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Thursday, June 26, 2014

Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining and Preventing Executive Disaster


Date posted: March 8, 2013; Last revised: June 12, 2013

Bent Flyvbjerg

University of Oxford - Said Business School

Massimo Garbuio

University of Sydney

Dan Lovallo

University of Sydney

February 2009

California Management Review, vol. 51, no. 2, pp. 170-193

"Over budget, over time, over and over again" appears to be an appropriate slogan for large, complex infrastructure projects. This article explains why cost, benefits, and time forecasts for such projects are systematically over-optimistic in the planning phase. The underlying reasons for forecasting errors are grouped into three categories: delusions or honest mistakes; deceptions or strategic manipulation of information or processes; or bad luck. Delusion and deception have each been addressed in the management literature before, but here they are jointly considered for the first time. They are specifically applied to infrastructure problems in a manner that allows both academics and practitioners to understand and implement the suggested corrective procedures. The article provides a framework for analyzing the relative explanatory power of delusion and deception. It also suggests a simplified framework for analyzing the complex principal-agent relationships that are involved in the approval and construction of large infrastructure projects, which can be used to improve forecasts. Finally, the article illustrates reference class forecasting, an outside view de-biasing technique that has proven successful in overcoming both delusion and deception in private and public investment decisions.
Number of Pages in PDF File: 25

Keywords: Project management, forecasting, cost control, strategic planning
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