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The investment project pipeline: cost escalation, lead time, success, failure and speed

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  • Kenneth W Clements
  • Jiawei Si

Abstract

As they involve expectations about the future and long lead times for planning and construction, the evolution of investment projects is usually complex and volatile. This paper analyses an important aspect of this volatility by studying the nature of the investment process, from the initial bright idea to the final construction and operational phase of a project. We refer to this process as the ‘project pipeline’. Using a rich source of information on recent Australian resource development projects, an index-number approach is employed to measure the escalation of costs of projects in the pipeline and the time spent there (the lead time). The determinants of the probability of ultimate success of projects is analysed with a binary choice model. Finally, a Markov chain approach is used to model the transitions of projects from one stage in the pipeline to the next, and to examine the implications of regulatory reform that have the effect of speeding up the flow of projects.

Suggested Citation

  • Kenneth W Clements & Jiawei Si, 2011. "The investment project pipeline: cost escalation, lead time, success, failure and speed," Australian Journal of Management, Australian School of Business, vol. 36(3), pages 317-348, December.
    • Handle: RePEc:sae:ausman:v:36:y:2011:i:3:p:317-348
    DOI: 10.1177/0312896211427322
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    References listed on IDEAS

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    1. Flyvbjerg,Bent & Bruzelius,Nils & Rothengatter,Werner, 2003. "Megaprojects and Risk," Cambridge Books, Cambridge University Press, number 9780521009461.
    2. Kenneth W Clements & Jiawei Si, 2010. "The Investment Project Pipeline Cost Escalation, Lead-Time, Success, Failure And Speed1," Economics Discussion / Working Papers 10-25, The University of Western Australia, Department of Economics.
    3. Kenneth W Clements & Simon Mongey & Jiawei Si, 2010. "The Dynamics of New Resource Projects a Progress Report," Economics Discussion / Working Papers 10-05, The University of Western Australia, Department of Economics.
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    Cited by:

    1. Kenneth Clements & Liang Li, 2017. "Understanding resource investments," Applied Economics, Taylor & Francis Journals, vol. 49(20), pages 1950-1962, April.
    2. Kenneth W. Clements & Jiawei Si & Thomas Simpson, 2016. "Understanding New Resource Projects," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 584-600, September.
    3. Kenneth W. Clements & Liang Li, 2014. "Valuing Resource Investments," Economics Discussion / Working Papers 14-27, The University of Western Australia, Department of Economics.

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