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Quality Control and Due Diligence in Project Management: Getting Decisions Right by Taking the Outside View

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  • Bent Flyvbjerg

Abstract

This paper explores how theories of the planning fallacy and the outside view may be used to conduct quality control and due diligence in project management. First, a much-neglected issue in project management is identified, namely that the front-end estimates of costs and benefits--used in the business cases, cost-benefit analyses, and social and environmental impact assessments that typically support decisions on projects--are typically significantly different from actual ex post costs and benefits, and are therefore poor predictors of the actual value and viability of projects. Second, it is discussed how Kahneman and Tversky's theories of the planning fallacy and the outside view may help explain and remedy this situation through quality control of decisions. Third, it is described what quality control and due diligence are in the context of project management, and an eight-step procedure is outlined for due diligence based on the outside view. Fourth, the procedure is tested on a real-life, multibillion-dollar project, organized as a public-private partnership. Finally, Akerlof and Shiller's recent discussion in economics of "firing the forecaster" is discussed together with its relevance to project management. In sum, the paper demonstrates the need, the theoretical basis, a practical methodology, and a real-life example for how to de-bias project management using quality control and due diligence based on the outside view.

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  • Bent Flyvbjerg, 2013. "Quality Control and Due Diligence in Project Management: Getting Decisions Right by Taking the Outside View," Papers 1302.2544, arXiv.org.
  • Handle: RePEc:arx:papers:1302.2544
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    References listed on IDEAS

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    1. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    2. T Gardener & J Moffat, 2008. "Changing behaviours in defence acquisition: a game theory approach," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(2), pages 225-230, February.
    3. 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.
    4. Chantal C Cantarelli & Bent Flyvbjerg & Bert van Wee & Eric J E Molin, 2010. "Lock-in and its Influence on the Project Performance of Large-Scale Transportation Infrastructure Projects: Investigating the Way in Which Lock-in Can Emerge and Affect Cost Overruns," Environment and Planning B, , vol. 37(5), pages 792-807, October.
    5. Flyvbjerg, Bent, 2005. "Measuring inaccuracy in travel demand forecasting: methodological considerations regarding ramp up and sampling," Transportation Research Part A: Policy and Practice, Elsevier, vol. 39(6), pages 522-530, July.
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