Hirschman did, we find that the Malevolent Hiding Hand is common and that the phenomenon that Hirschman identified is rare. This sobering finding suggests that Hirschman's phenomenon is a special case; it attests to the pervasiveness of the planning fallacy, writ very large. One implication involves the continuing need for unbiased cost-benefit analyses and other economic decision support tools; another is that such tools might sometimes prove unreliable.

econ.GN↗

arXiv2015

Characteristics of Cost Overruns for Dutch Transport Infrastructure Projects and the Importance of the Decision to Build and Project Phases

Using a methodology similar to that used the in the worldwide research, the cost performance of Dutch large-scale transport infrastructure projects is determined. In the Netherlands, cost overruns are as common as cost underruns but because cost overruns are larger than cost underruns projects on average have a cost overrun of 16.5%. The focus on one country further enabled to consider cost overruns during different project development phases. It turned out that in the Netherlands the majority of the cost overrun occurs in the pre-construction phase (the period between the formal decision to build and the start of construction). The frequency as well as the magnitude of pre-construction cost overrun is significantly higher than in the construction phase. The used methodology of calculating cost overruns does however not take lock-in into account. This phenomenon shows that the real decision to build was taken much earlier in the decision-making process. Since estimated costs are usually lower during these earlier stages, the cost overruns based on this real decision to build are likely to be much higher. Cost overruns presented in studies are therefore often underestimated and the problem of cost overruns is much larger than we think.

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arXiv2015

Different Cost Performance: Different Determinants? The Case of Cost Overruns in Dutch Transportation Infrastructure Projects

This paper examines three independent explanatory variables and their relation with cost overrun in order to decide whether this is different for Dutch infrastructure projects compared to worldwide findings. The three independent variables are project type (road, rail, and fixed link projects), project size (measured in terms of estimated costs) and the length of the project implementation phase. For Dutch projects, average cost overrun is 10.6% for rail, 18.6% for roads and 21.7% for fixed links. For project size, small Dutch projects have the largest average percentage cost overruns but in terms of total overrun, large projects have a larger share. The length of the implementation phase and especially the length of the pre-construction phase are important determinants of cost overruns in the Netherlands. With each additional year of pre-construction, percentage cost overrun increases by five percentage points. In contrast, the length of the construction phase has hardly any influence on cost overruns. This is an important contribution to current knowledge about cost overruns, because the period in which projects are most prone to cost overruns is narrowed down considerably, at least in the Netherlands. This means that period can be focused on to determine the causes and cures of overruns.

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arXiv2014

What You Should Know About Megaprojects, and Why: An Overview

This paper takes stock of megaproject management, an emerging and hugely costly field of study. First, it answers the question of how large megaprojects are by measuring them in the units mega, giga, and tera, concluding we are presently entering a new "tera era" of trillion-dollar projects. Second, total global megaproject spending is assessed, at USD 6-9 trillion annually, or 8 percent of total global GDP, which denotes the biggest investment boom in human history. Third, four "sublimes" - political, technological, economic, and aesthetic - are identified to explain the increased size and frequency of megaprojects. Fourth, the "iron law of megaprojects" is laid out and documented: Over budget, over time, over and over again. Moreover, the "break-fix model" of megaproject management is introduced as an explanation of the iron law. Fifth, Albert O. Hirschman's theory of the Hiding Hand is revisited and critiqued as unfounded and corrupting for megaproject thinking in both the academy and policy. Sixth, it is shown how megaprojects are systematically subject to "survival of the unfittest," explaining why the worst projects get built instead of the best. Finally, it is argued that the conventional way of managing megaprojects has reached a "tension point," where tradition is challenged and reform is emerging.

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arXiv2014

Should we build more large dams? The actual costs of hydropower megaproject development

A brisk building boom of hydropower mega-dams is underway from China to Brazil. Whether benefits of new dams will outweigh costs remains unresolved despite contentious debates. We investigate this question with the "outside view" or "reference class forecasting" based on literature on decision-making under uncertainty in psychology. We find overwhelming evidence that budgets are systematically biased below actual costs of large hydropower dams - excluding inflation, substantial debt servicing, environmental, and social costs. Using the largest and most reliable reference data of its kind and multilevel statistical techniques applied to large dams for the first time, we were successful in fitting parsimonious models to predict cost and schedule overruns. The outside view suggests that in most countries large hydropower dams will be too costly in absolute terms and take too long to build to deliver a positive risk-adjusted return unless suitable risk management measures outlined in this paper can be affordably provided. Policymakers, particularly in developing countries, are advised to prefer agile energy alternatives that can be built over shorter time horizons to energy megaprojects.

