IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/122862.html
   My bibliography  Save this paper

Cost overruns of infrastructure projects – distributions, causes and remedies

Author

Listed:
  • Eliasson, Jonas

Abstract

This paper analyzes the accuracy of cost estimates for Swedish transport infrastructure projects 2004-2022, discusses causes of cost overruns, and suggests remedies. Cost estimates for all projects in the national investment plans 2010-2022 are tracked from early planning to completion. Final costs for all projects finished 2004-2022 are compared to decision-stage cost estimates. Results show that cost estimates increase considerably during the planning stages, on average, while cost estimates at the final decision stage are close to final costs, on average. Cost escalations during the planning stage are not uniform, however: the distribution of cost changes is highly skewed with a long right tail. The reason that final costs tend to exceed early cost estimates is that project decisions are effectively locked in before projects’ costs and benefits have been thoroughly assessed. Lock-in of premature decisions does not only cause cost overruns; even worse, it distorts project selection and design, reduces incentives to search for more cost-efficient designs, and increases opportunities and incentives for project beneficiaries to underestimate costs and overestimate benefits. Several ways to tackle these problems are suggested.

Suggested Citation

  • Eliasson, Jonas, 2024. "Cost overruns of infrastructure projects – distributions, causes and remedies," MPRA Paper 122862, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:122862
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/122862/1/MPRA_paper_122862.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hans Lind & Fredrik Brunes, 2015. "Explaining cost overruns in infrastructure projects: a new framework with applications to Sweden," Construction Management and Economics, Taylor & Francis Journals, vol. 33(7), pages 554-568, July.
    2. Odeck, James, 2004. "Cost overruns in road construction--what are their sizes and determinants?," Transport Policy, Elsevier, vol. 11(1), pages 43-53, January.
    3. Cavalieri, Marina & Cristaudo, Rossana & Guccio, Calogero, 2019. "On the magnitude of cost overruns throughout the project life-cycle: An assessment for the Italian transport infrastructure projects," Transport Policy, Elsevier, vol. 79(C), pages 21-36.
    4. Eliasson, Jonas, 2023. "Tillbaka till framtiden: en nygammal planprocess [Back to the future: a renewed infrastructure planning process]," MPRA Paper 118658, University Library of Munich, Germany.
    5. Bent Flyvbjerg, 2009. "Survival of the unfittest: why the worst infrastructure gets built--and what we can do about it," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(3), pages 344-367, Autumn.
    6. Catalão, Francisco Pinheiro & Cruz, Carlos Oliveira & Sarmento, Joaquim Miranda, 2019. "The determinants of cost deviations and overruns in transport projects, an endogenous models approach," Transport Policy, Elsevier, vol. 74(C), pages 224-238.
    7. James Odeck, 2019. "Variation in cost overruns of transportation projects: an econometric meta-regression analysis of studies reported in the literature," Transportation, Springer, vol. 46(4), pages 1345-1368, August.
    8. Bent Flyvbjerg, 2014. "What You Should Know About Megaprojects, and Why: An Overview," Papers 1409.0003, arXiv.org.
    9. Marina Cavalieri & Rossana Cristaudo & Calogero Guccio, 2019. "Tales on the dark side of the transport infrastructure provision: a systematic literature review of the determinants of cost overruns," Transport Reviews, Taylor & Francis Journals, vol. 39(6), pages 774-794, November.
    10. Nilsson, Jan-Eric, 2022. "The Weak Spot of Infrastructure BCA: Cost Overruns in Seven Road and Railway Construction Projects," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 13(2), pages 224-246, July.
    11. 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.
    12. Chong, Uven & Hopkins, Omar, 2016. "An international experience on the evolution of road costs during the project life cycle," Transport Policy, Elsevier, vol. 48(C), pages 60-66.
