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Cost overrun is common in had overrun, overruns of 50 to 100 percent were common, overrun was found in each of 20 nations and five continents covered by the study, and overrun had been constant for the 70 years for which data were available. For IT Projects an industry study by the Standish Group (2004) found that average cost overrun was 43 percent, 71 percent of projects were over budget, over time, and under Scope , and total waste was estimated at US$55 billion per year in the US alone. Spectacular examples of cost overrun are the Suez Canal with 1,900 percent, the Sydney Opera House with 1,400 percent, and the Concorde supersonic aeroplane with 1,100 percent. The cost overrun of Boston's Big Dig was 275 percent, or US$11 billion. The cost overrun for the Channel Tunnel between the UK and France was 80 percent for Construction costs and 140 percent for Financing costs. Three types of , Psychological , and Political - Economic . Technical explanations account for cost overrun in terms of imperfect Forecasting techniques, inadequate data, etc. Psychological explanations account for overrun in terms of Optimism Bias with forecasters. Finally, political-economic explanations see overrun as the result of strategic Misrepresentation of budgets. Cost overrun is typically calculated in one of two ways. Either as a Percentage , namely actual cost minus budgeted cost, in percent of budgeted cost. Or as a Ratio , viz. actual cost divided by budgeted cost. For example, if the budget for building a new bridge was $100 million and the actual cost was $150 million then the cost overrun may be expressed as 50 percent or by the ratio 1.5. LIST OF PROJECTS WITH LARGE COST OVERRUNS
SEE ALSO SOURCES AND FURTHER READINGS Flyvbjerg, Bent, Nils Bruzelius, and Werner Rothengatter, Megaprojects and Risk: An Anatomy of Ambition (Cambridge University Press, 2003). Flyvbjerg, Bent, Mette K. Skamris Holm, and Søren L. Buhl, 2002, "Underestimating Costs in Public Works Projects: Error or Lie?" Journal of the American Planning Association, vol. 68, no. 3, 279-295. Standish Group, 2004. CHAOS Report (West Yarmouth, MA: Author) UK Department for Transport, 2004. Procedures for Dealing with Optimism Bias in Transport Planning: Guidance Document (London). EXTERNAL LINKS Journal of the American Planning Association: {Link without Title} UK Department for Transport: {Link without Title} UK Treasury: {Link without Title} Dictionary: {Link without Title} Dictionary: {Link without Title} |
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