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arXiv2013

Geographical Variation in Project Cost Performance: The Netherlands versus Worldwide

Cost overruns in transport infrastructure projects know no geographical limits, overruns are a global phenomenon. Nevertheless, the size of cost overruns varies with location. In the Netherlands, cost overruns appear to be smaller compared to the rest of the world. This paper tests whether Dutch projects perform significantly better in terms of cost overruns than other geographical areas. It is concluded that for road and tunnel projects, the Netherlands performs similarly to the rest of the world. For rail projects, Dutch projects perform considerably better, with projects having significantly lower percentage cost overruns in real terms (11%) compared to projects in other North West European countries (27%) and in other geographical areas (44%). Bridge projects also have considerably smaller cost overruns: 7% in the Netherlands compared with 45% in other NW European countries and 27% in other geographical areas. In explaining cost overruns, geography should therefore clearly be taken into consideration.

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arXiv2013

Overspend? Late? Failure? What the Data Say About IT Project Risk in the Public Sector

Implementing large-scale information and communication technology (IT) projects carries large risks and easily might disrupt operations, waste taxpayers' money, and create negative publicity. Because of the high risks it is important that government leaders manage the attendant risks. We analysed a sample of 1,355 public sector IT projects. The sample included large-scale projects, on average the actual expenditure was $130 million and the average duration was 35 months. Our findings showed that the typical project had no cost overruns and took on average 24% longer than initially expected. However, comparing the risk distribution with the normative model of a thin-tailed distribution, projects' actual costs should fall within -30% and +25% of the budget in nearly 99 out of 100 projects. The data showed, however, that a staggering 18% of all projects are outliers with cost overruns >25%. Tests showed that the risk of outliers is even higher for standard software (24%) as well as in certain project types, e.g., data management (41%), office management (23%), eGovernment (21%) and management information systems (20%). Analysis showed also that projects duration adds risk: every additional year of project duration increases the average cost risk by 4.2 percentage points. Lastly, we suggest four solutions that public sector organization can take: (1) benchmark your organization to know where you are, (2) de-bias your IT project decision-making, (3) reduce the complexities of your IT projects, and (4) develop Masterbuilders to learn from the best in the field.

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arXiv2013

Delusions of Success: Comment on Dan Lovallo and Daniel Kahneman

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" (HBR 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.

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arXiv2013

Why Your IT Project Might Be Riskier Than You Think

Out-of-control information technology (IT) projects have ended the careers of top managers, such as EADS CEO Noel 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.

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arXiv2013

Double Whammy - How ICT Projects are Fooled by Randomness and Screwed by Political Intent

The cost-benefit analysis formulates the holy trinity of objectives of project management - cost, schedule, and benefits. As our previous research has shown, ICT projects deviate from their initial cost estimate by more than 10% in 8 out of 10 cases. Academic research has argued that Optimism Bias and Black Swan Blindness cause forecasts to fall short of actual costs. Firstly, optimism bias has been linked to effects of deception and delusion, which is caused by taking the inside-view and ignoring distributional information when making decisions. Secondly, we argued before that Black Swan Blindness makes decision-makers ignore outlying events even if decisions and judgements are based on the outside view. Using a sample of 1,471 ICT projects with a total value of USD 241 billion - we answer the question: Can we show the different effects of Normal Performance, Delusion, and Deception? We calculated the cumulative distribution function (CDF) of (actual-forecast)/forecast. Our results show that the CDF changes at two tipping points - the first one transforms an exponential function into a Gaussian bell curve. The second tipping point transforms the bell curve into a power law distribution with the power of 2. We argue that these results show that project performance up to the first tipping point is politically motivated and project performance above the second tipping point indicates that project managers and decision-makers are fooled by random outliers, because they are blind to thick tails. We then show that Black Swan ICT projects are a significant source of uncertainty to an organisation and that management needs to be aware of.

