Mirada alternativa de la Obra Pública

19Apr16

Delusion and Deception in Large Infrastructure Projects

Two Models for Explaining and Preventing Executive Disaster

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Over Budget, Over Time, Over and Over Again

There are some phenomena that have no cultural bounds such as maternal love and a healthy fear of large predators. We can add to this list the fact that, across the globe, large infrastructure projects almost invariably arrive late, over-budget and fail to perform up to expectations. Cost overruns and benefit shortfalls of 50 percent are common; cost overruns above 100 percent are not uncommon. For example, in one study of major projects in 20 countries, nine out of ten projects had cost overruns.4 Similarly, a study of 44 urban rail projects in North America, Europe, and developing nations, including London’s Tube and the metros in Washington DC and Mexico City, found that the average construction cost overrun in constant prices was 45 percent; for a quarter of the projects cost overruns were at least 60 percent. In addition, passenger ridership was, on average, 50 percent lower than forecast. Furthermore, for a quarter of the projects, ridership was at least 70 percent lower than estimated.5 An appropriate slogan seems to be “over budget, over time, over and over again”. As comforting as it is to know that we are not alone in our folly, it would be even better to minimize the gap between expectations and performance for projects that consume such a large share of the private and, especially, public purse.

Executives typically attribute project underperformance to numerous uncertainties such as project complexity, technological uncertainty, demand uncertainty, scope clarity, unexpected geological features and negative plurality (i.e., opposing stakeholder voices).6 No doubt, all of these factors at one time or another contribute to cost overruns, benefit shortfalls, and time delays. The goal of this article, however, is not to explain, for example, how to implement complex projects more efficiently by over-coming these uncertainties. Rather, we explain why cost, benefits and time forecasts for more complex projects are systematically over-optimistic in the planning phase in comparison to less complex projects. In other words, “why do project planners, on average, fail to anticipate the greater costs of complex projects or those based on new technologies, etc.?”

The underlying reasons for all forecasting errors can usefully be grouped into three categories: 1) delusions or honest mistakes; 2) deceptions or strategic manipulation of information or processes or 3) bad luck.7 Bad luck or the unfortunate resolution of one of the major project uncertainties is the attribution typically given by management for a poor outcome.8 While not denying such a salient explanation, this article explores the underlying psychological and governance reasons for mis-estimation rather than proximate engineering causes.

Delusion and Deception in Large Capital Projects Delusion

Our first explanation – delusion – accounts for the cost underestimation and benefit overestimation that occurs when people generate predictions using the inside view. Executives adopt an inside view of the problem by focusing tightly on the case at hand, by considering the plan and the obstacles to its completion, by constructing scenarios of future progress, and by extrapolating current trends.12 In other words, by using typical bottom-up decision making techniques, they think about a problem by bringing to bear all they know about it, with special attention to its unique details. Below we illustrate two cognitive delusions the inside view facilitates: the planning fallacy as well as a heuristic – rule of thumb – called anchoring and adjustment.

When forecasting the outcomes of risky projects, executives often fall victim to the planning fallacy. Psychologists have defined it as the tendency to underestimate task- completion times and costs, even knowing that the vast majority of similar tasks have run late or gone over budget.13 It is a well-established bias in the experimental literature. In one set of experiments, Buehler, Griffin and Ross assessed the accuracy of psychology students’ estimates of completion times for their year-long honors thesis project.14 In the experiments, the students’ “realistic” predictions were overly optimistic: 70% took longer than the predicted time, even though the question was asked toward the end of the year.

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