Decision-Making on Mega-Projects

Decision-Making on Mega-Projects

Cost–benefit Analysis, Planning and Innovation

Transport Economics, Management and Policy series

Edited by Hugo Priemus, Bent Flyvbjerg and Bert van Wee

This book enlarges the understanding of decision-making on mega-projects and suggest recommendations for a more effective, efficient and democratic approach. Authors from different scientific disciplines address various aspects of the decision-making process, such as management characteristics and cost–benefit analysis, planning and innovation and competition and institutions. The subject matter is highly diverse, but certain questions remain at the forefront. For example, how do we deal with protracted preparation processes, how do we tackle risks and uncertainties, and how can we best divide the risks and responsibilities among the private and public players throughout the different phases of the project?

Chapter 7: Public Planning of Mega-Projects: Overestimation of Demand and Underestimation of Costs

Bent Flyvbjerg

Subjects: business and management, operations management, development studies, development economics, economics and finance, development economics, public sector economics, regional economics, transport, environment, transport, urban and regional studies, transport


Bent Flyvbjerg 7.1 INTRODUCTION Despite the enormous sums of money being spent on transportation infrastructure, surprisingly little systematic knowledge exists about the costs, benefits and risks involved. The literature lacks statistically valid answers to the central and self-evident question of whether transportation infrastructure projects perform as forecasted. When a project underperforms, this is often explained away as an isolated instance of unfortunate circumstance; it is typically not seen as the particular expression of a general pattern of underperformance in transportation infrastructure projects. Because knowledge is lacking in this area of research, until now it has been impossible to validly refute or confirm whether underperformance is the exception or the rule. Knowledge about demand risk, cost risk and compound risk is crucial to planners and decision-makers when developing projects and deciding which to build and which not. For transportation infrastructure projects, the benefits and costs involved often run into hundreds of millions of dollars, with risks being correspondingly high. Estimates of the financial viability of projects are heavily dependent on the accuracy of traffic demand and construction cost forecasts (Pickrell, 1990; Richmond, 1998). Such forecasts are also the basis for socioeconomic and environmental appraisal of transportation infrastructure projects. According to the experiences gained with the accuracy of demand and cost forecasting in the transportation sector, there is evidence that such forecasting, despite all scientific progress in modelling, is a major source of uncertainty and risk in the development and management of large infrastructure projects (Van Wee,...

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