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Cost Overrun at the Norwegian Continental Shelf: The Element of Surprise

Author

Listed:
  • Atle Oglend
  • Petter Osmundsen
  • Sindre Lorentzen

Abstract

We examine drivers of cost overruns in Norwegian development projects in the oil and gas sector. The multivariate longitudinal econometric analysis employs a unique and detailed dataset consisting of 80 different projects between 2000 and 2015. Among the significant results, we find that the unexpected change in economic activity has a positive effect on the overruns; there is a considerable positive momentum in the transitional cost overruns; more experienced operators tend to incur less overruns; finally, that the size of the investment of the projects has a positive impact on the overruns. Further, we find evidence that the current economic activity matters to an extent, but it is the unexpected change in activity that is the pivotal factor.

Suggested Citation

  • Atle Oglend & Petter Osmundsen & Sindre Lorentzen, 2016. "Cost Overrun at the Norwegian Continental Shelf: The Element of Surprise," CESifo Working Paper Series 5886, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5886
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp5886.pdf
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    References listed on IDEAS

    as
    1. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
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    3. Yakubu Adisa Olawale & Ming Sun, 2010. "Cost and time control of construction projects: inhibiting factors and mitigating measures in practice," Construction Management and Economics, Taylor & Francis Journals, vol. 28(5), pages 509-526.
    4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    5. Bent Flyvbjerg & Mette K. Skamris holm & Søren L. Buhl, 2003. "How common and how large are cost overruns in transport infrastructure projects?," Transport Reviews, Taylor & Francis Journals, vol. 23(1), pages 71-88, January.
    6. Staats, Bradley R. & Milkman, Katherine L. & Fox, Craig R., 2012. "The team scaling fallacy: Underestimating the declining efficiency of larger teams," Organizational Behavior and Human Decision Processes, Elsevier, vol. 118(2), pages 132-142.
    7. Odeck, James, 2004. "Cost overruns in road construction--what are their sizes and determinants?," Transport Policy, Elsevier, vol. 11(1), pages 43-53, January.
    8. Osmundsen, Petter & Roll, Kristin Helen & Tveterås , Ragnar, 2009. "Exploration drilling productivity at the Norwegian Shelf," UiS Working Papers in Economics and Finance 2009/34, University of Stavanger.
    9. Grieco, Daniela & Hogarth, Robin M., 2009. "Overconfidence in absolute and relative performance: The regression hypothesis and Bayesian updating," Journal of Economic Psychology, Elsevier, vol. 30(5), pages 756-771, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    cost overrun; cost estimation; estimation error;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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