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Explaining cost overruns in infrastructural projects: A new framework with applications to Sweden

  • Brunes, Fredrik

    ()

    (Department of Real Estate and Construction Management, Royal Institute of Technology)

  • Lind, Hans

    ()

    (Department of Real Estate and Construction Management, Royal Institute of Technology)

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    The first part of the article presents a new framework for analyzing cost overruns. It has a descriptive part in two dimensions: when during the process that the cost overrun arose and what part of the cost function was responsible (change in the product, change in quantities of the inputs and change in price of inputs. The explanatory part is a development of Flyvbjerg´s theories and identifies four possible explanations: political/strategic aspects, psychological aspects, competence related and bad luck. It is argued that Flyvbjerg´s technological explanation belongs to the descriptive part. The empirical part of the paper uses this framework to analyze cost overruns in infrastructure projects in Sweden, primarily based on a questionnaire to experienced project managers. The results is that most of the cost overruns occur in the planning stages up to the final design and are related to design changes and to increases in the amount of inputs needed because of technical and administrative problems. Of the explanatory factors there is most support for lack of competence and optimism bias.

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    File URL: http://kth.diva-portal.org/smash/get/diva2:706121/FULLTEXT01.pdf
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    Paper provided by Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin), Royal Institute of Technology in its series Working Paper Series with number 14/1.

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    Length: 40 pages
    Date of creation: 21 Mar 2014
    Date of revision:
    Handle: RePEc:hhs:kthrec:2014_001
    Contact details of provider: Postal: Department of Real Estate and Construction Management, Royal Institute of Technology, Brinellvägen 1, 100 44 Stockholm, Sweden
    Web page: http://www.kth.se/en/abe/inst/fob

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    1. Chantal C. Cantarelli & Eric J. E. Molin & Bert van Wee & Bent Flyvbjerg, 2013. "Characteristics of Cost Overruns for Dutch Transport Infrastructure Projects and the Importance of the Decision to Build and Project Phases," Papers 1307.2178, arXiv.org, revised Jan 2015.
    2. Chantal C. Cantarelli & Caspar G. Chorus & Scott W. Cunningham, 2013. "Explaining Cost Overruns of Large-Scale Transportation Infrastructure Projects using a Signalling Game," Papers 1307.2180, arXiv.org.
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