Incorporating Risk of Cost Overruns into Transportation Capital Projects Decision-Making
AbstractCost overruns have been shown to occur in a significant number of transportation investment projects. While there is some literature on the causes of risk of cost overruns in transportation capital investment, little is available on how properly to estimate this risk and how to incorporate risk estimates into project assessment. Thus, the main objectives of this paper are to propose methods for estimating the risk of cost overruns and suggest ways to incorporate it into project decision-making. To these ends we propose distribution-fitting models to elicit the probabilities of cost overruns. These probabilities, in turn, are used as inputs into a decision tree model of project selection. Using a database, made up of observations on a large number of highway projects, the paper shows how empirically this analysis can be carried out. A key conclusion is that the approach proposed here can provide realistic risk estimates, thereby reducing subjective biases in project cost benefit analysis. © 2011 LSE and the University of Bath
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by London School of Economics and University of Bath in its journal Journal of Transport Economics and Policy (JTEP).
Volume (Year): 45 (2011)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.bath.ac.uk/e-journals/jtep
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Robin Lindsey & André De Palma, 2013. "Cost Recovery from Congestion Tolls with Long-run Uncertainty," Working Papers hal-00784299, HAL.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.