    13. Morten Welde & James Odeck, 2017. "Cost escalations in the front-end of projects – empirical evidence from Norwegian road projects," Transport Reviews, Taylor & Francis Journals, vol. 37(5), pages 612-630, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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).
    2. Molinari, Laura & Haezendonck, Elvira & Mabillard, Vincent, 2023. "Cost overruns of Belgian transport infrastructure projects: Analyzing variations over three land transport modes and two project phases," Transport Policy, Elsevier, vol. 134(C), pages 167-179.
    3. 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.
    4. Cavalieri, Marina & Cristaudo, Rossana & Guccio, Calogero, 2019. "On the magnitude of cost overruns throughout the project life-cycle: An assessment for the Italian transport infrastructure projects," Transport Policy, Elsevier, vol. 79(C), pages 21-36.
    5. Eliasson, Jonas, 2023. "Cost overruns in Swedish infrastructure projects," MPRA Paper 120340, University Library of Munich, Germany.
    6. Flyvbjerg, Bent & Ansar, Atif & Budzier, Alexander & Buhl, Søren & Cantarelli, Chantal & Garbuio, Massimo & Glenting, Carsten & Holm, Mette Skamris & Lovallo, Dan & Lunn, Daniel & Molin, Eric & Rønnes, 2018. "Five things you should know about cost overrun," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 174-190.
    7. Love, Peter E.D. & Ika, Lavagnon A. & Matthews, Jane & Li, Xinjian & Fang, Weili, 2021. "A procurement policy-making pathway to future-proof large-scale transport infrastructure assets," Research in Transportation Economics, Elsevier, vol. 90(C).
    8. Love, Peter E.D. & Ika, Lavagnon A., 2021. "The ‘context’ of transport project cost performance: Insights from contract award to final construction costs," Research in Transportation Economics, Elsevier, vol. 90(C).
    9. 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.
    10. Rebecca Vine, 2020. "Riskwork in the construction of Heathrow Terminal 2," SPRU Working Paper Series 2020-20, SPRU - Science Policy Research Unit, University of Sussex Business School.
    11. Ika, Lavagnon A., 2018. "Beneficial or Detrimental Ignorance: The Straw Man Fallacy of Flyvbjerg’s Test of Hirschman’s Hiding Hand," World Development, Elsevier, vol. 103(C), pages 369-382.
    12. Lehtonen, Markku, 2019. "Ecological Economics and Opening up of Megaproject Appraisal: Lessons From Megaproject Scholarship and Topics for a Research Programme," Ecological Economics, Elsevier, vol. 159(C), pages 148-156.
    13. James Odeck, 2019. "Variation in cost overruns of transportation projects: an econometric meta-regression analysis of studies reported in the literature," Transportation, Springer, vol. 46(4), pages 1345-1368, August.
    14. Dotti, Nicola Francesco, 2018. "Knowledge that matters for the ‘survival of unfittest’: The case of the new Brussels' rail junction," Transport Policy, Elsevier, vol. 63(C), pages 131-140.
    15. Francisco Pinheiro Catalão & Carlos Oliveira Cruz & Joaquim Miranda Sarmento, 2023. "The entanglement of time and cost deviations in public projects," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(1), pages 241-272, March.
    16. 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.
    17. Moschouli, Eleni & Soecipto, Raden Murwantara & Vanelslander, Thierry, 2019. "Cost performance of transport infrastructure projects before and after the global financial crisis (GFC): Are differences observed in the conditions of project performance?," Research in Transportation Economics, Elsevier, vol. 75(C), pages 21-35.
    18. Vilkkumaa, Eeva & Liesiö, Juuso, 2022. "What causes post-decision disappointment? Estimating the contributions of systematic and selection biases," European Journal of Operational Research, Elsevier, vol. 296(2), pages 587-600.
    19. Odeck, James & Kjerkreit, Anne, 2019. "The accuracy of benefit-cost analyses (BCAs) in transportation: An ex-post evaluation of road projects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 120(C), pages 277-294.
    20. Callegari, C. & Szklo, A. & Schaeffer, R., 2018. "Cost overruns and delays in energy megaprojects: How big is big enough?," Energy Policy, Elsevier, vol. 114(C), pages 211-220.

    More about this item

    Keywords

    cost overruns; transport infrastructure; project management; decision processes; transport policy;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:122862. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.