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arXiv2013

What Causes Cost Overrun in Transport Infrastructure Projects?"

This article presents results from the first statistically significant study of causes of cost escalation in transport infrastructure projects. 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) length of project implementation phase, (2) size of project and (3) type of project ownership. First, it is found with very high statistical significance that cost escalation is strongly dependent on length of 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, it is found that projects have grown larger over time and that for bridges and tunnels larger projects have larger percentage cost escalations. Finally, by comparing cost escalation for three types of project ownership--private, state-owned enterprise and other public ownership--it is shown that the oft-seen claim that public ownership is problematic and private ownership effective in curbing cost escalation is an oversimplification. Type of accountability appears to matter more to cost escalation than type of ownership.

q-fin.GN↗

arXiv2013

Why Mass Media Matter to Planning Research: The Case of Megaprojects

This article asks how planning scholarship may effectively gain impact in planning practice through media exposure. In liberal democracies the public sphere is dominated by mass media. Therefore, working with such media is a prerequisite for effective public impact of planning research. Using the example of megaproject planning, it is illustrated how so-called "phronetic planning research," which explicitly incorporates in its methodology active and strategic collaboration with media, may be helpful in generating change in planning practice via the public sphere. Main lessons learned are: (1) Working with mass media is an extremely cost-effective way to increase the impact of planning scholarship on practice; (2) Recent developments in information technology and social media have made impact via mass media even more effective; (3) Research on "tension points," i.e., points of potential conflict, are particularly interesting to media and the public, and are especially likely to generate change in practice; and (4) Tension points bite back; planning researchers should be prepared for, but not afraid of, this.

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arXiv2013

Five Misunderstandings About Case-Study Research

This article examines five common misunderstandings about case-study research: (1) Theoretical knowledge is more valuable than practical knowledge; (2) One cannot generalize from a single case, therefore the single case study cannot contribute to scientific development; (3) The case study is most useful for generating hypotheses, while other methods are more suitable for hypotheses testing and theory building; (4) The case study contains a bias toward verification; and (5) It is often difficult to summarize specific case studies. The article explains and corrects these misunderstandings one by one and concludes with the Kuhnian insight that a scientific discipline without a large number of thoroughly executed case studies is a discipline without systematic production of exemplars, and that a discipline without exemplars is an ineffective one. Social science may be strengthened by the execution of more good case studies.

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arXiv2013

Policy and Planning for Large Infrastructure Projects: Problems, Causes, Cures

This paper argues, first, that a major problem in the planning of large infrastructure projects is the high level of misinformation about costs and benefits that decision makers face in deciding whether to build, and the high risks such misinformation generates. Second, it explores the causes of misinformation and risk, mainly in the guise of optimism bias and strategic misrepresentation. Finally, the paper presents a number of measures aimed at improving planning and decision making for large infrastructure projects, including changed incentive structures and better planning methods. Thus the paper is organized as a simple triptych consisting in problems, causes, and cures.

q-fin.GN↗

arXiv2013

Megaprojects and Risk: An Anatomy of Ambition

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 multibillion-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 and hard, scientific evidence from the several hundred projects in twenty nations that illustrate the book. Accessibly written, it will be essential reading in its field for students, scholars, planners, economists, auditors, politicians, journalists and interested citizens.

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arXiv2013

How Planners Deal with Uncomfortable Knowledge: The Dubious Ethics of the American Planning Association

With a point of departure in the concept "uncomfortable knowledge," this article presents a case study of how the American Planning Association (APA) deals with such knowledge. APA was found to actively suppress publicity of malpractice concerns and bad planning in order to sustain a boosterish image of planning. In the process, APA appeared to disregard and violate APA's own Code of Ethics. APA justified its actions with a need to protect APA members' interests, seen as preventing planning and planners from being presented in public in a bad light. The current article argues that it is in members' interest to have malpractice critiqued and reduced, and that this best happens by exposing malpractice, not by denying or diverting attention from it as APA did in this case. Professions, organizations, and societies that stifle critique tend to degenerate and become socially and politically irrelevant "zombie institutions." The article asks whether such degeneration has set in for APA and planning. Finally, it is concluded that more debate about APA's ethics and actions is needed for improving planning practice. Nine key questions are presented to constructively stimulate such debate.

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