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Implementation Of The Reference Class Forecasting Method For Projects Implemented In A Chemical Industry Company

Author

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  • Renata Walczak
  • Tomasz Majchrzak

Abstract

The purpose of this article is to present an industrial application of the Reference Class Forecasting Method (RCFM) developed by Kahneman and Tversky for planning and decision-making under uncertainty. Project plans are usually prepared on the basis of detailed calculations and arrangements according to selected project management methodology. Undertakings that are planned in this manner often fail and do not achieve their goals. However, the American Planning Association recommends using the RCFM as an additional method. The article presents four groups of projects implemented by a chemical industry company over four years. A few of the projects were accomplished according to the plan in terms of triple constraint i.e. time, cost, and scope. The cost aspect was taken into account in the paper. During the study, the planned and implemented costs of 222 projects were analysed. On the basis of the distribution of cost overruns, according to RCFM, new patterns of planned costs were prepared. The Reference Class Forecasting Method, which was effective for large homogeneous projects turned out to be completely useless for various projects implemented by the chemical company.

Suggested Citation

  • Renata Walczak & Tomasz Majchrzak, 2018. "Implementation Of The Reference Class Forecasting Method For Projects Implemented In A Chemical Industry Company," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2018(1), pages 25-33.
    • Handle: RePEc:prg:jnlaop:v:2018:y:2018:i:1:id:593:p:25-33
    DOI: 10.18267/j.aop.593
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    Citations

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    Cited by:

    1. Lordan-Perret, Rebecca & Bärenbold, Rebekka & Weigt, Hannes & Rosner, Robert, 2023. "An ex-ante method to verify commercial U.S. nuclear power plant decommissioning cost estimates," Energy Economics, Elsevier, vol. 127(PB).
    2. Chapman, Paul & Quang, Cuong, 2021. "Major Project Risk Management: Reconciling Complexity during Delivery with the Inside View in Planning," SocArXiv j9sw8, Center for Open Science.
    3. Servranckx, Tom & Vanhoucke, Mario & Aouam, Tarik, 2021. "Practical application of reference class forecasting for cost and time estimations: Identifying the properties of similarity," European Journal of Operational Research, Elsevier, vol. 295(3), pages 1161-1179.

    More about this item

    Keywords

    risk management; quantitative methods & models; technology management; Reference Class Forecasting;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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