The Processes of Public Megaproject Cost Estimation: The Inaccuracy of Reference Class Forecasting

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Governments worldwide are introducing “reference class forecasting” to improve the accuracy of megaproject cost estimation and thus ultimately the ability to deliver megaprojects on budget without altering the project specifications and/or changing the time schedule. In contrast to current findings, which show that reference class forecasting leads to more accurate project cost estimates by counteracting human cognitive and organizational biases, this article indicates the contrary, that reference class forecasting does not lead to more accurate cost estimates. The article theorizes that reference class forecasting fails to produce more accurate project cost estimates because estimates are always a relational network effect of human and nonhuman actors’ “biased” efforts to establish them. This finding challenges the existing literature by pointing to a more complex understanding of project cost estimation and biases. The finding is based on a longitudinal case study of a 23.6-billion-kroner Danish public megaproject, which failed to meet its objectives despite the application of reference class forecasting.
Original languageEnglish
JournalFinancial Accountability and Management
Volume35
Issue number4
Pages (from-to)337-352
Number of pages16
ISSN0267-4424
DOIs
Publication statusPublished - Nov 2019

Bibliographical note

Published online: 1 July, 2019

Keywords

  • Actor–Network Theory
  • Megaproject
  • Project cost estimation
  • Public budgeting
  • Reference class forecasting

Cite this

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abstract = "Governments worldwide are introducing “reference class forecasting” to improve the accuracy of megaproject cost estimation and thus ultimately the ability to deliver megaprojects on budget without altering the project specifications and/or changing the time schedule. In contrast to current findings, which show that reference class forecasting leads to more accurate project cost estimates by counteracting human cognitive and organizational biases, this article indicates the contrary, that reference class forecasting does not lead to more accurate cost estimates. The article theorizes that reference class forecasting fails to produce more accurate project cost estimates because estimates are always a relational network effect of human and nonhuman actors’ “biased” efforts to establish them. This finding challenges the existing literature by pointing to a more complex understanding of project cost estimation and biases. The finding is based on a longitudinal case study of a 23.6-billion-kroner Danish public megaproject, which failed to meet its objectives despite the application of reference class forecasting.",
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The Processes of Public Megaproject Cost Estimation : The Inaccuracy of Reference Class Forecasting. / Neerup Themsen, Tim .

In: Financial Accountability and Management, Vol. 35, No. 4, 11.2019, p. 337-352.

Research output: Contribution to journalJournal articleResearchpeer-review

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