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The cost performance of transportation projects: The fallacy of the Planning Fallacy account

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  • Love, Peter E.D.
  • Sing, Michael C.P.
  • Ika, Lavagnon A.
  • Newton, Sidney

Abstract

Delivering transportation projects to their budgeted cost remains a challenge for many governments worldwide. An issue that has hindered progress being made to address this problem has been the availability of empirical data that reflects the changing nature of cost estimates and their difference from a project’s final account. Using a homogenous dataset provided by a public sector authority in Hong Kong, we analyse the differences between the approved budget, pre-tender estimates, contract sum and final accounts for approximately HK$115 billion (≈US$14 billion) worth of transportation projects. We demonstrate that 47% (i.e. ≈ 5 out 10) of the projects deviate from their approved budget. In particular, when we consider the difference between the approved budget and the final contract sum, we reveal there are cases of both over and under estimating. We, therefore, question the Planning Fallacy as an appropriate explanation for describing ‘how large infrastructure projects work’. The fallacy of the Planning Fallacy account revealed in this paper leads us to call upon those agencies that have actively embraced this theory to reconsider their approaches to cost estimating and risk analysis used to deliver their transportation infrastructure to ensure taxpayers are provided with better value for money.

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  • Love, Peter E.D. & Sing, Michael C.P. & Ika, Lavagnon A. & Newton, Sidney, 2019. "The cost performance of transportation projects: The fallacy of the Planning Fallacy account," Transportation Research Part A: Policy and Practice, Elsevier, vol. 122(C), pages 1-20.
    • Handle: RePEc:eee:transa:v:122:y:2019:i:c:p:1-20
    DOI: 10.1016/j.tra.2019.02.004
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    References listed on IDEAS

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    Cited by:

    1. Bartlomiej Rokicki, 2022. "Cost Underruns in Major Road Transport Infrastructure Projects—The Surprising Experience of Poland," Sustainability, MDPI, vol. 14(21), pages 1-18, November.
    2. Jenkins, G. & Olasehinde-Williams, G. & Baurzhan, S., 2022. "Is there a net economic loss from employing reference class forecasting in the appraisal of hydropower projects?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 159(C).
    3. Bartlomiej Rokicki & Krzysztof Ostaszewski, 2022. "Actuarial Credibility Approach in Adjusting Initial Cost Estimates of Transport Infrastructure Projects," Sustainability, MDPI, vol. 14(20), pages 1-12, October.
    4. Dejan Makovšek & Adrian Bridge, 2021. "Procurement Choices and Infrastructure Costs," NBER Chapters, in: Economic Analysis and Infrastructure Investment, pages 277-327, National Bureau of Economic Research, Inc.
    5. Love, Peter E.D. & Ika, Lavagnon A. & Ahiaga-Dagbui, Dominic D., 2019. "On de-bunking ‘fake news’ in a post truth era: Why does the Planning Fallacy explanation for cost overruns fall short?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 126(C), pages 397-408.
    6. Abeysekara, Baudhi & Perera, Piyaruwan & Chhipi Shrestha, Gyan Kumar & Gunaruwan, Lalithasiri & Kumarage, Amal & Sadiq, Rehan & Hewage, Kasun, 2021. "Improving the capital deployment efficiency: An infrastructure investment planning process in transportation project," Research in Transportation Economics, Elsevier, vol. 88(C).

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