Understanding cost in public works

This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used todecide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefitanalyses produced by project promoters and their analysts.
Flyvbjerg is a professor of planning with the Department of Development and Planning, Aalborg University, Denmark. He is founder and director of the university’s research program on transportation infrastructure planning and was twice a Visiting Fulbright Scholar to the U.S. His latest books are Rationality and Power (University of ChicagoPress, 1998) and Making Social Science Matter (Cambridge University Press, 2001). He is currently working on a book about megaprojects and risk (Cambridge University Press). Holm is an assistant professor of planning with the Department of Development and Planning, Aalborg University, and a research associate with the university’s research program on transportation infrastructure planning. Her maininterest is economic appraisal of projects. Buhl is an associate professor with the Department of Mathematics, Aalborg University, and an associate statistician with the university’s research program on transportation infrastructure planning. Journal of the American Planning Association, Vol. 68, No. 3, Summer 2002. © American Planning Association, Chicago, IL.

Underestimating Costs in PublicWorks Projects
Error or Lie?
Bent Flyvbjerg, Mette Skamris Holm, and Søren Buhl

omparative studies of actual and estimated costs in transportation infrastructure development are few. Where such studies exist, they are typically single-case studies or they cover a sample of projects too small to allow systematic, statistical analyses (Bruzelius et al., 1998; Fouracre et al., 1990; Hall, 1980;Nijkamp & Ubbels, 1999; Pickrell, 1990; Skamris & Flyvbjerg, 1997; Szyliowicz & Goetz, 1995; Walmsley & Pickett, 1992). To our knowledge, only one study exists that, with a sample of 66 transportation projects, approaches a large-sample study and takes a first step toward valid statistical analysis (Merewitz, 1973a, 1973b).1 Despite their many merits in other respects, these studies have notproduced statistically valid answers regarding the question of whether one can trust the cost estimates used by decision makers and investors in deciding whether or not to build new transportation infrastructure. Because of the small and uneven samples used in existing studies, different studies even point in opposite directions, and researchers consequently disagree regarding the credibility of costestimates. Pickrell (1990), for instance, concludes that cost estimates are highly inaccurate, with actual costs being typically much higher than estimated costs, while Nijkamp and Ubbels (1999) claim that cost estimates are rather correct. Below we will see who is right. The objective of the study reported here was to answer the following questions in a statistically valid manner: How common andhow large are differences between actual and estimated costs in transportation infrastructure projects? Are the differences significant? Are they simply random errors? Or is there a statistical pattern to the differences that suggests other explanations? What are the implications for policy and decision making regarding transportation infrastructure development?

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APA Journal ◆ Summer 2002 ◆...